Toy Companies Weigh In: 1P or 3P?

1P vs 3P

With consumers continuing to opt for buying online rather than in-store during the COVID-19 pandemic, having an online presence is now more important than ever for toy companies.

With retailers such as Amazon, Target, and Walmart, manufacturers either have a one-party (1P) relationship or third-party (3P) relationship.

But what do these respective relationships mean? And is one better than the other?

Several toy manufacturers — some who sell 1P only, some who sell 3P only, and some who do both — shared their online selling experiences with TFE and discussed the advantages and disadvantages of each.

Who allows third-party selling?

In the 1P category, merchants sell their product to the retailer —such as Amazon — which then sells to the consumers. In this case, the retailer makes decisions about things like pricing or how many products they will order.

3P merchants, on the other hand, sell directly to the consumer. In this case, merchants have more control over selling.

Amazon offers a third-party selling option through its Amazon Marketplace, as does Walmart through its Walmart marketplace and Target through Target+.

Pros and cons to each

Several companies told TFE that their 3P selling method allows them to exercise greater control over pricing.

“This method allows us to control our pricing,” says Curtis McGill, Chief Financial Expert at Hey Buddy Hey Pal, which sells on Amazon and Walmart as a third-party merchant. “Amazon has been notorious in taking product and lowering the sales price to root out any competitors. Unfortunately that competitor could be you at another retailer or at another online site. Controlling Amazon sales price is key to keeping your product relevant in the brick and mortar sector.”

Sanjay Chandiram, co-founder and CEO of USA Toyz, says that better control of pricing and the ability to showcase the company’s customer service are the two main reasons why they sell 3P on Walmart and Amazon.

“When we market new products, selling directly to our consumers allows us to launch them at a more favorable pricing, and get positive reviews from our customers while our customer service always stands by to answer customers’ inquiries,” he says. “The strategy is to make our way up the rankings as fast as possible, even with some PPC spending, to secure our spot on the marketplace.”

Isamar Margareten, CEO of Nesstoy, also pointed out the relationship with the customer that selling 3P allows. Nesstoy has sold 1P through Amazon’s vendor program, and now participates in Amazon as a third-party seller.

“As a 3P seller, we can drive our brand’s growth and direction the way we see fit. Our sales are stronger as a 3P seller and we can easily introduce and launch new items based on our customer feedback we constantly review. We find that taking this active role in our sales lets us be tapped into our customers and their needs,” Margareten says.

Steve Rosen, Vice President of CreateOn, echoes, “The biggest issue I have with going 1P is that you can lose touch with your customers and we pride ourselves on customer service at CreateOn so that is a tough thing for us to give up.” CreateOn has both 1P and 3P relationships with online retailers such as Amazon, Maisonette, and Target. com, and also sells on its own site.

Selling 1P can also pose challenges as manufacturers try to make their toys stand out in the crowd.

“My feeling honestly is if you have a great product it doesn’t matter which way you sell; you just need the customer to find you. I see that being the biggest issue right now in the toy industry,” Rosen says. “Amazon alone probably sells over one hundred thousand different toys, so the tough part is how to separate yourself from the crowd.”

Meanwhile, Chandiram notes, “The main risk of selling 1P on these marketplaces is the minimal control we get on the product listings and pricing. Some toys we sell may have similarities to other products on the marketplace, so we need a better control on how to display the listing.”

According to Josh Loerzel, VP, Sales and Marketing at Hog Wild Toys, selling online, as a third-party seller specifically, also provides more flexibility with product launch timing.

“We can list new products any time we want when we are managing the listing with our distribution partner directly,” he says.

In CreateOn’s case, Rosen says that selling direct- to-consumer allows the company to “constantly and quickly innovate and create new products.”

“We have created a model where we hold little to no inventory so we can create a product on demand; if one doesn’t work, we can move onto the next one,” he says.

At the same time, there can be extra costs involved with being a third-party seller. Margareten says it requires “a specialized team specifically trained and designated to your marketplace listings, meaning a higher payroll. Without constant review and work, you won’t be successful at staying at the top of your search and ranking category.”

And McGill points out that “3P does have a higher associated cost in shipping and seller referral fees charged by the online provider.”

Bret Faber, Head of Sales for Plus-Plus, says that while 3P selling is easier, it is “generally less cost-effective.”

“If maintaining MAP pricing is a goal…3P provides more challenges,” he says. “1P usually provides better margins while allowing better control of the brand presentation and managing pricing.”

Diggin Active presently maintains a 1P relationship with most of its online retailers, says co-founder Jenny Stern.

“For 1P selling, in the case of Amazon, one benefit is consumer confidence in Amazon as a seller. The consumer knows they will receive their shipment quickly and are further incentivized if they are a Prime member,” she says. “We have control over our listings and brand page, and in addition there is item optimization and Amazon’s marketing on the back end.”

For Epoch Everlasting Play, which distributes products online as a first-party seller, there is also the benefit of the retailer’s marketing.

“Directing the brand experience for the consumer is critical, as our brand is based in storytelling and each product sold is part of a larger world, so our retail pages need to showcase that. If there is an issue that pops up, we want to be able to correct that immediately, so working with the retailer is valuable,” says Paul Keating, VP of Sales and Marketing Strategy for Epoch.

Keating adds that those retail pages also serve as a marketing platform for brick and mortar, since Epoch’s consumers are becoming increasingly omni-channel shoppers.

“Ideally, our product pages online draw the consumer into the world of Calico and connect them to video streaming content, not just offer a product at a price with a list of features,” he says.

Which is the right fit?

So which is better: 1P or 3P? It depends, because each company has the capacity for something different.

Some companies may opt for a hybrid approach.

Currently, TOMY maintains 1P relationships with all its online retailers and marketplaces. Chief Brand and Commercial Officer, Vinnie D’Alleva, says the company is exploring direct-to-consumer options as well.

“We’ve learned we have to be flexible and creative in order to launch products in all channels. We don’t have one preferred method — we utilize various strategies, based on the toy and baby brands we have,” he says. TOMY recently acquired Fat Brain Toys, which D’Alleva says will allow the company to “build out our understanding and capabilities in” 3P selling.

“Their model may help us scale up on other brands with the benefit being the cost of doing business is less expensive and we get more customer data.

Faber suggests that 3P could be a better option for “new sellers that may not have the experience, understanding or resources to manage selling 1P.”

Melvin Wells, President and CEO of Sunny Days Entertainment, notes: “Some companies are positioned to use a 3-PL, some direct, and some through the retailers programs.”

And Keating points out, “certainly the choice to go 1P or 3P is very contextual.”

The consensus seems to be that there is no one-size-fitsall solution to selling online. The best method is different for each individual company.