The Amazon third party (3P) marketplace

In episode 6, Peter Bond & Sri discuss why being on the Amazon 3P marketplace world-wide is no longer a luxury, it's a must have. Most brands have hesitated to do this since first party (1P) relationships closely resemble existing brick & mortar business models of selling in bulk. However, if you are in DTC or B2B this is an easy next step for you. For others who wish to leverage this ecosystem, we discuss how you can get started and keep your brand equity intact.

You can listen to this episode on podcast format here : https://www.buzzsprout.com/1146830/4114094-episode-006-amazon-3p-marketplace

Here are the answers to those questions that the industry is asking :

Q1. Describe 3P marketplaces and why Amazon has it in the first place?

3P marketplaces have existed for 20 years. eBay is the first example of a live active third party marketplace. The largest third party marketplace is Alibaba in China. With over a million active sellers setting their own price, trading both B2B and B2C goods, bulk or single units, it provides the opportunity to sell products on ones own terms. By allowing multiple sellers to sell the same Sku it essentially ensures the best value for the consumer. There are downsides such as fake and counterfeit goods, but most marketplaces are catching up to this. For Amazon it represents a second chance to drive further value to the consumer and still secure financial margins by charging sellers fees to have a listing with minimum friction and a relatively smaller investment in human capital avoiding physical possession of inventory with a purchase order.

Q2. What are the nuances between “Vendor Central” (1P) & 3P?What are the challenges of selling 1P versus selling 3P? If I have sold my products 1P in the past, can I sell 3P?

Vendor central (1P) is where you put up a product and engage your merchandiser in a collaborative plan to sell, whereas seller central (3P) is when you own all aspects of the supply chain from acquiring the product to listing it, marketing it, own customer service and fulfil the product. Each presents a plethora of opportunities and challenges. On 1P one has to negotiate a sale of a bulk quantity of product subject to Amazon's terms. On 3P owning the full supply chain and not being prepared can be devastating in challenges of simple customer service errors. There are more nuances such as other 3rd party sellers trying to shut down a listing by making bogus claims on either authenticity, reviews or answered questions. If you have sold your products in the past on 1P, you can absolutely sell it on 3P. The question is if it’s already failed once, why would it be successful again?

Q3. Should scaled brands be on the 3P marketplace?

Yes, absolutely. Brands should look closely at ASP (average selling price), and the lower it is, we feel below $ 6 a unit, you are probably constantly looking at your item being delisted on 1P, struggling with making a profit, and keeping it listed only most likely because you need the ratings & reviews and to appear on search execution. By moving it to 3P, you can set the value for the consumer, choose cheaper options to fulfil the product (5 day ground shipping) and still develop a search and ratings & reviews plan while not having to deal with constant delist situations. The downside is it will take longer to scale. Think of your 3P listing as a way to exist on Amazon and enjoy the luxury of most of what it has to offer without the challenge of negotiating your trade rates (what a luxury indeed).

Q4. What’s the best way to enter a 3P marketplace & why?

Most CPG manufacturers are creating products and owning marketing, but rarely the last mile to the consumer and rely on B2B2C for fulfillment, meaning a reliance on a retailer. This is a story of decades and perhaps a century of retailing. For this reason, it's best that a third party with deep experience of handling retailing and solid knowledge of listing products on a website and fulfilling them be a partner of choice to execute a 3P listing on Amazon. If you are already experienced with running B2B or D2C, odds are you are acting like a retailer and running your own 3P seller central listing will be just fine for the most part. 

Q5. What are the “must-dos” of succeeding on the 3P marketplace?

The first step is understanding why you joined the 3P marketplace in the first place. It is most likely because of a product ASP or trade rates, so let’s not forget this reason. You could also be a startup listing a SKU and Amazon does not usually purchase a new SKU for 1P unless it has been around in retail for a while (unless its an innovation of an existing manufacturer with an Amazon 1P relationship). Now that we know that the fundamentals don’t change. Search, carefully planned assortment, product value to the consumer (price), the quality of your digital shelf including above and below the fold content, and how you will drive ratings & reviews, followed by customer service and fulfillment capabilities. Customer service includes the ability to handle consumer complaints but also answered questions and frequent updates to FAQ’s.

Q6. What are the best fulfillment options on the Amazon 3P marketplace?

You can choose between FBA and FBM. FBA is fulfilled by Amazon or when you work with Amazon to rely on their massive and deeply experienced fulfillment capabilities which automatically come with a prime badge. FBM is when you choose to use your own fulfillment methods. This can be your own supply chain or using 3rd party partners. For beginners, its best to use Amazon’s fulfilment capability vs experimenting with new providers while this skill is being learned. FBA could also work better for higher ASP items with larger margins to cover fees of its infrastructure while relying on near guaranteed fulfillment.

Q7. Are there hidden costs or risks of entering this business model?

Just as any business model, the more you execute the more you learn. Here are some early watchouts. Unexpected fees on FBA - these can go into several double digit percentages of your P&L, and sometimes be insurmountable. Poor fulfillment by third parties - resulting in bad customer service experiences resulting in poor ratings & reviews. Failure to stay abreast of search optimization both seo and sem could be debilitating. The cost of running your own sem and having to run reports everyday to optimize search results can get very exhausting. Setting up an infrastructure to answer consumer questions and keeping up with FAQ’s can be challenging too. In short, if you’re entering the 3P marketplace, have a purpose and stick to it.

Q8. How should you convince leadership that 3P is right for your brand?

No different than anything else you are seeking approval or investment for. Research the 3P marketplace, understand your opportunity. Seek insights on competition, read articles and thirds party white papers. Build a business case around why you need it. Again, it's most likely due to ASP, so have a solid framework on how moving to 3P will work with your price points and consumer value. The plan should also be fully loaded as in investments for seo and sem, a team and human capital that will support you in this endeavor. We treat any ecommerce investment with the same rigor and depth of any investment request. 

Q9. What are some reasons a brand may pivot to this option vs a 1P model?

If you have been a 1P business, the real reason you should look into this still remains your ASP and constant delist (also known as CRAP). The only other solid reason could be for consumer relationship development with data coming to you in the 3P model vs Amazon owned in the 1P model. 

Q10. What is a brands’ supply chain role in this transformation?

Huge! Moving to 3P or starting in 3P means owning consumer fulfillment and the last mile, FBA or FBM. Transformation includes understanding shipping rates, outer and inner boxing for your product. Additionally marketing collateral included in the shipper, the ability to produce invoices and shipment notices, followed by connecting it to email or other forms such as text message notifications to consumers. Inbound, outbound both take a very different meaning in this model, as you may be incurring fees in the process. A close partnership with procurement on shippers and with careers such as ups or fedex is required to manage profit and results.

Our intent is not to forecast the future or suggest there's only one way. Our ambition is to see the CPG industry progress in delivering maximum value for the consumer via quality products widely available to all.