Why Is Amazon Shifting Toward a 3P Marketplace?
Over the past few years, brands selling on Amazon have been making a slow and steady shift from 1P relationships to 3P. By the end of 2023, it’s estimated 60% of Amazon brands will be selling on the Amazon 3P marketplace. Have you noticed the trend, too? As a top 3P seller on Amazon, Pattern has had a front row seat to these changes over the last 10 years. Issues we’ve seen for years like price erosion, Buy Box suppression and getting caught up in the Profitability Death Spiral are becoming more apparent problems and forcing brands to make a change. If you’d like expert help in fixing your issues on Amazon, Pattern can help. Learn more about the 1P to 3P trend below.
The Amazon 3P Marketplace is More Profitable
Amazon is a lot more gracious to brands switching from a 1P relationship because they’ve realized over the years that 3P selling is often more profitable. Why is this? The first reason is because when brands sell through Amazon 1P, their profits can easily fall over time. By nature, Amazon is incentivized to lower your product listing prices when they go down on other online sites and platforms.
When you sell through a 3P model, you have much better control over your pricing, and can better enforce MAP violations occurring on Amazon. Shifting to a 3P marketplace also shifts inventory risk to sellers and allows Amazon to reduce its inventory carrying cost, particularly for slower moving products, and allows Amazon to still guarantee speedy delivery to a customer through its own fulfillment service. And, since Amazon has the ability to charge short and long term storage fees on 3P inventory, it can gain additional profit without sacrificing inventory selection.
3P Sellers Create Healthy Competition
There’s also the idea of creating more competition among 3P sellers. While the idea of 1P sales makes sense upfront—removing the inefficiencies and cost of a middleman—it hasn’t really worked out that way. Instead, the elimination of middlemen, and of the “friction” caused by them made some things more difficult, such as quality control.
Friction in the marketplace, caused by brand competitiveness and vendor vetting, leads to better quality products in the hands of consumers. It also helps to eliminate counterfeits and helps vendors know where to look when there’s a problem with a product. By selling products wholesale, Amazon ultimately relies on brands and consumers to look out for counterfeits, a system that can be difficult and frustrating to navigate.
Shifting toward a majority of 3P sellers could go a long way in solving some of the problems that a “frictionless” 1P seller marketplace has created. To complement the shift, Amazon has opened up more ecommerce features and capabilities to 3P sellers that were previously only available to wholesale vendors. Amazon is also allocating more resources, such as account management help, to 3P sellers.
3P Provides More Benefits for Sellers
For sellers, there are some obvious benefits to 3P, most of which have to do with control.
- 3P sellers control their pricing. 3P sellers can sell at retail prices instead of negotiating wholesale prices with Amazon, which can lead to higher profitability if brand visibility, inventory, and so on are managed well.
- 3P sellers have greater brand control. 3P sellers are in charge of brand presence and product information and have more flexibility to launch and test new products on Amazon.
- 3P sellers have great control over channel conflict. Since the 1P model gives price control to Amazon, which looks to give customers the best price possible, it may affect how your products sell on other platforms—if you’re selling a product on another marketplace for $50, for example, and Amazon is selling your same product for $15, you may get some angry phone calls about pricing strategy that can be avoided if you just control the price in the first place.
Make the Switch to Amazon 3P with Pattern
To help you navigate this changing marketplace and make sure you and your company stay on top of the trends, whether you are shifting from 1P to 3P on Amazon or starting fresh with 3P, Pattern has resources to help you navigate a 3P transition successfully. Contact us here to find out how we can grow your sales together through the Amazon 3P marketplace.