November 9, 2020

The 5 Types of 3P Sellers You Will Meet in Ecommerce

By Kevin Lamb / Brand Growth, Brand Control

There are 2.5 million active third party (3P) sellers just on Amazon. Many more exist on eBay, Walmart.com, Wayfair, Tmall, AliExpress, and the myriad other online marketplaces.

If you’ve already decided that, as a brand, you do not want a 1P relationship with a marketplace, you are faced with a number of different options for how you might want to have your brand represented online. The bottom line is that your products will find their way into ecommerce whether you want them to or not. Here we will run through 5 different ways you may or may not want to have your brand represented online by marketplace sellers.

1. Arbitrage seller

The idea behind arbitrage is simple—buy a product somewhere, then sell it somewhere else at a higher price to make your profit.

Have you ever heard someone talk about goods they acquired that “fell off of the back of a truck”? While it wouldn’t be fair to say that all goods sold by arbitrage sellers are acquired illegally (though it’s not outside of the realm of possibility), they are not acquired by typical wholesale methods and the sellers are not authorized by the brands.

This includes, but is not limited to, methods such as liquidation events, holiday sales, or price matching schemes. Sellers will buy products in bulk at a steep discount, then list them for sale online.

Arbitrage sellers are most concerned with selling as many products as possible at the best price, regardless of the impact it has on your brand. Methods brands can use to fight against arbitrage sellers acquiring their products include limiting discounts, limiting purchase quantities, looking for leaks in their supply chain, creating online-only product lines, and creating and enforcing a MAP policy for online sellers.

2. Dropshipper

Dropshippers are actually just another type of arbitrage seller. Imagine you order something on Amazon, and a Sam’s Club box shows up at your door. It’s far more likely that you’ve encountered a Dropshipper than Amazon starting to use Sam’s Club boxes.

If something can be found cheaper on one marketplace than another, you can be sure there will be dropshippers. Using the previous example, if something can be found cheaper on Sam’s Club, it’s simple to create an Amazon listing for it, wait for you to order it, then order it themselves on Sam’s Club and ship to your address.

Similar examples are seen on MercadoLibre in Mexico. A U.S. based product might be listed for sale for $7000 pesos (around $344 USD), when in reality it only costs $150 USD. The seller hopes someone will buy it at that price, then order it and have it shipped to their location in Mexico.

Types of 3P sellers in ecommerce | Pattern

This jacket sells for over $300 on Mercado Libre MX (left). Odds are when someone purchases it, they’ll be going to this listing on Amazon U.S. (right) to buy it and ship it.

Most marketplaces prohibit this kind of selling, and when they are encountered, they can be reported.

3. Self-represented

Brands sometimes represent themselves on marketplaces if they don’t have or want a 1P relationship. Successful brands that run their own 3P seller account include brands such as Anker, Fintie, and Spigen. This can be advantageous for a brand as they would have control over their pricing and their content.

The problem most often encountered here is that a brand will assign a single person or small group of people to run their entire ecommerce operation. That person or small team suddenly becomes tasked with running Amazon, Shopify, Walmart.com, and maybe other channels like eBay, Newegg, Wayfair, with the list getting longer and longer.

And that’s without listing international ecommerce opportunities. They will need to coordinate logistics, inventory management, advertising, content creation and updates, account health, new product launches, holiday promos and sales events, etc.

Running ecommerce for a brand and doing it well is a huge undertaking, which leads us to our last two types of 3P sellers.

4. Authorized retail partner

These 3P sellers are ecommerce experts and work with brands to sell their products all over the internet. The relationship may work much like a brick and mortar retail partnership and their goal is simple—sell as many of the brand’s products as possible and keep making purchase orders to the brand to keep them happy. Lather, rinse, repeat.

It should be cautioned though that these sellers may not make commitments to maintain pricing for brands or for sharing the brand’s concern for their brand image and messaging. They’ve already bought the product from the brand, and if the market is demanding a lower price, they will follow in order to make sure they keep products moving off of their warehouse shelves. This reduces their margin, and often leads to the seller asking for lower wholesale prices from the brand in order to be competitive.

Ignoring price policies and brand quality checks can ultimately lead to a Profitability Death Spiral for ecommerce where profits are cut out for the brand.

5. Brand partnership

3P sellers that create truly mutually beneficial partnerships with brands are few and far between. Much like an authorized retail partner, they buy products from the brand at wholesale and are authorized to sell those products on marketplaces approved by the brand.

A mutually beneficial partnership with a 3P seller should include terms such as:

The goal of this type of partnership should be that when the brand grows, so does the business of the seller.

Enter Pattern, the premier partner for global ecommerce. Pattern is by far the top ranked 3P seller within this brand partnership seller model and a top 5 seller on Amazon overall. And we do it all while growing and protecting our brand partners. If you’re interested in seeing how a Pattern 3P partnership can help you find success, schedule a demo of our services here.