The Marketplace Control Benefits of Switching from a 1P to a 3P Seller

Cassandra Shaffer

April 10, 2020

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.

**Being a 1P seller has its benefits **

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.

So why transition to a 3P seller?

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.

Why brands should consider switching to 3P

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.

How 3P has helped Panasonic

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.

How to transition to a 3P

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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Sept 27, 2022

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/)
Sept 22, 2022

How an Amazon SEO Agency Should Be Serving Your Brand

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. 

What is an Amazon SEO Agency?

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:

Prioritize Your Success

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.

Provide Detailed Competitive Insight

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.

Reduce Your Ad Spend Over Time

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.

Amazon SEO Optimization and More

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.

Sept 20, 2022

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)