Amazon 1P Vs 3P: How can these models work for international sellers in Brazil?

Named the world´s sixth largest company by Forbes Global 2000, Amazon is currently one of the best ways to sell your products and expand your business. Selling through the platform is a must for many brands. And the main reason is that the marketplace has built a huge customer base over the years.

According to our friend from Jungle Scout, as of 2022, Amazon sellers have broken down as follows:

  • 82% are 3P sellers
  • 21% are 1P sellers
  • 3% sell using both methods

Additionally, nearly 3.700 new brands sign up to Amazon every day. The retail giant has more than 300 million consumers all over the world with almost 3 billion monthly visits. It is known that in 2022, 66% of users start searching for their products on Amazon. No wonder so many merchants want to get into the platform.

If you are interested in selling through the platform, you must know that you can choose between two selling methods: a first-party (1P) relationship or a third-party (3P) relationship. In this article, we have provided an overview of the key differences and benefits of each of them.

AMAZON 1P

First-party sellers are better known as Amazon Sellers. This program handles selling products directly to Amazon as wholesale suppliers. See how it works:

  1. Suppliers negotiate purchase orders (POs) and ship products to Amazon’s warehouses.
  2. Product ownership transitions to Amazon.
  3. The marketplace marks products with the “Shipped and Sold by Amazon” seal.
  4. From then on, Amazon sets the unit prices and sells the products to customers.

1P sellers can manage POs using Supplier Central. Here, suppliers can manage POs and track shipments. In some cases, sellers can also update listings and even run ads on Amazon.

Of course, Amazon may charge extra fees for any concessions granted to vendors. For example: cooperatives, merchandising, advertising and chargebacks.

Please note that Amazon Vendors is an invite-only program, which sellers can obtain in a few ways:

  • Having a top status brand in the market.
  • Having high selling FBA or FBM products.
  • Requesting an invitation to the Supplier program.

Some merchants consider 1P the easiest way to sell on Amazon. The downside is that you give up almost all control to Amazon. We have put down a list of pros and cons so you can analyze all the possibilities.

PosCons
Get steady POs from Amazon, with no inventory forecasting requiredAmazon purchases at wholesale pricing, which may cut your profit margins
Flat structure for vendor fees and allowancesNo control over product pricing. This may affect the minimum advertised price (MAP) policy
Amazon takes care of listing optimization, customer service, logistics and distributionAmazon can modify Product listings without your branding approval
Earn the “Ships from and Sold by Amazon” badgeDependance on POs to maintain a presence in the marketplace

What is Amazon 3P?

Third-party brands are retail merchants who sell on Amazon. Unlike 1P sellers, 3P sellers retain most of the control of their Amazon store.

3P salespeople handle the product from the beginning to the end of the sales funnel. This means control over fulfillment, marketing, supply and delivery logistics.

There are two programs that 3P brands can use to sell on Amazon:

  • Fulfillment by Amazon (FBA). Amazon handles order fulfillment for a fee. Sellers focus on marketing, sales, and maintaining a healthy inventory.
  • Fulfillment by Merchant (FBM). Sellers handle fulfillment through their own means or through a logistics provider. It’s a great option to stay on top of quality control.

Vendor Central is the main hub for 3P vendors. Here, brands can take control of their Amazon business. Here’s what you can do:

  • Submit and update product listings
  • Adjust item prices
  • Set up Amazon Marketing Campaigns
  • Keep track of stock levels
  • Submit keywords to increase visibility
  • Review order and delivery status

Many merchants select 3P selling because it is a cost-effective way to start a business on Amazon. That doesn’t mean it’s an easy task, though.

ProsCons
Make retail profit margins, instead of wholesale marginsIt takes significant time and capital investments to handle logistics and marketing strategies
Control of Branding. This I skey to establishing a consistent identity on AmazonRequires Amazon SEO knowledge. This is crucial to improve product listing visibility and sales rate.
Full inventory management. You decide what products to sell, and how many.Pay monthly fees to Amazon. For example: referrals, fulfillment, storage and sponsored ads.
Modify product listings and promos how many.  Drop the “Ships from and Sold by Amazon” badge.
Pricing control. Sellers can adjust prices consistency to remain competitive.

It takes a lot of work to set up a third-party store on Amazon. Fortunately, you don’t have to do this alone.

JungleScout claims that 16% of 3P sellers work with an Amazon marketing agency. These allies offer various services to help new Amazon sellers get started. For example:

  • Brand and account setup
  • Product research and launches
  • Marketing strategy management
  • Competition Analysis

Amazon 1P vs 3P: What’s the Difference?

Pros and cons are somewhat subjective.

A seller can benefit by leaving most of the management to Amazon or they can be better off as self-managed brands. It all depends on the nature of your store. But above all, it’s about how involved you want to be with your ecommerce business.

So be sure to consider the following factors when choosing your Amazon seller model:

Brand identity

As we said, 1P sellers don’t have much to say about product branding. You can provide descriptions, images and marketing resources in advance. But in the end, Amazon has the final say. You will not control your product listings or prices.

3P sellers do the opposite. All product marketing falls into their hands. That means investing in branding, product research, SEO and more. In other words, you take charge of your Amazon strategy.

Diversification

1P sellers are not prohibited from selling on other markets. However, you may risk being excluded if one store sells at a lower price than the other.

This means that 1P sellers may be required to sell from a single e-commerce store. Therefore, you decrease the chances of increasing profits.

3P sellers control their prices. That way, they don’t run the risk of being excluded for offering cheaper deals on another site. Also, Amazon cannot stop them if they want to enter new markets.

Time is money

3P sellers can build an Amazon store from scratch. But it takes time, money and effort to do so.

1P sellers don’t have as many hassles. However, your dependence on Amazon can reduce your revenue.

Even going with FBA, 3P sellers still need to configure and prepare and package operations. Then comes inventory management, marketing, and customer service.

It sounds like a lot – because it is. But the greater your commitment, the better profits you will make.

*Article originally from AMZ Advisers

Now, let´s talk about what really matters for foreign companies that want to sell in Amazon Brazil.

WHAT CHANGES IF YOU ARE AN INTERNATIONAL COMPANY WANTING TO SELL IN AMAZON BRAZIL?

Amazon 1P in Brazil

To participate in Amazon’s 1P model in Brazil, you will first need to have a Brazilian Importer of Record, whether a subsidiary or a local partner, capable of importing and selling DDP products locally in the local currency, the Reais, to Amazon.

Indeed, Amazon Brazil does not take care of the import part, which is complex in Brazil, and a foreign company is not authorized to do customs clearance from abroad.

Only a local company with an import permit named RADAR is able to do this.

You will need a Brazilian company, with this RADAR permit, to import, clear customs and then sell the goods to Amazon.

The foreign seller will not be able to sell directly to Amazon, and will therefore sell to the Importer of Record, who will resell to Amazon. It’s a BtBtB business.

Amazon 3P in Brazil

The 3P model on Amazon Brazil is only possible for Brazilian, USA and Chinese sellers.

In the case of USA and Chinese sellers, the sale is made cross-border without the possibility of having a local stock in BraziL for the same reasons of inability to clear customs mentioned above.

Concretely, this means that a foreign company, cannot deliver DDP to a warehouse or a fulfillment center. And on their side, a warehouse or fulfillment center will not take this responsibility because it strongly commits the company and turn them as a kind of distributor.

Regarding cross-border sales, you should know that this system is not at all fluid in Brazil, especially for products above a CIF value, i.e. including international freight to Brazil, above of USD 50.

You will find full information in our page: E-commerce: direct shipping to Brazil from another country.

To sum up, investing in Amazon models in Brazil is a great solution to increase profit and expand your business. However, mainly if you are a foreign company wanting to sell in Brazil, make sure you have the best local partner to help you with all the import and fulfillment process. If you want to know more about it, talk to us.

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