There are 1.5 million active third party (3P) sellers just on Amazon. Many more exist on eBay, Walmart.com, Target+, Tmall, JD.com, and the myriad other online marketplaces.
If you’ve already decided that, as a brand, you don’t want a 1P relationship with a marketplace, you’re faced with a number of different options for how you might want to have your brand represented online. Pattern, as a 3P seller and global ecommerce accelerator, has experience helping brands establish and/or improve their selling strategies on ecommerce marketplaces worldwide.
It’s important to recognize your products will find their way into ecommerce whether you want them to or not. Here we will run through five different types of 3P sellers you may or may not have representing your brand on ecommerce marketplaces.
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 say they acquired goods that “fell off of the back of a truck”? While it wouldn’t be fair to say 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 3P 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
- Creating and enforcing a MAP policy for online sellers
Dropshippers are 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 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 for a seller 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.
For example, this jacket sells for over $300 on Mercado Libre MX (left). Odds are when someone purchases it, a 3P dropshipper is going to this listing on Amazon U.S. (right) to buy it and ship it.
Most marketplaces prohibit this kind of selling, and when dropshippers are encountered, they can be reported.
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 because they would maintain control over their pricing and their content.
The problem most often encountered here is 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, Target, and maybe even other channels like eBay, Kroger, and Macy’s.
And that’s without listing international ecommerce opportunities. This team will need to coordinate logistics, inventory management, advertising, content creation and updates, account health, new product launches, holiday promos and sales events, etc.
Successfully running ecommerce for a brand on your own 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.
Brands should be aware 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 their warehouse shelves. This reduces their profit 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 with an Accelerator
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. Pattern, an ecommerce accelerator, uses a 3P model and true brand partnership to help products succeed on ecommerce marketplaces.
A mutually beneficial partnership with a 3P seller should include terms such as:
- Respecting a brand’s pricing policy
- Using only brand-approved creative content
- Seeking to help grow the brand in order to grow sales
- Providing valuable data back to the brand to help them understand their customers and inform their growth and development
The goal of this type of partnership should be when the brand grows, so does the seller.
Establish a Winning 3P Ecommerce Strategy with Pattern
Pattern values partner obsession, data fanaticism, and game changing action as a 3P seller on ecommerce marketplaces. We know the best partnership is one that puts your success and marketplace performance as our top priority. So, we’ve developed best-in-class technology and expert teams to optimize brands’ performance across marketplaces.
Get in touch and find out how Pattern delivers the best 3P seller experience for our brand partners.