Online selling models: everything you need to know
With today's thriving eCommerce industry, manufacturers can reach millions of customers with a click of a button. You can sell virtually anything on leading eCommerce platforms like Amazon, eBay, Walmart, Etsy, Target, and more.
However, eCommerce is an entirely different world from a brick-and-mortar store. Your online selling success depends on the type of strategy you choose. Here are the three main types of eCommerce selling models for manufacturers today.
3 types of eCommerce selling models
Online selling models offer different wholesaler-retailer relationships for mutual returns. eCommerce platforms have three main models: first-party (1P), third party (3P), and hybrid.
What is a 1P Model?
In the first party or 1P model, the manufacturer is the wholesaler, while the eCommerce provider, such as Amazon, is the retailer. Amazon sends you the purchase order for your products, buys them wholesale, and sets their price on their platform. This is similar to a traditional brick-and-mortar distribution method. On the eCommerce site, 1P products bear the mark of "sold and shipped from Amazon."
What is a 3P Model?
In the third party or 3P model, the manufacturer is the retailer who uses an eCommerce platform as a marketplace. The retailer sells directly to customers and has complete ownership of the product. 3P products show the same vendor name in the "shipped by" and "sold by" sections.
What is a Hybrid Model?
In the hybrid model, the manufacturer is both the wholesaler and retailer. You supply your goods to the eCommerce store (1P) while at the same time selling them directly to your customers (3P). This type of sales model requires top-notch inventory management and a strong brand identity.
Pros and cons of each eCommerce selling model
Advantages of 1P:
Products sold directly by a platform like Amazon or Walmart have higher credibility in the marketplace
Manufacturers need to only focus on fulfilling the platform's purchase orders; the platform handles all the merchandising and advertising
Inventory risk reduces because all products sell out under the eCommerce platform's name
Manufacturers only pay a flat fee to join a 1P selling model
Disadvantages of 1P:
Manufacturers lose control over the pricing of their products. Selling at a wholesale price compared to retail price can hurt your margins
There is a risk of chargebacks if you struggle to maintain your stock or fulfill orders
If you use multiple platforms, you risk inconsistent branding. Each platform uses its marketing styles that may influence your brand
Competitive pricing across platforms may result in price cuts for your product
Advantages of 3P:
Manufacturers have complete control over their brands and pricing. You can:
Price your products to match the competition across different eCommerce platforms
Launch promotions and incentives to drive up sales.
Update product pages in case of rebranding or repackaging.
You gain higher margins with retail pricing
Order fulfillment perks like free and fast shipping work best for 3P sellers
Disadvantages of 3P:
Without the eCommerce brand name, manufacturers must build their reputations
All listings, optimizations, promotions, and ad campaigns must be from the manufacturer
eCommerce platforms charge fees for referrals, shipping, closing, and fulfillment, which cut into your bottom line
Offers and discounts on 3P products cannot match 1P offers like rollbacks to boost conversions
As sales increase, manufacturers may struggle to maintain 3P demands
Advantages of Hybrid:
Manufacturers can avoid stockouts. If their 1P inventory gets low, their 3P stock can cover the difference
There is no need to wait for the eCommerce platforms to upload or update their items
If you deal with products that eCommerce providers will not store in their warehouses, you can still sell them on their platforms. Use their Fulfilment by Merchant option to handle storage and delivery for yourself
Certain non-profitable products that you can still sell through the eCommerce platform. These products may be too costly for the platform to store and ship, but manufacturers can handle the logistics themselves
Disadvantages of Hybrid:
Managing both sides of 1P and 3P selling is much work. Both systems have different rules that the manufacturer must follow, from inventory management to taxes
eCommerce platforms have high demands in terms of customer satisfaction. Manufacturers risk penalties if they fail at customer support
The 1P and 3P products compete against each other. When the same product sells at retail and wholesale prices, it is hard to find a sustainable balance
1P, 3P, or Hybrid: finding the best fit
Before choosing any of these online sales models, consider your product type, target market, and overall supply chain. It's where strategic eCommerce partners come in.
You need an experienced eCommerce partner that knows the ins and outs of online selling platforms. Cymax Group Technologies is a leading 3P seller that optimizes the entire eCommerce process for you.
Cymax eCommerce uses proprietary technology to offer multichannel success on Amazon, Target, eBay, Houzz, Kroger, and more. To learn how Cymax integrates into your business, get in touch today.
