Thanks to the success of their 3rd party (3P) marketplace, Amazon has become an unavoidable presence in retail. As a result of Walmart’s acquisition of Jet.com, and eBay’s increasing desire to become more like Amazon, these marketplaces will continue to grow in significance as well.
The days of simply ignoring these 3P marketplaces are long gone.
Consumers actively use Amazon and other marketplaces to find products they want, and sellers on 3P marketplaces will continue to find ways to meet their demand.
Unless your brand is content letting the wild wild west determine your eCommerce strategy, you must create a plan for selling their products on these marketplaces.
Avoiding the Wild Wild West
If brands don’t take an active role in managing their presence on 3P marketplaces, the inevitable outcome is that sellers will aggressively compete for the largest share of the buy box possible, and to do so, they will “race to the bottom” on price and negatively impact brand equity in the process.
In light of this inevitable outcome, we are seeing brands take aggressive actions to attempt to regain control; either by setting up their own 3P seller accounts, or working with a 3P seller specialist who will manage their product feeds – while adhering to MAP policies and ensuring products are kept in stock.
In this article, we examine the key issues, risks, and trade-offs of managing 3rd party sales internally vs selling through a dedicated 3P marketplace specialist.
Managing Multiple Marketplaces
As mentioned previously, Walmart, Jet, and eBay are all gunning for Amazon and looking to increase their market share. As a result of Walmart’s recent acquisition of Jet, we expect Jet to continue to capture share of the growing eCommerce pie. eBay, which originally started as an auction site, now sells over 80% of its items in a non-auction format, and we expect them to continue to use their 150 million active buyers to gain marketshare.
The presence of all these major marketplaces complicates things immensely for 3rd party sellers, simply because each market is different and requires a specialized approach in order to achieve maximum performance.
To succeed on these marketplaces, 3P sellers should expect to:
- Invest in expensive software that will allow them to manage product feeds, fulfill orders, handle returns, and sync inventory
- Regularly attend conferences for each of these marketplaces to stay abreast of the latest developments
- Have staff dedicated to understanding and studying evolving changes on each marketplace
Brands that handle 3P sales themselves should expect to invest in software and staff to manage multiple marketplaces. If they choose to sell via a dedicated 3P specialist, these expenses will be paid by the 3P marketplace specialist. Therefore, it is a significant advantage for brands to sell via 3P specialist because they don’t need to invest in and manage the necessary software and staff.
Significant Advantage: Selling via 3P Specialist
Control Pricing
By far the #1 complaint we hear from brands about 3P marketplaces is that competing sellers erode prices in their inevitable race to the bottom.
When prices drop, brand equity is damaged, and brick & mortar retail partners become extremely upset.
Controlling pricing by creating and enforcing MAP policies is a huge challenge for brands unless they take steps to make it illegal for unauthorized sellers to sell their products while simultaneously reducing the number of sellers to just a few, or ideally, just one professional 3P specialist.
If a brand’s products are sold through distributors, controlling pricing is incredibly difficult and time consuming. If products aren’t in distribution, the battle is less complex.
Brands that handle 3P sales themselves should expect to invest in software and staff to handle pricing control, whereas if they choose to sell via a dedicated 3P specialist, this expense will be paid by the 3P marketplace specialist.
Significant Advantage: Selling via 3P Specialist
Monitor Listings for Unauthorized Sellers
If a brand’s products are sold through distributors, it’s inevitable that their products will eventually make their way into the hands of 3P sellers who don’t have a relationship with the brand, and don’t care about any MAP policies that exist.
Instead, these sellers either generally operate using a business model that relies on massive volume and razor thin margins, or they are a tiny one-man shop operating out of a garage with little to no overhead to factor into their pricing.
Monitoring product listings and removing unauthorized sellers is a never ending game of “Whack-a-Mole”, and if prices are to be controlled, brands who handle 3P sales themselves should expect to invest in staffing and software tools that will allow them to continually monitor product listings for the presence of unauthorized sellers.
Brands that handle 3P sales themselves should expect to invest in software and staffing to monitor listings for unauthorized sellers, whereas if they choose to sell via a dedicated 3P specialist, this expense will be paid by the 3P marketplace specialist.
Significant Advantage: Selling via 3P Specialist
Manage Product Reviews
Generating and managing product reviews is absolutely critical to maximizing revenue on 3P marketplaces, and this is especially true with Amazon.
To generate reviews, 3P sellers must invest in software tools that will automatically send emails to buyers to ask them to leave reviews. This is the easy part.
The more time consuming part is managing negative reviews. To do so requires software to monitor reviews, and then labor to take the time to respond publicly to each negative review.
Brands that handle 3P sales themselves should expect to invest in software and staff to handle product review management, whereas if they choose to sell via a dedicated 3P specialist, this expense will be paid by the 3P marketplace specialist.
Significant Advantage: Selling via 3P Specialist
Manage Customer Service
Effectively managing customer service is key to preserving brand equity.
Failure to consistently respond in a timely fashion to these inquiries can result in a decreasing share of the buy box, or suspension of your 3P seller account entirely.
When selling on Amazon and using FBA, Amazon will help with many of the customer service issues. However, the 3P seller should expect to deal with customers (or competitors posting as customers) making false claims – for example, claiming to have received a fake product.
Brands that handle 3P sales themselves should expect to invest in software and staff to handle customer service, whereas if they choose to sell via a dedicated 3P specialist, this expense will be paid by the 3P marketplace specialist.
Moderate Advantage: Selling via 3P Specialist
Optimize Product Listings
Optimizing product listings across multiple 3P marketplaces is a significant drain on resources for brands with multiple products.
For every product listing, research should be performed to determine which search terms consumers use to find that product, as well as how best to describe the product in a way that will result in maximum conversions.
High quality images should also be created and included with each product listing.
Once listings are optimized, ideally key attributes would be A/B tested to further improve performance.
Listing optimization requires expertise and/or software investments for:
- Photography
- Copywriting
- Keyword research
- Split testing
Brands that handle 3P sales themselves should expect to invest in software and staff to handle listing optimization, whereas if they choose to sell via a dedicated 3P specialist, this expense will be paid by the 3P marketplace specialist.
Significant Advantage: Selling via 3P Specialist
Create and Manage Advertising Campaigns
Unless your brand is already incredibly well known or you face little to no competition, creating and managing advertising campaigns is likely to be a key component of your eCommerce strategy.
Sure, existing customers will just search for your brand name and make a purchase, but what if you would like to increase your market share? Listing optimization will help, but without effective advertising, you will only see a slow increase in market share.
Creating and managing profitable advertising campaigns across multiple channels requires a very high level of expertise, as well as powerful software. In the absense of either, your advertising campaigns are highly likely to fall far short of your expectations.
Companies who are dedicated 3P sellers invest significant time, energy, and resources into improving their ability to create and manage profitable advertising campaigns. Brands can save significant amounts of time and money by working with 3P partners who already posses these skills vs attempting to hire staff to develop those capabilities internally.
Brands that handle 3P sales themselves should expect to invest in software and staff to manage advertising campaigns, whereas if they choose to sell via a dedicated 3P specialist, this expense will be paid by the 3P marketplace specialist.
Significant Advantage: Selling via 3P Specialist
Create and Manage Product Promotions
Promotions are another powerful tool for increasing sales on 3P marketplaces. Promotions can be used for:
- Launching new products
- Holiday specials (Black Friday, Prime Day, etc…)
- Quantity discounts
Of the many types of promotional tools offered by Amazon, Lightning Deals are among the most powerful because, unlike with regular promotions where your special offer might not be seen without a corresponding advertising campaign, a Lightning Deal simultaneously offers the promotion a very high level of visibility that will translate into significantly more sales.
Brands that handle 3P sales themselves should expect to invest in software and staff to manage product promotions, whereas if they choose to sell via a dedicated 3P specialist, this expense will be paid by the 3P marketplace specialist.
Moderate Advantage: Selling via 3P Specialist
Multi-Channel Fulfillment
Thanks to Amazon’s FBA program, fulfillment for orders placed on Amazon is handled by Amazon; however, if you sell your products on Walmart, Jet, and eBay, a fulfillment solution is required as none of these other 3P marketplaces offer fulfillment as a service.
Fufillment is a very complex business than requires extremely high level of expertise to manage at scale. To succeed, brands should expect to invest significant resources in software and staffing in order to succeed. Alternatively, brands could choose to outsource fullfilment to a 3P fulfillment partner. If outsourcing is the preferred method, brands should still expect to devote a portion of someone’s time to manage that relationship.
Professional 3P sellers who already sell on mutliple 3P marketplaces will already have systems and/or a partner in place to effectively manage multi-channel fulfillment. Brands that choose to partner with 3P sellers can avoid the time consuming process of either selecting a 3P fulfillment partner, or of handling marketplace fulfillment internally.
Brands that handle 3P sales themselves should expect to invest in software and staff to handle multi-channel fulfillment, whereas if they choose to sell via a dedicated 3P specialist, this expense will be paid by the 3P marketplace specialist.
Moderate Advantage: Selling via 3P Specialist
Keep Inventory in Sync
When selling across multiple 3P marketplaces, inventory management can become a significant issue because your inventory is going to be located in numerous warehouses. In most cases, this will boil down to inventory in Amazon’s warehouse, inventory in your warehouse(s), and if you use a 3P fulfillment partner, inventory in their warehouse as well.
With products spread across multiple warehouses, keeping inventory in sync is critical and will require investments in software and staff in order to succeed.
Brands that handle 3P sales themselves should expect to invest in software and staffing to handle keeping inventory in sync, whereas if they choose to sell via a dedicated 3P specialist, this expense will be paid by the 3P marketplace specialist.
Moderate Advantage: Selling via 3P Specialist
Reporting & Analytics
Amazon Seller Central provides a large number of reports, though the presentation of the data is not overly user-friendly.
To make reporting more user-friendly generally requires an investment in additional software to parse and present the data in a way that makes it much easier to analyze.
Brands that handle 3P sales themselves should expect to invest in software and staff to handle reporting and analytics, whereas if they choose to sell via a dedicated 3P specialist, this expense will be paid by the 3P marketplace specialist.
Moderate Advantage: Selling via 3P Specialist
Managing Shipments to Amazon
Of all of today’s 3P marketplaces, Amazon is by far the largest and brands should expect the lion’s share of revenue to come from sales on Amazon. As a result, ensuring that products are in stock in Amazon’s warehouse(s) is critical.
Keeping stock in Amazon’s warehouses requires the 3P seller to invest in staff to monitor inventory levels and regularly create shipments to be sent to Amazon.
Depending on the number of SKUs in a brand’s product line, the demands for managing shipments to Amazon can vary from relatively little, to significant. For example, if a brand is going to handle 3P selling internally, they should expect to have to ship every order to at least three of Amazon’s warehouses. If products are sold in multipacks, brands should aslo expect to create any product bundles that are needed.
Alternatively, if brands elect to work with a 3P marketplace specialist, all they need to do is send pallets to the warehouse operated by their 3P partner.
Brands that handle 3P sales themselves should expect to invest in software and staff to handle product bundles and shipments to Amazon, whereas if they choose to sell via a dedicated 3P specialist, this expense will be paid by the 3P marketplace specialist.
Significant Advantage: Selling via 3P Specialist
Tracking Down Lost Items
Amazon is notorious for losing inventory that is shipped to their warehouses, and whenever inventory is lost, you need to provide Amazon with an invoice from your supplier to even open a support case.
But what if you are the supplier? To be honest, we have no idea if Amazon will accept an invoice from yourself, to yourself. Given how particular Amazon is about documentation that is submitted, this could be a very significant issue for brands that elect to manage their own 3P selling.
Assuming Amazon will accept your brand’s invoice-to-self, there is still the ongoing time-suck that will inevitably result from having to communicate with Amazon to chase down lost inventory and get a reimbursement.
Brands that handle 3P sales themselves should expect to invest in software and staff to handle recovering lost shipments to Amazon, whereas if they choose to sell via a dedicated 3P specialist, this expense will be paid by the 3P marketplace specialist.
Significant Advantage: Selling via 3P Specialist
Accounting
If a brand decides to handle 3P sales internally, they should expect a significant increase on the burden placed on their accounting department because, instead of only having to deal with a smaller number of large orders as they do now, they are going to have to accurately account for thousands of small orders every month.
Brands that handle 3P sales themselves should expect a significant increase in accounting burden in order to properly record thousands of individual transactions every month, whereas if they choose to sell via a dedicated 3P specialist, this expense will be paid by the 3P marketplace specialist.
Significant Advantage: Selling via 3P Specialist
Tax Nexus
Selling on 3P marketplaces may create tax nexus, especially if the brand is storing inventory in Amazon’s (or other’s) warehouses.
Additional tax nexus requires additional tax collection and remittance, which in turn requires an investment in software and staffing to manage the process.
Brands that handle 3P sales themselves should expect to invest in software and staff to handle additional taxes, whereas if they choose to sell via a dedicated 3P specialist, this expense will be paid by the 3P marketplace specialist.
Moderate Advantage: Selling via 3P Specialist
Day to Day Involvement
Brands that are handling their own 3P marketplace sales should expect to manage a LOT more moving parts than they might think. To succeed, will require investing in software and staffing to manage the following:
- Product feeds on multiple eCommerce marketplaces
- Controlling pricing
- Monitoring listing for unauthorized sellers
- Generating product reviews and responding to negative ones
- Customer service
- Product listing optimization
- Advertising campaigns
- Product promotions
- Multi-channel fulfillment
- Inventory sync
- Shipments to Amazon
- Reporting & analytics
- Tax nexus
- Accounting
Significant Advantage: Selling via 3P Specialist
Financial Comparison
Hopefully this post has covered every aspect of handling your 3P sales internally that you’d already thought about, plus a few that you hadn’t, and now you are now asking yourself about the economic side of the equation.
After all, would insourcing make economic sense for some brands?
The answer is, “it depends”.
To help you think through the math, let’s consider a few assumptions and examine a few different scenarios for sales on Amazon. Other marketplaces will have similar expenses.
Scenario #1: Brand with $30,000/mo in Amazon sales
If your total sales on Amazon are $30,000 per month, the “additional” gross profit you could hope to earn by handling 3P sales internally would be approximately $3,000/mo; not nearly enough to cover all the software expenses and payroll needed.
Scenario #2: Brand with $80,000/mo in Amazon sales
If your total sales on Amazon are $80,000 per month, the “additional” gross profit you could hope to earn by handling 3P sales internally would be approximately $8,000/mo; just barely enough to cover all the software expenses and payroll needed – especially when you factor in the costs for recruitment, training, and traveling to conferences.
Scenario #2: Brand with $150,000/mo in Amazon sales
If your total sales on Amazon are $150,000 per month, the “additional” gross profit you could hope to earn by handling 3P sales internally would be approximately $15,000/mo; enough to cover all the software expenses, payroll, recruitment, training, and travel expenses needed for one employee – assuming you can get by with just one person handling it all.
Advantage: Varies on Sales Volume and Headcount
Conclusion
As you can see, for a brand that wishes to manage their 3P marketplace sales internally, there are a lot of moving parts to manage.
For brands that are considering going the internal route, our hope is that this article has brought some additional insight to your decision making process.
With respect to hiring a dedicated employee, some additional questions you should ask yourself include:
- How will we find someone for this?
- As we aren’t eCommerce experts, how will we know if the person we find is any good until many months have passed?
- What is the cost of a bad hire?
- Are we willing to accept the risk that the person we hire could leave at any time?
- Have we adequately considered the costs associated with payroll burden (20-30% of salary) and the expenses associated with traveling to all the conferences that they will need to attend to keep abreast of changes to any of the major 3P marketplaces?
If after reading this article, you feel that the better choice for your company is to partner with a 3P marketplace specialist, please give us a call.
About Inovtech Services
Inovtech Services is a digital retail agency with significant expertise in the Amazon marketplace and unlike typical marketing agencies who will charge you thousands of dollars in fees, we earn our income by purchasing your products wholesale and then reselling them – thereby ensuring that our interests are 100% aligned with yours.
