Should you switch from being a first-party seller to a third-party seller on Amazon? Or is the 1P model good enough for your brand?
These questions and others were explored in a webinar discussing the pros and cons of 3P selling hosted by Cleveland Research Company and Pattern on April 7. John LeBaron, Chief Revenue Officer at Pattern, and Angy Steiner, the National Key Account Manager at Panasonic, discussed how they’ve seen the 3P model work for their brands.
While solutions vary based on business models and margin and fulfillment constraints, there are many takeaways from Steiner and LeBaron’s remarks that can help merchants determine if making the transition from 1P to 3P is right for their brand.
Here are a few key takeaways.
For many merchants, 1P relationships with Amazon work really well for their business, and having a conversation about 3P selling is unnecessary.
“There are a lot of advantages to 1P in certain scenarios,” LeBaron said. “For example, if you’ve got an average selling price of, let’s say, $10 or in that neighborhood . . . 1P is hard to beat.”
Third-party sellers pay 15% in commission to Amazon, so businesses selling products in a complex environment (like Fresh or Pantry) or selling products that are less expensive may find 1P the preferable model.
According to LeBaron, to simply sell a $10 product through Fulfillment by Amazon (FBA) as a third-party merchant can cost you 30-40% in FBA fees. First-party selling is often the more affordable option.
As a 1P seller, you cede a lot of control to Amazon, and that can be harmful to your brand. In March 2019, for example, Amazon suddenly halted purchase orders for a large number of 1P sellers, creating concern and panic among vendors who could do little to control it.
Becoming a 3P seller gives your brand more flexibility and the ability to “control your own destiny,” LeBaron said. It gives vendors much more control over pricing and inventory as well as a stronger brand presence. According to LeBaron, 3P selling also eliminates the “terror of vendor negotiations” and backend costs that can sometimes happen in a 1P relationship.
“A lot of that baggage that comes with that kind of relationship kind of goes away on the 3P side as long as you have a strong partner,” he said.
If your average selling price (ASP) is over the $40-$60 range, LeBaron said there are really good cost-effective advantages to being a 3P seller. Those numbers give you the margins to make it worth it for your business.
A 3P relationship with Amazon gives you significantly more control over your pricing so that it’s clean across all channels, LeBaron explained. This allows both your profitability to increase and your brand’s reputation to improve.
One of the greatest benefits of being a 3P seller is the freedom to establish a strong brand presence, from the quality of your image photography to the management of your listings to customized fulfillment.
“In almost every case, that 3P environment gives you more control over that customer experience, all the way even into the data,” LeBaron said. He added that 3P sellers are allowed more in-depth customer data that can indicate things like the effect of advertising on sales.
Pattern’s brand partner Panasonic is one great case study in how switching from a 1P to a 3P business model can help brands. Before transitioning to a 3P, the company was struggling.
According to Steiner, Panasonic’s margin of profitability was on a downward spiral for about a year before the company made the choice to switch from being a 1P to a 3P seller in 2018. Doing so gave them better compliance and MAP adherence on Amazon—the switch to 3P helped Panasonic’s compliance go from single digits to the mid 90s, Steiner said. This also helped the company protect their brand and improve brand recognition in the industry.
“For our product category, it’s a very successful story,” Steiner said of the switch.
When transitioning to 3P, you’ll need to take into consideration issues like the amount of inventory you have and sales tax adjustments. There are resources available to help your company comply with Amazon policies.
One of the biggest things you’ll need is time. Steiner said it took Panasonic six to nine months to make the transition to 3P. In that time, they notified Amazon about the shift, kept their contract with them, and worked around available inventory. Giving your brand enough time to stock up on inventory in the interim is an important step, she and LeBaron said.
While brands like Panasonic have gotten some pushback from Amazon for transitioning to a 3P, LeBaron said the company doesn’t negatively impact your seller ranking or suppress your listings if you do so.
“Having worked with, like I said, 70 brands on this, there’s no proof that that happens. A lot is speculative,” LeBaron said. “If anything, it’s almost been the opposite. All the brands we work with have grown on Amazon.”
One thing LeBaron recommends is that brands not make the switch to 3P by themselves. Amazon has policies in place that block certain manufacturers from running their own 3P sites, he said, so he recommends for merchants to know their options and learn if they fall into those categories before putting the time and resources into making the switch. Working with a company like Pattern is one way that the transition to 3P can be simplified.
Ultimately, it’s up to you as a merchant to determine what the best fit for your business is. The options available in the market right now are enough to be optimistic about.
“You can absolutely be successful via either model,” LeBaron said. “The good news is that Amazon has really leveled the playing field when it comes to things like merchandising and promotions and advertising. I think we’ll continue to see more of a unification on that front in terms of the platforming.”
Want to transition from 1P to 3P? Pattern can help. Contact us below to set up an appointment.
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If you’re in the global ecommerce space, you are most likely aware of Amazon, and probably selling your products on the marketplace. With over $470 billion in sales in 2021 alone, Amazon stands as the third largest company in the world based on revenue. The ecommerce giant is a household name in the U.S. and working hard to grow its market share across five continents worldwide.
Having your products available on Amazon and being competitive there, though, are definitely two different things. If you want to really succeed on Amazon, you’ll need specialized insight into how Amazon works and how to make it work for you. So, for many brands, it’s a great idea to work with an Amazon Search Engine Optimization (SEO) agency.
At Pattern, Amazon SEO optimization service is one of our key competencies. We understand that technology, data-driven insights and expertise are the most important tools brands can leverage to win top listing spots on digital marketplaces. With expert teams and years of experience, we help brands conquer the Profitability Death Spiral as they compete with other products and sellers online. We offer Amazon SEO agency services as a core solution to brands that need more resources to get ahead.
An Amazon SEO agency serves brands by improving their products’ rank and listing performance on Amazon. They make strategic decisions about ad spending and placement that lead to higher traffic, conversions, and revenue for ecommerce brands.
A great Amazon SEO Agency partner will:
Unfortunately, many Amazon SEO agencies profit in unfair ways from your brands’ perceived success based on the ROAS numbers they provide. This is done through including branded search terms in ROAS reports, which naturally skew listing performance.
Let’s say, for instance, your brand is called “Annie’s” and you sell lollipops. Your brand has a very high likelihood of winning the top listing spots on Amazon for lollipop search terms that are paired with “Annie’s,” your brand name. So, SEO agencies will spend your ad money on those terms and report a very high ROAS.
To avoid scenarios like these, it’s best to look for an agency that either calculates their profits on metrics other than your ROAS scores or weighs branded search terms differently in the performance metrics reports. Regardless of your Amazon SEO agency’s cost structure, you should align onbranded search terms before committing to a scope of work.
A great indicator of a high-quality Amazon SEO agency is the level of insight they can provide into your competitors’ listing positioning and how it compares to yours. Data fanaticism is so important at Pattern that we’ve developed proprietary technology to display this exact information with precise detail for every brand we work with. In fact, you can find our free version here to see how you compare to some of your top competitors based on ASIN.
It’s certainly possible to improve your Amazon search performance with blind spending strategies. But a truly great solution will help you to know where your dollars are at their most powerful and competitive.
Amazon’s A10 algorithm prioritizes customer satisfaction—it wants to show consumers the best products that align with their search intent to improve conversions and sales. So, the best way to gain momentum on Amazon is to work on incremental wins.
Improving your performance on more obscure search terms that align with your customers’ search intent is a great way to increase ROAS for the long term. A10 will reward your success with better rankings on higher-volume search terms and the virtuous cycle can help you conquer your most-coveted listing spots. And the best part? This process of gaining momentum, if done right, will naturally decrease your ad spend over time as Amazon recognizes your value and works with you to keep your products at the top of consumers’ search results.
As an Amazon SEO specialist, Pattern knows how to help your brand win better success for long-term profitability on Amazon. With our data-driven tools and brilliant teams of ecommerce experts, we help brands with listing management, content optimization, Amazon ad strategies, and more.
Contact us to learn more about our SEO optimization services.
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.