Third-party (3P) commerce offers brands and retailers the opportunity to grow profitably. As 3P commerce becomes the predominant business model, brands and retailers need to swiftly and accurately adjust their marketplace strategies. But what is 3P commerce and how does it differ from traditional first-party (1P) commerce?
What is 3P commerce?
Third-party commerce is different for retailers compared with brands. For retailers, 3P commerce helps them access unowned inventory. This is a business model where brands sell products directly to consumers through a retailer’s storefront, typically through a dropship or marketplace approach. This model shifts inventory risk away from retailers, who instead act as facilitators between brands and consumers. For brands, 3P commerce helps them extend their owned inventory to unowned channels. This allows brands to reach more consumers through a multichannel selling strategy.
Marketplaces like Amazon and Walmart have led the way, allowing brands to reach more consumers without the need for extensive inventory management. Consumers shopped on Amazon and Walmart marketplaces 30% more in 2023 compared with 2022, according to 1Worldsync.
What is 1P commerce?
First-party (1P) commerce is where retailers purchase products directly from brands or manufacturers and then sell those products to consumers. In this model, the retailer owns the inventory and is responsible for managing it. This traditional approach has been the foundation of retail for decades, but challenges include inventory risks and scalability.
Rithum offers a hybrid model enabling brands and retailers to combine elements of both 3P and 1P models. This allows brands and retailers to leverage their strengths while mitigating risks.
Differences between 3P and 1P commerce
Depending on your needs, there are benefits to both 3P and 1P commerce models.
Inventory ownership
- 3P commerce: Brands retain ownership of the inventory; retailer facilitates the sale.
- 1P commerce: Retailers purchase and own the inventory.
Risk and investment
- 3P commerce: Reduced financial risks for retailers because they do not hold the inventory.
- 1P commerce: Higher inventory risks and capital investment for retailers.
Scalability
- 3P commerce: Offers immense scalability, allowing brands to reach wider audiences without the limitations of physical inventory management.
- 1P commerce: Scalability can be challenging due to inventory and warehousing constraints.
Flexibility
- 3P commerce: More flexibility allows sellers to adapt quickly to market changes and consumer demands.
- 1P commerce: Less flexible because the retailer is often in possession of inventory.
3P commerce popularity is growing
Over the last two decades, 3P commerce has outpaced traditional 1P models, becoming the leading ecommerce approach for sellers of all sizes. Sellers’ margins are tightening.
According to Alix Partners, margins have been squeezed by 60% over the last decade. 3P commerce offers a sustainable and profitable strategy for businesses.
Amazon’s 3P business has grown twice as fast as its 1P commerce since the launch of its marketplace in 2000, according to Statista. This shift continues as consumer behavior continues to change, with more shoppers preferring the convenience and additional choices provided when shopping through marketplaces.
Challenges and solutions in 3P commerce
While 3P commerce continues to grow, managing a multichannel selling strategy can be complex and costly to sellers. Rithum offers an automated solution and a platform that supports over 40,000 global brands, retailers, and suppliers. Our unified commerce network streamlines complex technologies, offering expansive reach across multiple marketplaces while significantly reducing time-to-market. Brands and retailers can quickly expand product assortment, boost customer engagement and loyalty, and attract new customers.
By simplifying and optimizing technology, Rithum empowers brands and retailers to sell and expand with the risks associated with traditional inventory management. Our solutions enable quick adaptation to changing market conditions, supporting dynamic changes in business models without the long lead times typically associated with such shifts.
Learn how Rithum for Brands suite of tools can help your business grow profitably. Schedule a personal demo today.