Pros & Cons of an Authorized 3P Seller Network

John LeBaron

October 19, 2020

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.

The seven ecommerce selling models

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.

Common Ecommerce Selling Models Available on Marketplaces | Pattern

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.

All Ecommerce Selling Models Explained, Exclusive Selling Partner | Pattern

Advantages of an authorized network

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.

Cons of authorized 3P networks

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.

How do you create an authorized network?

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.

How Pattern can help

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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Global Ecommerce Weekly News: 27th September 2022
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Global Ecommerce Weekly News: 27th September 2022

Get up to date with this week's ecommerce headlines from around the globe. --- Amazon News --- Amazon drives renewable energy push with 71 new projects Amazon is planning to add 2.7 gigawatts of clean energy capacity through a couple of new projects as the company attempts to use 100% renewable energy by 2025. The ecommerce business will soon have a total of 329 renewable energy projects, generating 50,000 gigawatt hours of clean energy, which is equivalent to powering 4.6 million US homes every year. [Read more on Reuters](https://www.reuters.com/business/sustainable-business/amazon-drives-renewable-energy-push-with-71-new-projects-2022-09-21/) Amazon launches Prime Early Access Sale Amazon is launching a new 2-day shopping event for its Prime members only, beginning on the 11th of October. Across 15 countries, Prime customers will have access to the shopping event, with thousands of deals on offer globall, ranging from fashion to electronics to essentials. The event has the purpose of giving Prime users the chance to spread the cost of items over the winter months, 6 weeks ahead of Black Friday. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/26/prime-early-access-sale/) --- Other Marketplace News --- Shopify unveils new localisation tool Shopify is launching a new localisation tool, called Translate & Adapt, which works with Shopify Markets to offer localisation for sellers who are looking to expand into new markets. The tool translates a user’s online store into different languages, including product pages and information pages. Merchants are also able to create different shipping terms for each market using the new tool, which allows international expansion and offers a more localised consumer experience, unveiling new potential. [Read more on Ecommerce News](https://ecommercenews.eu/shopify-launches-new-localisation-tool/) Etsy is set to invest hundreds of millions into its marketing platform Etsy CEO claims that the company is on route to spend more than $570 million USD on marketing this year. Even during a time of macroeconomic pressure, inflation and rising interest rates, the company is preparing itself and its sellers for the upcoming holiday season and is focused on retaining interest from buyers. [Read more on Yahoo News](https://uk.news.yahoo.com/etsy-600-million-on-marketing-ceo-154054219.html) --- Other Ecommerce News --- Meta looks to cut costs by 10% in the coming months Meta employees are facing job redundancies as the company plans to cut its costs by 10% over the next few months. Meta reported a 22% YoY increase in costs and expenses, totalling over $20 billion USD. The cuts are expected to come in the form of job redundancies as a result of department reorganisations rather than formal layoffs. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/22/meta-to-slash-costs-by-10-over-coming-months/) DHL teams up with Quadient to offer smart locker deliveries in the UK DHL and tech company, Quadient, have partnered to offer smart lockers parcel pick-up throughout the UK. The new contactless, secure locker stations will give recipients more choice and flexibility to receive their parcels at a time and location best suited to them. The partnership plans to install 500 locker stations across the country by the end of 2022. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/21/dhl-partners-with-quadient-to-offer-smart-locker-delivery/) The online fashion market is set to be worth nearly $170 billion USD in 2025 The European online fashion retail market is set to grow 50% by 2025, with an online turnover of $170 billion USD, which is 33% of the retail branch’s total. Cross-border marketplaces prove to be the largest drivers of this growth, with online websites and apps like Vinted largely pushing the market’s online growth. Zalando recently became the largest cross-border fashion retailer/marketplace, responsible for 11.7% of the online market’s share. [Read more on Ecommerce News](https://ecommercenews.eu/online-fashion-market-worth-e175-billion-in-2025/)

Global Ecommerce: Weekly News (20th September 2022)
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Global Ecommerce Weekly News: 20th September 2022

Get up to date with this week's ecommerce headlines from around the globe. --- Amazon News --- Amazon to raise pay and add extra work benefits for delivery drivers Following the rise in fuel prices and protests by Amazon workers, the ecommerce giant is raising its delivery drivers’ pay and adding more work benefits. Amazon has mentioned that it will be investing $450 million into rate increases along with an education program and a Delivery Service Partners program. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/14/amazon-to-raise-delivery-drivers-pay-and-add-more-work-benefits/) Amazon announces it will give away shipping software to merchants at no cost Amazon has recently announced that it will be giving ecommerce merchants free software to manage shopper orders on and off its platform as it extends its reach. The ecommerce giant will be ending monthly costs for sellers using Veeqo, a shipping software it recently acquired and instead offer to them a new, free shipping software. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/16/amazon-to-give-away-shipping-software-to-merchants/) --- Other Marketplace News --- Walmart unveils new virtual fitting rooms In an effort to drive clothing sales, Walmart has launched virtual fitting rooms while competitors reduce spending amid the cost of living crisis. The virtual try-on tool can be used by Walmart customers to virtually measure the clothing items and see how the products would look on them. Shoppers will now be able to see how over 270,000 clothing items on Walmart’s ecommerce site would look on their bodies. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/15/walmart-launches-virtual-fitting-rooms-to-drive-clothing-sales/?utmsource=Retail+Gazette+Subscribers&utmcampaign=2da7f0f8f8-EMAILCAMPAIGN202209150742&utmmedium=email&utmterm=0d23e2768b6-2da7f0f8f8-61040615) THG slashes sales and profit expectations The Hut Group has slashed its forecasts for 2022 as rising interest rates, inflation and energy costs take a toll on consumers. Previously, THG estimated its sales growth to be between 22-25% but after a recent evaluation, has lowered this prediction to between 10-15%. Initial predictions did not take into account the negative effects of ceasing sales in Russia and Ukraine along with the impact that the cost-of-living has had on consumer spending. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/15/thg-slashes-forecast-as-cost-of-living-crisis-hits-consumers-wallets/) --- Other Ecommerce News --- DHL and Post Office team up to provide click and collect services Through a partnership between delivery company, DHL and Post Office, a new click and collect service is to be tested at Post Offices before rolling out to over 1000 branches across the UK. Online shoppers will now have the option of choosing their local Post Office as a collection point, and DHL will fulfil the delivery aspect, opening up networks for both parties. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/14/post-office-partners-with-dhl-express-to-provide-click-and-collect-services/) US consumer watchdog plans to further regulate the BNPL sector The US Consumer Financial Protection Bureau (CFPB) has raised concerns regarding the collection of consumer data and the fast-growing nature of the BNPL sector, which includes companies such as Affirm and Klarna. The CFPB is worried that these companies could be negatively impacting consumers’ financial health and aims to put better regulations in place to ensure consumers are safe and empowered. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/16/us-consumer-watchdog-to-start-regulating-bnpl-sector/) Japanese ecommerce market estimated to grow by 6.9% in 2022 The ecommerce market in Japan, largely dominated by domestic online retailers including Reakuten and Mercari, is set to reach $194.3 billion USD in 2022, after seeing an annual compound growth rate of 5.2% between 2018 and 2021. This makes Japan the fourth leading ecommerce market globally, following China, the US, and the UK. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/13/japan-ecommerce-market-to-grow-by-6-9-in-2022/) Ecommerce brands are spending more on TikTok ads TikTok may soon be surpassing Facebook and Google as the most lucrative advertising channel, with ecommerce brands spending 60% more on TikTok ads in Q2. Facebook is still ahead as the top choice for ecommerce advertisers but only grew by 5.6% from Q1, while Google grew 20.5% in Q2, and Snap declined 10.8% in Q2. [Read more on SearchEngineLand](https://searchengineland.com/ecommerce-brands-spent-60-more-on-tiktok-ads-in-q2-387876)

Global Ecommerce: Weekly News (13th September 2022)
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Global Ecommerce Weekly News: 13th September 2022

Get up to date with this week's ecommerce headlines from around the globe. --- Amazon News --- Amazon scales back on US warehouse facilities Amazon is shutting down two facilities with 300 employees, discarding plans for 42 facilities, and delaying plans to open a further 21 buildings across the US. The ecommerce giant is scaling back on hiring as well as the expansion of its vast delivery network, as it was left with an excess of space following its rapid expansion during the pandemic. [Read more on Business Insider](https://www.businessinsider.com/amazon-closes-2-facilities-scraps-plans-42-new-buildings-report-2022-9?r=US&IR=T) --- Other Marketplace News --- JD.com is ‘betting’ on ecommerce grocery market Amidst a slowing economy and a decline in ecommerce, Chinese ecommerce giant JD.com has increased its urgency to seek new growth engines. The company is looking to boost its online grocery business through offline partnerships and expansion into lower-tier cities, where it may be able to unleash more consumption power. [Read more on The Star](https://www.thestar.com.my/tech/tech-news/2022/09/08/chinese-ecommerce-giant-jdcom-bets-big-on-online-grocery-lower-tier-markets-amid-slowing-economy) Shopee shuts operations in Argentina, Chile, Colombia, and Mexico Sea’s ecommerce arm, Shopee, has shut local operations in some LATAM countries but will continue to maintain cross-border operations in a few markets. Latin America is Sea’s most important region following South-east Asia, accounting for close to 19% of its revenue in 2021. The move away from these countries is largely due to increased levels of macro uncertainty and rising interest and inflation rates, and rather putting a focus on its core operations. [Read more on Straits Times](https://www.straitstimes.com/business/companies-markets/seas-shopee-shuts-operations-in-argentina-chile-colombia-mexico-sources) --- Other Ecommerce News --- Instagram scales back in-stream shopping elements Instagram is re-examining its approach as it hasn’t been able to make ‘fetch’ happen. ‘Fetch’ in this context being the online shopping trends which have become all-consuming in China, and what Western social platforms have been hoping to add into their apps to make them more addictive and revenue-generating. Consumers have not been swayed by the latest shopping tools on TikTok and Instagram, leading to Instagram scaling back its in-stream shopping program. [Read more on SocialMediaToday](https://www.socialmediatoday.com/news/instagram-scales-back-in-stream-shopping-elements-as-it-re-examines-its-app/631276/) FedEx Express supporting the growth of cross border ecommerce FedEx express has expanded its international commerce shipping service to four more markets across the Asia Pacific, Middle East and Africa (AMEA) region in an effort to support the strong development of ecommerce in this region. Three of the fastest growing markets, the Philippines, Indonesia and Vietnam are leading Southeast Asia’s ecommerce sales, which is set to reach $100 billion by 2023. [Read more on Post & Parcel](https://postandparcel.info/149889/news/e-commerce/fedex-express-supports-the-growth-of-cross-border-e-commerce-within-the-amea-region/) India ramps up hiring as companies prepare for shoppers Ecommerce companies are getting ready for the festive season by rapidly expanding their temporary workforce. As ecommerce in India grows, the country is predicted to have 372 million online shoppers by the end of 2022. The festive season this year, running from October to December, is expected to see a two-fold increase in logistics and delivery alone. During this period, companies are predicted to add 20% more to their existing workforce base, with a 8-10% higher pay scale compared to last year. [Read more on Business Insider India](https://www.businessinsider.in/business/ecommerce/news/the-great-indian-festival-of-hiring-e-commerce-companies-gear-up-for-indias-shoppers/articleshow/94000346.cms)