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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Sept 6, 2022

Global Ecommerce Weekly News: 6th September 2022

Get up to date with this week's ecommerce headlines from around the globe. --- Amazon News --- Amazon announces new inventory and distribution service, AWD Amazon has launched Amazon Warehousing and Distribution (AWD), providing inventory and distribution services to its sellers as a means of addressing current supply chain issues. AWD is now available for sellers using Fulfilment by Amazon (FBA), i.e. outsourcing their fulfilment to the platform. Amazon has plans to expand the service outside the platform in 2023. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/02/amazon-introduces-new-service-to-help-solve-supply-chain-challenges/) Amazon Web Services (AWS) launches in the UAE AWS, Amazon’s cloud-computing platform offering, has launched its second region in the Middle East and now provides its services in the UAE. The move will now allow anyone in the UAE who utilises cloud technologies to harness AWS’s advanced platforms and APIs. An estimated $11 billion USD is expected to be added to the UAE’s GDP thanks to the implementation, with an average of 6,000 external vendor jobs to be created annually. AWS is now available in 87 zones across 27 regions, with sights set on expanding further across Australia, Canada, India, Israel, New Zealand, Spain, and Switzerland. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/08/30/amazon-web-services-launches-region-in-uae/) --- Other Marketplace News --- Lazada to launch in Europe Alibaba-owned ecommerce platform Lazada is set to launch in Europe, marking a refreshed internationalisation push from the company. The move follows toughening economic conditions and performance in Southeast Asia, advancing the need to tap overseas markets. In Europe, Lazada will face tough competition from giants like Amazon and Zalando. Lazada’s exact entry strategy is to be confirmed and will be reliant on macroeconomic and market conditions, according to Lazada CEO James Dong. [Read more on DigitalCommerce360](https://www.digitalcommerce360.com/2022/09/01/alibabas-lazada-to-take-on-amazon-zalando-in-europe-push/) Chinese ecommerce giant Pinduoduo to launch cross-border platform in the United States Pinduoduo, a Chinese ecommerce giant rivalling Alibaba and JD, has announced it will be launching a new cross-border ecommerce platform. The marketplace is set to launch in the United States next month, as part of the company’s larger push into new markets. Pinduoduo found success in China thanks to its rock-bottom price offerings and harnessing of social commerce marketing, emulating strategies similar to fast-fashion giant Shein. [Read more on Yahoo Finance](https://uk.finance.yahoo.com/news/pinduoduo-launch-international-e-commerce-034129263.html) Alibaba launches its biggest B2B sales event, ‘Super September’ China ecommerce giant, Alibaba, has now launched its month-long B2B sales event ‘Super September’. The event provides 40 million buyers and 200,000 suppliers with the ability to connect on the platform, showcasing a ‘virtually unlimited’ number of products. The event hopes to foster new cross-border business relationships to tackle supply chain challenges currently faced by businesses. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/01/alibaba-launches-super-september-b2b-sales-event/) --- Other Ecommerce News --- Klarna’s losses quadruple in first half of 2022 BNPL provider, Klarna, has reported losses of $581 million USD for the first half of 2022. This figure is almost four times larger than a year earlier, where $129 million USD in losses were reported. The company attributes the losses to employee costs, technology investments, and rising credit losses. Klarna’s figure reporting comes amidst worsening economic conditions, fresh legal and regulatory scrutiny, and pressure from Big Tech competitors. [Read more on The Financial Times](https://www.ft.com/content/483451db-9221-4ca4-83a6-b4ddc6bfcfbb) [Read more on the Guardian](https://www.theguardian.com/business/2022/aug/31/klarna-losses-more-than-triple-as-consumer-spending-slows) One fifth of Snap employees to be laid off amidst poor financial performance Social media platform Snap (‘Snapchat’) has announced it will be laying off 20% of its employees and closing out a number of projects following a year of poor financial results.The move will see 1,200 employees globally lose their jobs, saving the company an estimated $500 million USD in costs. Snap is currently valued at $20 billion, an 84% decrease from its valuation of $130 billion last year. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/09/01/snap-to-lay-off-20-of-its-workforce-and-wind-down-a-number-of-projects/)
Aug 30, 2022

Global Ecommerce Weekly News: 30th August 2022

Get up to date with this week's ecommerce headlines from around the globe. --- Amazon News --- Amazon set to shut down Amazon Care Amazon is closing its telehealth service, Amazon Care, which launched in 2019 as a trial program for its headquartered employees. Later the service was rolled out nationwide for employees and other companies. The ecommerce giant has now made the decision to move away from the healthcare space, believing it was not the right long-term solution for its enterprise customers. [Read more on CNBC](https://www.cnbc.com/2022/08/24/amazon-is-shutting-down-amazon-care-telehealth-service.html) Peloton closes new deal to sell on Amazon Following a recent deal, Amazon customers will soon be able to buy Peloton fitness equipment on the marketplace, marking Peleton’s first move outside a direct-to-consumer model. According to Peloton’s CCO, there are already around half a million searches on Amazon for Peloton products every month, despite having no presence on the marketplace. Some key products include the original Peloton Bike, retailing for $1,445 and Peloton Guide for $295. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/08/24/peloton-strikes-deal-to-sell-fitness-equipment-on-amazon/) --- Other Marketplace News --- 60% of Malaysians are buying from local sellers on Shopee A recent survey of nearly 3,500 respondents found that nearly half of the shoppers prefer to purchase from local sellers due to shorter delivery times. Other shoppers decide to shop locally due to the quality of the products made in Malaysia and an interest in keeping the economy running. As a result, smaller local merchants have been able to grow their businesses, and shoppers benefit from shorter delivery times, products of high quality and supporting local businesses. [Read more on The Malaysian Reserve](https://themalaysianreserve.com/2022/08/25/around-60-malaysians-are-buying-from-local-sellers-on-shopee/) Flipkart’s social commerce platform Shopsy crosses 100 million users Flipkart launched a social commerce arm, Shopsy, in July of last year, which has now surpassed 100 million users, ahead of its target timeline being the end of 2022. This acquisition of new users has made Shopsy one of the largest platforms of its kind in the country, and is expected to onboard a further 100 million by the end of 2023. The platform is centred around boosting local entrepreneurship and powering ecommerce for consumers across tier 2+ regions where users face challenges around trust and navigation when shopping online. [Read more on Business Standard](https://www.business-standard.com/article/companies/flipkart-s-social-commerce-platform-shopsy-hits-100-million-users-1220828006851.html) Meta joins Amazon and Walmart in bid for Indian ecommerce market Amazon mentioned earlier in the year that it would be building a logistics division in-house through its purchase of a 51% stake in Ecom Express, an end-to-end logistics firm, to make ecommerce deliveries more efficient in the country. Walmart operates Flipkart in India and is set to continue its investment in the marketplace. In an effort to compete in the Indian ecommerce market, Meta has partnered with Indian ecommerce company, JioMart, to offer customers a grocery shopping platform within its WhatsApp chat feature. [Read more on Pymnts](https://www.pymnts.com/news/retail/2022/meta-joins-amazon-walmart-indian-ecommerce-market/) --- Other Ecommerce News --- Ecommerce in Spain worth €57.7 billion in 2021 Spanish ecommerce saw 11.7% growth compared to last year, largely attributed to cross-border sales. In the final quarter of 2021, ecommerce sales in Spain were at €16.9 billion euros, at least 60% of which came from cross-border sales. Transactions from foreign locations to Spain generated a turnover of €1.56 billion in Q4, a growth of 27.7% compared to Q4 a year before. [Read more on Ecommerce News](https://ecommercenews.eu/ecommerce-in-spain-was-worth-e57-7-billion-in-2021/)
Aug 23, 2022

Global Ecommerce Weekly News: 23rd August 2022

Get up to date with this week's ecommerce headlines from around the globe. --- Amazon News --- Amazon to add mental health support to primary-care service Amazon is set to move into mental health therapy with its primary-care division, following its recent acquisition deal of One Medical. The plan is to partner with virtual behavioural therapy service, Ginger, to offer its Amazon Care users with on-demand access to mental health services, licensed therapists and psychiatrists. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/08/11/amazon-plans-to-add-mental-health-support-to-primary-care-service/) GMB union calls for £15 an hour minimum pay at UK Amazon warehouses Amazon recently offered its warehouse workers a 3% pay rise, which in comparison to the June inflation rate of 9.4% left employees disappointed. Following this, hundreds of Amazon warehouse workers stopped work last week, protesting against the minimal pay increase, seeking a minimum of £15 an hour. Recent protests consisting of employee walkouts and sit-ins aim to get a better offer out of Amazon. [Read more on The Guardian](https://www.theguardian.com/technology/2022/aug/09/gmb-calls-for-15-an-hour-minimum-pay-at-amazon-warehouses-in-uk) Amazon third-party sellers have received their first-ever holiday fee hike Amazon’s third-party marketplaces account for close to half of the company’s online sales. The company introduced a 5% fuel and inflation charge to its third-party sellers earlier this year, and has now implemented another inflation increase charge. Commencing 14 October, any seller who uses Amazon’s fulfilment service is subject to the price hike, which is set to be an additional 35 cents per item for products sold in the US and Canada. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/08/17/amazon-third-party-sellers-have-received-their-first-ever-holiday-fee-hike/) Amazon puts a pause on UK grocery shop roll-out as the cost of living increases Amazon has slowed down on its UK roll-out of till-free Amazon Fresh grocery stores following disappointing sales and the rise in cost of living. Allegedly, the company is no longer looking for potential sites to expand and if more stores are opened, they will likely no longer use a till-free system, as consumers become more cautious about spending. [Read more on The Telegraph](https://www.telegraph.co.uk/business/2022/08/21/amazon-pauses-uk-grocery-shop-roll-out-following-disappointing/) --- Other Marketplace News --- Shopee overtakes Alibaba across international markets Shopee has surpassed Alibaba and taken the top spot for sales outside of China. Singapore-based marketplace saw a year-on-year increase of 51.4% at the end of Q2 of this year, while Alibaba saw a 3% drop during the same time period. This can be seen as a promising development for start-ups and their ability to compete with some of the largest ecommerce giants in the market. [Read more on Exchange Wire](https://www.exchangewire.com/blog/2022/08/18/shopee-surpasses-alibaba-in-international-sales-amazon-searches-for-entertainment-exec/) H&M reopens its official store to Alibaba’s Tmall ecommerce platform It has been nearly 18 months since Alibaba removed H&M from its Tmall platform, following H&M’s criticism of human rights abuses in Xinjiang. It is estimated that over a million people, predominantly minorities in the area, have been unlawfully detained in camps across the city. Brands including Nike, Adidas, Burberry and Converse were swept up in the controversy, however H&M was one of the first to be targeted for speaking out about the issue. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/08/16/hm-returns-to-alibabas-tmall-platform-16-months-after-xinjiang-controversy/) Klarna launches new feature allowing UK consumers to view full online order history Buy-now-pay-later company, Klarna, has launched a new feature on its shopping app, which allows UK consumers to view their full online order history, regardless of whether they purchased the product using Klarna. The feature also shows delivery tracking and aids consumers in managing their online purchases more conveniently. [Read more on The Industry](https://www.theindustry.fashion/klarna-launches-new-feature-allowing-uk-consumers-to-view-full-online-order-history/) --- Other Ecommerce News --- Online marketplaces responsible for £280 billion business turnover in the UK Nearly 900,000 UK businesses are currently selling on online marketplaces, generating an estimated £282 billion worth of sales each year. This figure represents 6% of the UK’s annual business turnover, highlighting the notable contribution that marketplaces make to the UK economy, along with the potential for further growth in this area. [Read more on Charged Retail](https://www.chargedretail.co.uk/2022/08/09/online-marketplaces-responsible-for-280-billion-business-turnover-in-uk/)