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The Struggle is Real for Brands Competing with Amazon’s 3P Sellers

April 18, 2016
Keith Anderson
Written By
Keith Anderson

For years, Amazon’s third-party (3P) seller marketplace has hardly registered on manufacturers’ radars.

At many brands, account teams’ and eCommerce directors’ stance has often been that: “We only get credit for what Amazon sells directly, so we don’t pay attention to 3P.”

The Rise and Rise of Amazon’s 3P Marketplace

But Amazon’s 3P seller marketplace has been on a tear since the first quarter of 2014, increasing from 39% of paid units in 4Q13 to 47% in 4Q15. Recent developments suggest a continued shift in paid unit share to 3P sellers.

Amazon 3P sellers

In May 2015, Amazon introduced Seller Fulfilled Prime, an invite-only program that lets sellers with strong fulfillment histories flag items as Prime-eligible despite not being fulfilled by Amazon. The move let Amazon expand its Prime-eligible selection by hundreds of thousands of items without additional capital investment in fulfillment capacity.

Then in March 2016, EcommerceBytes reported that Amazon has opened Subscribe & Save, a powerful auto-replenishment program for consumables, to 3P sellers.

And the industry had an epiphany in March 2016 when this fantastic profile of Pharmapacks circulated, exposing the scrappy professionalism of the seller’s $70M operation selling CPG products on Amazon.

Benefits for Amazon

Amazon’s 3P marketplace is like nitrous for its growth engine. Among its many benefits:

  • Profitability. Amazon’s take on 3P sales ranges from 14-40%. It’s not uncommon for Amazon to make more when a 3P Seller wins the Buy Box than when it wins itself.
  • Selection. The marketplace enables Amazon to increase selection by orders of magnitude without inventory risk. RW Baird estimates that 3P items account for as much as 80% of all items listed on Amazon.
  • Price competition. As I explained on Quora, the direct, transparent competition between sellers and Amazon on its marketplace increases shoppers’ trust in Amazon’s pricing.

With increasing pressure on Amazon to demonstrate profitability, supporting marketplace growth is a sustainable way to compete on the fundamentals of pricing, selection, and convenience while steadily improving unit economics.

What Brands Can Do

The growing volume being captured by 3P sellers is becoming an issue that brands can’t ignore.

Firstly, it represents clear demand at Amazon–demand that suppliers aren’t getting credit for.

And secondly, it can lead to loss of control over how brands are presented on the world’s most influential product research platform.

Here’s what brands can do:

  • Get the facts. The 3P challenge varies widely across categories and brands. Among our customers, we’ve seen brands with 2% 3P seller share and others with 30%+. Without data, you can’t prioritize this among your many other objectives.
  • Prioritize. Most Amazon account teams are already over-burdened. If you’re taking on the whack-a-mole game of trying to shift 3P volume to 1P, you need focus. Start by identifying the ASINs with the largest $ volume leaking to 3P sellers and the 3P sellers causing the most persistent problems.
  • Identify 3P-only SKUs. A meaningful percentage of 3P sales come from SKUs that aren’t available directly from Amazon. This is often by design; some pack sizes aren’t profitable for Amazon or suppliers to sell directly. Look for distribution gaps for items with high demand and economic viability.
  • Manage in-stocks. Out-of-stocks are a key driver of Buy Box losses. Monitor stock availability closely and work with in-stock managers to improve demand forecasting and replenishment.
  • Consider selling as a 3P yourself. Some brands also establish their own 3P seller accounts as a backstop to Amazon. You’ll have more control over distribution, pricing and stock availability as a 3P seller and access to some interesting and complementary data.
  • Monitor pricing and scrutinize costs. Pricing is another common cause of Buy Box losses. Look for products that are available and in-stock from Amazon but undercut by 3P sellers. The delta between 3P sellers’ prices and Amazon’s is often caused by factors outside of a supplier’s control–but not always. Look for ways to sustainably remove cost.
  • Trace weak points in your supply chain. This is often easier said than done given the traceability of the chain of custody for many suppliers’ products. Depending on how granularly you identify supply (lot, case pack, inner pack), you may be able to trace a 3P seller’s source of supply simply by ordering from them.

Send us a request to find out more about our Amazon analytics, including how we help suppliers manage the 3P challenge.

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