Practicology is now Pattern

By Matt Ralph | European Marketing Manager

One of the questions we get asked most by brands is whether they should move to 3P on Amazon to help improve sales and boost their marketplace presence. The reason many brands are initially hesitant about going 3P on Amazon is that they are concerned it will affect their trading performance compared to a 1P relationship.

What we tend to point out is that third party sellers have started outperforming Amazon on its own platform in recent years. Last year in fact, Amazon’s CEO Jeff Bezos bluntly wrote in his annual letter to shareholders that “Third-party sellers are kicking our first-party butt. Badly.”

In fact, data shows that sales from third-party sellers now make up more than 58% of physical gross merchandise sold on Amazon. In the last ten years, these sales have grown from $0.1bn to $160bn.

1P, also referred to as ‘Vendor’ or ‘Retail’ refers to the relationship large brands have with Amazon, whereby the brands sell to Amazon on a wholesale basis. Inventory is shipped to Amazon, who then controls price, shipping, tax, customer service and returns. You’ll know if a brand is 1P on Amazon if the product listing page says, ‘Dispatched from and sold by Amazon.’

3P, also referred to as ‘Seller’ or ‘Marketplace’ is when the brand, or a company other than Amazon, manages price, tax, customer service and returns to the end customer and potentially fulfilment/delivery. In a 3P relationship, the brands may manage delivery directly, or they may still use Amazon to fulfil the delivery, in which case it will say ‘Sold by XXX Fulfilled by Amazon’ on the product listing page.

Practicology’s parent company, Pattern, is one of the biggest third-party sellers on Amazon, which gives us a unique insight into the 1P vs 3P debate. Here is our take on why going 3P on Amazon could be the best solution for your brand and how it will affect your marketplace presence for the better. 

Price control

This is often one of the main reason brands ultimately decide to go 3P on Amazon.

Everyone knows Amazon is a price-focussed retailer and will always try to offer a product at the lowest price, by matching the most competitive price found across all platforms and sites in a particular country. This low-price strategy can not only damage a brand’s reputation but can also quickly diminish any profitability from the value chain.

One of our clients, whose Amazon Vendor account we’ve supported, had to stop selling one of its highest-selling products as Amazon suddenly imposed a lower wholesale price on the brand, which made the product unprofitable to sell.

In the 1P model, if brands don’t accept Amazon’s conditions and price changes, Amazon will stop selling that product. As a 3P seller, brands have the ability to either manage the end-to-end business on their own and control their price as a result. Or they can work with a marketplace focused company, such as Pattern, where as a premium Amazon seller you gain access to all of our tools, knowledge and experience. You can remain confident that whilst we are competitive on price, we won’t be participating in a race to the bottom. 

You can sell your full product range and simplify logistics

In a traditional 1P set-up, Amazon will sometimes only agree to take certain product lines, usually the best-selling ones or products that are more cost-effective to warehouse due to size/weight. While this makes sense for Amazon, it’s not so good for brands who lose out on revenue that could be generated by less popular, but still profitable, product lines.

In addition to this, the logistics relationship with Amazon can be very time-consuming and inefficient, with a number of small POs raised every week and complications with deliveries at Amazon’s fulfilment centres. Amazon's preference is to work on a just-in-time basis in order to mitigate the stock risk to their business, which ultimately addes more risk into your business with no formal commitment to purchase the stock.

One of the brands we sell products for on Amazon moved to 3P for this very reason: Amazon used to place very small orders every other day (all shipments are at the brand’s expense), and then some deliveries would fail and be returned to the brand; which would also get charged back to the brand. They struggled to get agreement from Amazon to consolidate orders and meet their operational needs.

Now, under a 3P partnership with Pattern, we have agreed with the brand on fortnightly ordering based on our joint forecasting. We take ownership of stock and make sure the correct labelling and processes have been completed, which guarantee deliveries into Amazon fulfilment centres and reduces any chargebacks.

This is why we are committed to helping grow brands who move to 3P on Amazon. Pattern has helped more than 70 brands successfully navigate the switch from 1P to 3P. So far, none of them have taken a long-term hit on sales.

Manage a whole account through one person

When working with an authorised Amazon Seller, a brand can manage its entire Amazon presence through a single relationship: the brand manager. The assigned brand manager will act as an extension of the brand’s team and ensure a smooth process by coordinating several teams – designers, translators, copywriters, warehouse, marketing, orders team, finance, logistics and customer service, amongst others. This has proven to be beneficial and time-effective for brands.

Amazon customer service support (both for 1P and 3P) can involve a lengthy process of raising help tickets or navigating through Vendor Managers, Brand Specialists, AMS, AMG, In Stock Managers and so on. For most brands, moving to 3P on Amazon and getting full support from a brand manager has proven to be the most effective decision to combat this.

Access to more data and additional bespoke tools

Vendor Central, the backend platform used in 1P relationships with Amazon, offers minimal reporting and metrics, often requiring additional investment to turn the data into actionable information. This can restrict the brands ability to learn and provide the best consumer experience, ultimately preventing brands from being able to maximise the sales opportunities.

Pattern provides the brands we represent 3P on Amazon with access to a number of proprietary tools to support in-depth insights, as well as extra marketing tools that provide data, advertising automations and marketplace data monitoring.

Our advertising automation tools have helped partners considerably grow brand awareness, maintain a target return on advertising spend (ROAS) and drive revenue.

Same content control as 1P

Managing your brand’s content effectively should be one of your main concerns. How a brand and its products are represented to the customer can be the make or break when it comes to converting a potential shopper into an actual shopper. Under a 1P relationship, brands have total control over their Amazon listings such as product images and descriptions.

Many brands worry that sellers who are 3P on Amazon might not have the same right to contribute to Amazon’s product detail pages as the brand itself. This is potentially true; however, you can protect your brand through Amazon’s Brand Registry. This program allows brands, or a registered Authorised Amazon Seller such as Pattern, to register themselves as the ‘brand owner’ and serves as a platform to report intellectual property infringement, policy violations and technical issues with listings. This ensures that product pages updates are made by the trademark owner and maintains brand consistency.

Currently, Pattern has registered most of our brands with Brand Registry and this has proven to be extremely beneficial. For example, one of the brands we trade products for on Amazon wanted to maintain some of its 1P content, and thanks to Brand Registry, we have managed to guarantee the consistency of the content quality.

Whether you are interested in moving to 3P on Amazon or you want support to optimise your Amazon presence, we can work with you as the authorised Amazon Seller for your brand anywhere in the world. Contact us today to find out more at hello@practicology.com or click here.

 

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