Ecommerce Selling Models: Advantages & Risks in an Exclusive Seller Relationship

John LeBaron

October 7, 2020

So you’ve got a product, and you’re trying to sell it on Amazon. You might be wondering, “How many sellers should I have?” Is more truly merrier? Or is being exclusive the better option?

The truth is that bigger isn’t always better in ecommerce. The more sellers you have, the harder it gets to control your brand online. This can lead to price erosion and create other nasty situations that eat into your brand’s profitability and ultimately its growth.

So what about a more exclusive relationship? When successful, an exclusive seller relationship on Amazon and other marketplaces can put all of the cards in your corner, give you maximum control of your brand, and help you offer a stellar customer experience that’s harder to maintain with a bigger pool of sellers. While having an exclusive Amazon seller isn’t for every brand, it may be a great fit for yours.

The most common ecommerce selling models

Before we dive into the advantages and risks of an exclusive seller relationship, it’s helpful to look at the other ecommerce selling models that are available to brands to get a sense of how an exclusive seller compares.

There are seven common ecommerce operating models that brands can look at when deciding their online strategy:

  1. 3P Unmanaged: This is the most chaotic of the models. In a 3P Unmanaged scenario, there’s no active management of your brand, which means you have no control on pricing, inventory, or content.
  2. 1P: This model is when you sell your product directly through a retailer. It gives you listing control, merchandising, and up-front POs but also limits your inventory and gives you no pricing control. It can also be expensive.
  3. 2P: 2P is the Fulfilled by Amazon (FBA) model. You don’t have to negotiate with Amazon with FBA (a big plus) and it requires limited investments, but it also gives you no control on pricing, inventory, listings, or advertising.
  4. 3P: In this model, you are the retailer. You own and ship your products without going through Amazon’s fulfillment centers. In the 3P model, you have a potential for higher margins and better control on inventory, listings, advertising, and merch, but you have limited capabilities and it takes a larger chunk of investment.
  5. Hybrid: This model leverages the 1P and 3P strategies. You have inventory control, lower risks, and better negotiating power, but you also have to navigate Amazon’s buyers and maintain compliance with their policies.
  6. 3P Network: This is the “more the merrier” model we talked about earlier where you work with a network of authorized sellers. A 3P Network gives you pricing control, inventory control, and diversified risk, but it also gives you less control and can eat into your margins.
  7. 3P Partner: When we talk about having an exclusive ecommerce seller, this is what we mean. In the 3P Partner model, you work with one partner to sell your product. We’ll dive into the pros and cons of the 3P Partner model below.

Breaking Down the 7 Common Ecommerce Operating Models on Marketplaces | Pattern

Advantages of a 3P Partnership

There are many notable benefits that come from working with an exclusive Amazon seller rather than the other selling models we reviewed previously.

Simplicity

Instead of dealing with ten different sellers or a big master distributor that sells to these sellers, working with one seller makes directing your strategy much more streamlined.

Concentrated expertise and investments

Working with one partner eliminates the chaos of working with many partners with varying degrees of proficiency in different marketplaces. The right 3P partner is very motivated and well-equipped with the tools to improve the performance of your products and help your brand succeed. They’ll provide focused attention on investments for content, SEO, and customer service.

Buy Box and ad spend consistency

You are guaranteed Buy Box ownership with an exclusive Amazon seller. Pretty exciting, right? In addition to giving you the Buy Box, having a single seller allows you to maintain consistency in your ad performance and ad spend because there aren’t multiple sellers with different advertising strategies vying to win the Buy Box and causing Buy Box suppression.

Price integrity

The risk of price erosion goes up when you’re working with multiple sellers because partners are more incentivized to get ahead of the competition (read more on our eBook about the Profitability Death Spiral). With a 3P partner relationship, competition goes away. You’re able to maintain price integrity and create price sustainability across all distribution channels.

More seller accountability

An exclusive Amazon seller who abides by your policies makes your life significantly easier, because you don’t need to play whack-a-mole to hunt down sellers breaking the rules. Enforcement and accountability are far more linear. Not to mention, this model is available across more marketplaces for brands who have a global presence.

Common Ecommerce Selling Models Available on Marketplaces | Pattern

Risks of a 3P Partnership

Although there are myriad benefits to having an exclusive Amazon seller, there are some risks you should be aware of if you’re considering this model for your brand.

All of your eggs are in one basket

This is the clearest risk of distributing your product through an exclusive Amazon seller. If something happens to that seller, maybe they go out of business or they mess up on their warehouse orders or get shut down by Amazon, that can leave your brand very exposed and even cut off your distribution completely.

Channel stuffing is limited

Some brands do really well by stuffing the channel with lots of inventory, even if it’s unsold inventory (channel stuffing allows distributors to temporarily increase their sales figures and profit measures). By working with a 3P partner, your ability to channel stuff is limited, because the relationship between what you sell to your exclusive seller and what they end up selling to the end customer is very linear.

Your partner has more leverage

By choosing one seller, you’re creating an interdependent relationship where your partner has more leverage. If they decide they aren’t going to sell your product, you’re left scrambling because you don’t have redundancy built into your partnership.

In a 3P relationship, a seller can tell you they need an additional two points of margin to make their business work. You either need to acquiesce to their demands or find a new partner and start over. This can make 3P relationships daunting.

Do the advantages outweigh the risks?

While there are some risks, having an exclusive Amazon seller ultimately gives your brand greater growth and more control (see our case study with Thorne). Brands who have chosen a 3P partnership have streamlined their sales process and seen big successes as a result (browse Pattern success stories here). The key is choosing the right partner.

Profitable Growth and Brand Control Ecommerce Selling Model Spectrum for Exclusive 3P Partner | Pattern

This is where Pattern can help.

Pattern is an exclusive Amazon seller that uses data and technology to help brands optimize their performance on the marketplace. We help your brand thrive in every possible category, including SEO, advertising, product photography, customer service, returns, shipping, and more, at no additional cost.

We operate as an exclusive Amazon seller so that we can provide personalized attention and the best outcomes for your brand. We don’t charge our brand partners anything for our services so that our incentives are exactly aligned with theirs—selling more on marketplaces and growing profitable revenue.

If you’re interested in learning more about having an exclusive Amazon seller, other ecommerce models that may work for your brand, or a partnership with Pattern, contact us in the form below.

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Improve Your Amazon Advertising Strategy With One Simple Metric: True RoAS
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Improve Your Amazon Advertising Strategy With One Simple Metric: True RoAS

The purpose of advertising on Amazon is simple: increase traffic and conversions. But the approach to get those conversions is not always so simple. Your Amazon advertising strategy is based on current ad data and performance results such as your return on ad spend (RoAS). 

At a minimum, your RoAS number tells you how well you’re maximizing your ad spend. The problem is the RoAS you’re getting from Amazon or an advertising agency isn’t always accurate. 

As a top 3P seller on Amazon, Pattern helps brands improve their Amazon advertising strategy and results by providing them with one simple metric: true RoAS.

Understanding True RoAS

To understand why true RoAS is helpful to brands, you need to understand how Amazon and other agencies calculate and present your RoAS.

The key to growing your brand and maximizing your ad spend is to drive incremental traffic, rather than cannibalizing what has already taken place. For example, if you are selling probiotics, and paying for sponsored ads to win the keyword “probiotics for women”, but also organically ranked in the top results with the same keyword, that’s cannibalization. The RoAS score you would receive from Amazon includes that level of cannibalism, which inflates the number, causing you to pay more on ad spend. The best ads drive incremental growth instead of cannibalizing organic sales. 

At Pattern, we’ve created the acceleration software to make sure brands are getting their “true RoAS”. Pattern’s patented tool applies artificial intelligence to advertising to maximize incremental growth or true return on investment. 

Our software helps brands optimize their efforts by providing live and updated information on where your brand is not organically ranking, and what you should be paying for. If your ranking improves in one area, the ad spend will automatically decrease for those words or phrases until the software detects a drop in ranking, signaling that your ad spend should go up again. This dynamic monitoring of ad spend will help you maximize incremental growth and improve your RoAS.

Improve Your Amazon Ad Strategy with Pattern

Knowing your true RoAS is key to improving your Amazon performance. Advertising agencies and marketplace account managers often give you an inaccurate RoAS ratio or value, which only incentivizes you to spend more on advertising, ultimately increasing revenue for the agencies and/or marketplaces.

At Pattern, a 3P partner on Amazon and other marketplaces, we view our brands just as that: a partnership. When you win, we win. You succeed on Amazon by maximizing your ad spend and we have the data and resources to help you do just that. Accurate, transparent data and reporting will help improve your advertising strategy to drive more traffic to and conversions on your products. 

Ready to finally get your true RoAS? Contact us.   

Slowing Inflation is Music to Consumers’ Ears
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Slowing Inflation is Music to Consumers’ Ears

**Instrument Pricing Changes Tune Amid Record Inflation** Compared to 2022, consumers should expect to pay more for musical instruments, but the rate of inflation shows signs of slowing. **The backstory:** America’s most popular musical instruments saw a notable price increase in 2022 compared to 2021, but the rate of inflation eased in Q4 ’22. **Why it matters:** Slowing inflation within this product category could indicate economic pressures like increased demand, rising labor costs, and supply chain disruptions are easing across the consumer landscape. **What we’re seeing:** The average cost of musical instruments increased 7.5% from 2021 – 2022; however, when analyzing individual increases year over year, some instruments saw price increases as high as 21%. <iframe title="YOY Price Change for Instruments — 2022 vs. 2021" aria-label="Bar Chart" id="datawrapper-chart-02Lwk" src="https://datawrapper.dwcdn.net/02Lwk/2/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="379" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(e){if(void 0!==e.data["datawrapper-height"]){var t=document.querySelectorAll("iframe");for(var a in e.data["datawrapper-height"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data["datawrapper-height"][a]+"px"}}}))}(); </script> * Trombones experienced a 21.73% increase compared to 2021 * Trumpets +20.08% * Flutes +18.6% * Recorders +16.13% * Saxophones +13.63% * Clarinets +10.55% * Drums +5.41% * Ukuleles +5.17% **However:** Inflation among these same instruments was significantly less in Q4 ’22 compared to Q4 ’21. In some cases, prices decreased from Q4 ’21 – Q4 ‘22: <iframe title="Price Change for Instruments — Q4 2022 vs. Q4 2021" aria-label="Bar Chart" id="datawrapper-chart-6X6GZ" src="https://datawrapper.dwcdn.net/6X6GZ/2/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="379" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(e){if(void 0!==e.data["datawrapper-height"]){var t=document.querySelectorAll("iframe");for(var a in e.data["datawrapper-height"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data["datawrapper-height"][a]+"px"}}}))}(); </script> * Trombones +11.23% * Flutes +10.41% * Saxophones +5.94% * Clarinets +5.59% * Trumpets +3.10% * Recorders +2.85% * Drums -2.59% * Ukuleles -8.46% **Moreover:** Certain instruments saw inflation reverse in 2022. On average, prices for melodicas, guitars, and violas saw their prices decrease by 4.41%, 3.19%, and 0.97%, respectively. <iframe title="YOY Price Change for Instruments — 2022 vs. 2021" aria-label="Bar Chart" id="datawrapper-chart-0Tefk" src="https://datawrapper.dwcdn.net/0Tefk/3/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="259" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(e){if(void 0!==e.data["datawrapper-height"]){var t=document.querySelectorAll("iframe");for(var a in e.data["datawrapper-height"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data["datawrapper-height"][a]+"px"}}}))}(); </script> **Diving Deeper:** Inflation was more significant when comparing Q4 ’21 to Q4 ’20 than when comparing Q4 ’22 to Q4 ’21, indicating a slowing down of price increases for consumers. <iframe title="YOY Q4 Price Change for Instruments — 2020 – 2022" aria-label="Stacked Bars" id="datawrapper-chart-p6iqt" src="https://datawrapper.dwcdn.net/p6iqt/1/" scrolling="no" frameborder="0" style="width: 0; min-width: 100% !important; border: none;" height="206" data-external="1"></iframe><script type="text/javascript">!function(){"use strict";window.addEventListener("message",(function(e){if(void 0!==e.data["datawrapper-height"]){var t=document.querySelectorAll("iframe");for(var a in e.data["datawrapper-height"])for(var r=0;r<t.length;r++){if(t[r].contentWindow===e.source)t[r].style.height=e.data["datawrapper-height"][a]+"px"}}}))}(); </script> * In Q4 ’21, average prices for all instruments were up 8.89% compared to Q4 ’20. * When comparing Q4 ’22 to Q4 ’21, the average price for all instruments only increased by 2.65%. **The takeaway:** While consumers should expect to pay higher prices for instruments this year, overall inflation impact within this product category appears to be slowing down. With National Ukulele Day coming up on February 2, now is a great time for ecommerce brands to take advantage of slowing economic worries and reach new consumers. * Want Pattern’s data science team to power your brand with consumer insights like these? Contact us to [request more information](https://pattern.com/contact-us/) today.

Slowing Inflation? What Musical Instrument Pricing Tells Us
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Slowing Inflation? What Musical Instrument Pricing Tells Us

It’s safe to say consumers and brands alike are eager for a change to the pattern of rising inflation, steadily increasing in many ecommerce categories . Pattern’s internal team’s data scientists analysis of instrument pricing shows a glimmer of hope that inflation may be slowing, which would be great news for brands selling online.

At Pattern, we’re interested in and monitoring trends and news related to pricing since price is a key factor in a brand’s profitability (as explained in the Ecommerce Equation). When brands are able to optimize their price, conversions, and traffic, they can optimize their profitability. And profitability leads to better allocation of resources, better brand control, and gives leaders the ability to expand their presence to new markets worldwide.

YoY Instrument Pricing Increased at a Slower Pace

When analyzing the pricing changes of instruments from 2021 to 2022, our teams found that prices increased, but at a slower rate than from 2020 to 2021.

As shown below, the year over year Q4 changes show quite a lower rate of increase.

Inflation Improvements Raise Profitability

Because inflation impacts online shopping behaviors, lower inflation can lead to better overall profitability for brands. This idea, of course, is nuanced, but Pattern’s Ecommerce Equation can help illustrate the general principle.

When inflation rises, consumers change their spending habits. Shoppers spend more time researching products, forego premium, higher-priced brands, and buy more in bulk. Brands tend to see a loss of loyalty as they’re forced to raise prices.

Price is a key variable in the Ecommerce Equation: price x conversion x traffic = profitability. As inflation lowers, brands can expect better performance in all of these areas—more traffic as spending habits return to normal, higher conversion from returning customers, and price that better fits consumer demand. As inflation lowers and these variables stabilize, brands will see profitability increase.

Raise Your Profitability with Pattern

As an ecommerce accelerator, Pattern is obsessed with gathering data that helps our brand partners succeed. We’ve created best-in-class technology, models, and analytics to understand changes on the horizon and inform our decisions. With an incredible team of data obsessed Pattern employees, we see what makes the difference in truly great ecommerce performance and apply those learnings for brand partners. 

Ready to improve your profitability? Contact us here.