Retail Fulfillment Models

1P (First Party)

1P refers to a first-party relationship with a retailer. With this selling model, you act as a wholesale supplier for the retailer, who will then sell your products to their end customers and take care of every aspect of fulfillment.

A common example of 1P is Amazon inviting you to sell your inventory to them, then Amazon sends you a purchase order to ship the inventory to Amazon (in other words, Amazon own your products).

Pros

• Very hands-off
• Minimized inventory risk
• Leave customer-facing operations to the retailer
• Consolidated fee structure to simplify and minimize cost

Cons

• No control over product pricing strategy
• Lower profit margins
• No control over inventory and product listings

3P (Third Party)

3P refers to a third-party relationship with the retailer. In this model, you use the online marketplace to sell directly to end customers and take care of the entire retail fulfillment process without the retailer’s help.

A common example of 3P is Amazon’s fulfillment method, FBM (Fulfilled By Merchant).

Pros

• More inventory control and flexibility
• Better control over product pricing
• Higher profit margins

Cons

• Requires more work and overhead, including fulfillment needs
• Needs expertise with listing optimization and marketing
• Involves more added fees

2P (Buy/Sell Model)

Alternatively, you can also opt for 2P, which is a hybrid model that involves listing your products to sell through a retail marketplace and leveraging the retailer’s services to fulfill your orders.

Here, you still retain control over your prices and listings but pay a fee to the retailer to fulfill the orders on your behalf.

A common example of 2P is Amazon’s fulfillment method, FBA (Fulfillment By Amazon).

→ A partner buys your inventory. → The partner manages operations, ads, listings, customer service, and logistics. → The risk is shared because the partner carries capital and is tied to your growth.