Earlier this month, we talked about the different selling models available on ecommerce and whether to consider a 3P partner. Exclusivity is a very successful model for most ecommerce brands, giving them more control over their pricing, consistency with their ad spend, and the resources they need to grow long-term.
For some brands, however, an exclusive relationship may not be just right—it can create some hairy situations for their ecommerce business and even impair their relationship with Amazon. When that’s the case, brands looking for a solid backup may find it in a 3P authorized network instead.
A 3P authorized network is one of seven primary selling models available to brands moving into the ecommerce space. We’ve described them briefly here so you know how they compare.
3P Unmanaged: With this model, your brand has no active management, which means you’ve got no control on pricing, inventory, or content. Price erosion is exacerbated in a 3P Unmanaged model, because unlike in authorized networks, sellers don’t follow your rules.
1P: In a 1P model, you sell your product directly through a retailer. This gives you listing control, merchandising, and up-front POs. The downside is that it limits your inventory, eliminates price control, and it can get spendy.
2P: 2P is the Fulfilled by Amazon (FBA) model. With an FBA model, you don’t need to negotiate with Amazon (a big plus) and you have limited investments. The FBA model, however, gives you no control on pricing, inventory, listings, or advertising.
3P: In a 3P, you are the retailer. You own and ship your products without going through Amazon’s fulfillment centers. This model has more potential for higher margins and better control on inventory, listings, and advertising, but you also have limited capabilities and it takes a larger chunk of investment than other models.
Hybrid: The Hybrid model leverages both the 1P and 3P strategies. You have inventory control, lower risks, and better negotiating power with a hybrid model. You also have to navigate Amazon’s buyers and maintain compliance with their policies.
3P Partner: In a 3P partnership, you work with one partner to sell your product. This gives you better MAP compliance, up-front POs, and focused attention on the success of your brand. The downside is it has lower margin potential and gives you less direct control.
3P Network: This is the model we’re talking about when we talk about authorized networks. In a 3P network, you have a wide group of partners working together to distribute your product.
So why would you choose a 3P authorized network over the rest, or why shouldn’t you? Good question.
Requires less resources/Amazon know-how One of the biggest reasons why brands go with an authorized network rather than a 3P partner is that the learning curve is easier for their brand. The exclusive seller model gives you no incentive to lower your prices, which means you have to be well-versed in Amazon and have the right resources to make your brand reach more shoppers. Generally brands are not set up to do this well, so they don’t. An authorized network allows your brand to go further on Amazon without all the trappings.
Diversified risk With a 3P partner, you’re putting all of your eggs into one basket. That puts your brand at increased risk if something were to happen. Let’s say your partner gets shut down by Amazon or goes out of business. Your brand presence is toast.
In an authorized network, your risk is diffused across multiple sellers, providing more protection for your brand.
More control and price integrity An authorized network allows you to have more control in the supply and distribution chains because you have a larger base to operate from. You’re better able to maintain price integrity, enforce MAP, and adhere to quality standards so your products don’t fall into the hands of grey market sellers lurking in the 3P Unmanaged space. In that way, you’re able to maintain wider distribution than you would in a 3P partnership.
You won’t get blocked by Amazon If you’re a big enough brand, Amazon may block you from being a 3P exclusive seller on their site altogether. Amazon’s seller standards state that although other brands can sell in their store, “if any of the Brand’s products are sold by Amazon, the Brand may not also sell those products as a seller in the Amazon store.” Having an authorized network can prevent blocking from happening.
Price erosion The more sellers you have in your network, the higher the risk that price erosion will happen, because your sellers will compete on price to stand out. While this may be easier to control in an authorized network than an unmanaged model, it’s still a risk for your brand. Without proper mechanisms in place to prevent it, price erosion can lead to decreased profitability over time and send your brand into a nasty tailspin we call the Profitability Death Spiral, which can kill your long-term growth and even get you kicked off Amazon altogether.
Coordinating marketing & promotional periods Having a network of sellers to keep track of instead of just one makes it much harder to coordinate on marketing, advertising, and National Promo Calendars. Amazon doesn’t allow your advertising to work unless you own the Buy Box, and in a traditional authorized network, you’re essentially doing a round-robin with all of your sellers to give them a percentage of the Box. Without proper coordination on advertising, you may create artificial bidding wars between your sellers.
Diminished returns When you have one seller, that seller is very invested in improving things like your content, images, customer service, and rankings, because all of those improvements aggregate back to the seller of record. When you have a network of sellers, those sellers are artificially disincentivized from making good improvements to the representation of your brand online (SEO, video, content, images, bullet points, etc.), therefore you get diminishing returns based on your investments.
Like we mentioned previously, authorized networks can be good backups, but they aren’t ideal for most brands. That said, if you’re looking to mitigate risk, an authorized network might be right for your brand.
The first thing to do is consider the sellers you want to work with. You’re building a network, remember, and you want that network to help your brand succeed. Find sellers that you believe are trustworthy enough to maintain your pricing and quality control standards. There are a myriad of things to look for as you select the sellers that are going to comprise your seller network. You might consider if their warehouses are equipped for your products, for example, or if they’re taking the proper precautions for Covid-19. You also want to make sure you have sellers committed to your brand.
How many sellers should you have in your network? Ideally, three to five, but that number can go up to 20. Beyond that, it gets much easier to lose control, which is why we recommend having fewer partners.
Another thing you need to navigate are the logistical constraints of having an authorized network, like what will happen with your returns or advertising and if your sellers will all ship into one central distributor. These are all things to think about.
Finally, the big question to ask yourself when considering this model is if your company has the appetite to forcibly remove sellers who violate your trust or aren’t part of your network. That’s a big element of maintaining control, so it’s an important reality to think about.
Pattern operates as an exclusive seller, but we also offer a myriad of resources for brands looking to shift into the authorized network space, including a solution for coordinating your advertising.
Our unique Predict omnichannel technology runs across multiple authorized sellers and coordinates your advertising across your whole network so you don’t need to worry about keeping track of it all. We can also recommend good potential partners that can help your brand network thrive.
To learn more about how Pattern can help your brand’s ecommerce presence, contact us in the form below.
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Entering the ecommerce landscape is a huge undertaking for any brand—it usually requires a large investment in resources and expertise to really be successful. Any brand can quickly get in over their heads trying to navigate the nuances of SEO, fulfillment and logistics, distribution control, listing optimization, and meeting the numerous other requirements and administrative tasks to show up well on marketplaces.
Unfortunately, because it’s so easy for third party, gray market, and unauthorized sellers to obtain and sell products online, many brands find themselves pressured to execute an ecommerce plan without the right resources to succeed on marketplaces and their other channels.
So, for brands looking to enter the ecommerce space or improve their current and future performance, it makes sense to partner with an ecommerce consultant.
Pattern’s global presence and proven success with hundreds of brands has allowed us to develop highly effective ecommerce consulting services. We can guide your brand to navigate issues both large and small in marketplaces worldwide. To maximize your ecommerce efforts, you’ll need to understand what an ecommerce consultant does and how to select one who drives the right value for your brand and products.
An ecommerce consultant is a specialist in the ecommerce space who can give you personalized guidance on how to market your products and grow their presence on digital marketplaces.
An ecommerce consultant should be able to analyze your brand, audience, category, opportunity, and current roadblocks and help you understand how to utilize your resources (or what resources are missing) to be most effective in capturing your opportunities in the ecommerce space.
Not sure how to evaluate a consultant? Here are 4 key attributes to look for as you make your choice.
At Pattern, we prioritize brand obsession for a reason—we know that a brand-centered mindset makes a crucial difference in the outcomes and results our partners achieve. So in our experience, when you begin your search for an ecommerce consultant, it’s important to look for a partner who is specialized in ecommerce, invested in the product, and passionate about helping brands build and improve their strategies. Typically, this means finding someone that consults exclusively for ecommerce marketplaces, rather than choosing a consultant who offers many different services.
It’s also important to avoid choosing a consulting partner who can’t deliver the right experience for your brand. The best indication of whether your potential consultant can do that is to review their history, data, and results with other brands. Ask if they’ve helped others in your selling category, if they’ve solved specific issues your brand is facing, and why they feel you are a good fit. The key is to leave the conversation feeling confident that you understand your consultants’ capabilities and whether or not they match up with your needs.
It’s best to pick a consultant who knows how to guide a brand onto and through multiple marketplaces worldwide. You’ll want to take a look at your long-term strategy and think about the regions and platforms you’re currently on and where you might want to take your brand in the future. If your consultant is truly great at what they do, they’ll be able to help you perform well enough with your current product roadmap that it’ll be a no-brainer to expand your presence at the right time.
The most effective partnership with an ecommerce consultant will be able to give you both recommendations and point you to solutions for making those changes in your planning, processes, and execution. Your time and money is valuable, so you want to make sure that you’re spending it as efficiently as possible as you follow your consultant’s advice. So, before you commit to an ecommerce consultant, ask about the resources and concrete solutions they typically recommend to the brands they work with.
Finding an ecommerce consultant that checks the boxes can be a difficult task. At Pattern, our entire focus and drive centers around giving brands the tools and resources they need to succeed on domestic and international ecommerce marketplaces.
With over 100 global ecommerce consultants across 10 global offices, we have the right tools to partner with brands across the world to achieve better ecommerce success. We give specialized advice, then make sure our partners have all the adequate SEO, social media, CRM, Amazon multi-channel fulfillment services, and ecommerce outsourcing services they need.
Interested in ecommerce consulting services? Set up a call here to learn what Pattern can do for your brand on global marketplaces.