For large branded goods companies today, “third party” eCommerce marketplaces are a headache. They are messy, unpredictable, disruptive, and complicated. However, brands are increasingly discovering that these marketplaces can offer new opportunities and, in many cases, more profitable outcomes.

A FAMILIAR STORY...

If you’re a marketing or sales leader in CPG, you’ve likely gotten an urgent call like this: “The buyer at Retailer X is fuming because of the prices they saw for Widgetz on Retailer Y’s site this weekend. What should we do?” You decide to investigate to respond to your internal team with the facts.

As you dig in, you discover that Retailer Y did not, in fact, lower or changed their prices at all, but a “third party” seller in their marketplace set a new price floor that appears as the latest price both to shoppers and to Retailer X’s web-scraping tool. Your team goes to work trying to understand who this seller is and discovers that it’s a small business in Tulsa that likely bought a handful of discounted Widgetz at a local shop. There’s nothing to be done about this situation. The next day, Retailer X changes their online price to match the Tulsa seller who made a few hundred bucks while initiating a chain of events that will cause perhaps millions of dollars, and significant relationship capital, to be lost at retail.

WHY YOU SHOULD CONSIDER MARKETPLACE SELLING

In exploring this question, we’ll focus on the biggest marketplace for US CPG, Amazon’s Marketplace (often referred to as “Seller Central,” the name of its user dashboard). Per the latest reports, Amazon represents about 38% of US eCommerce sales, over 5X that of their nearest competitor. Amazon has also been more liberal in building its Marketplace, which now has millions (!) of sellers compared to thousands for their most direct competitors. Here’s why brands are joining fast:

1.  The opportunity for increased profitability: The financial model is the most important difference between first-party and third-party selling. As a third-party seller, you maintain title over your goods and pay Amazon only a “Referral Fee” when the item is sold – this is most often 15% but can be as low as 6% in some categories. Compared to “traditional” buy/sell retail relationships where the retailer will keep as much as 50% or more of the final sale, this opens up substantial margin improvement if you can appropriately structure your offering and services (including your fulfillment costs). You should be “designing to market” for marketplace SKUs to hit the right price points, minimize shipping costs, and ultimately grow your sales and margins.
   
   
2.  Access to high-converting shoppers: Amazon.com’s Prime service has over 200 million subscribers who spend, on average, $1300 / year on the platform (nearly 2X what non-Prime members purchase). Amazon’s made it very simple for Marketplace sellers to be Prime-eligible by using their fulfillment services (FBA – “Fulfillment by Amazon”) or by using the seller’s fulfillment and customer service capability as part of the “Seller Fulfilled Prime” program. Prime is a significant trust driver and enables higher conversion rates – it’s like a seal of approval from Amazon. In addition to great conversion rates, however, the costs of acquiring a shopper on Amazon will also usually be much better than the cost of finding and bringing shoppers to your own brand’s site with paid media and will generally be comparable to the prices of first-party seller marketing on Amazon (although tools differ slightly as discussed below).
   
   
3.  DIRECT control of your brand experience and pricing: As a Marketplace seller, YOU are in the driver’s seat regarding brand content and pricing (within limits of good taste, advertising regulations, published Amazon category content guidelines, trademarks, etc.). This can be incredibly liberating for brands with messages watered down or otherwise adapted in other channels. Changing your copy, removing a newly unsupportable claim, introducing seasonal themes, or improving your images is trivial and fast. Sellers are also directly responsible for setting their pricing and promotion strategies. If they are the sole seller of their items, they will establish item price levels in the marketplace.
   
   
4.  Brand protection: Amazon offers “brand protection” through its Brand Registry program for first and third-party brands with documented USPTO trademark registration. This allows sellers to report violations of their trademarks and counterfeit products for quick action and when merited, removal from Amazon. Brands can also, in some cases (when counterfeiting is rampant), “gate” their product to limit participation by other sellers.
   
   
5.  Speed to market: After setting up an account,  a marketplace seller on Amazon can create a new item and “live” in as little as a day. If the seller is relying on Amazon’s fulfillment (FBA), lead times are, of course, a bit longer as the seller needs to ship to Amazon’s facilities, and then the inventory needs to get checked in, but this is still measured in days, not weeks or months. Amazon's Marketplace can be a great enabler for a brand wanting to get its new product “out there” quickly. For a brand wanting to remove a product from the marketplace, this can be done quickly and with virtually no hassle, including simple and surprisingly inexpensive shipping to get your remnants back from Amazon’s warehouse.
   
   
6.  Robust marketing tools: Years ago, the case could be made that a critical disadvantage of third parties compared to first-party selling on Amazon was the more limited set of marketing tools. This is still true, to a small extent, but Amazon has significantly closed the gap between third and first-party sellers. Promotional and marketing tactics like Brand Coupons, Sponsored Brands, Subscribe and Save, and Brand Stores have recently been added to the marketplace seller’s toolkit. 

WHAT ARE THE CHALLENGES & DRAWBACKS?

1.  You’ll likely need new work processes & capabilities: While getting a product onto Amazon’s Marketplace is relatively easy, getting it to sell can be much more challenging – and you don’t have a retail buying team helping you with data and strategy! To succeed, your team (or partners) needs to know not only how to create great content but also how to make your product discoverable using tools such as Amazon’s “sponsored products,” which may require maintenance of and bidding on 100s of keywords to be successful (automation is possible). You also need to know how to monitor your competition and how you will manage your pricing, perhaps with daily or more frequent updates (again, automation is your friend).
   
   
2.  Cultural and risk tolerance may get in the way: If your company hasn’t made a serious effort to sell direct-to-consumer in the past, you will face some hurdles, including potential internal politics and policy. If your company doesn’t have a reasonably high-risk tolerance, getting approval to do anything that might be interpreted as competition by your retail partners may also be challenging. Even if you do get approval, there may be onerous restrictions placed on the project that could endanger its success.
   
   
3.  You will not own customer data & relationship: When selling directly on your company website, you can create a lasting relationship with the shopper through email and retargeting. Unfortunately, that’s not the case on Amazon’s marketplace. While you can send some transactional communication to your shoppers, this ability is limited by systems and Amazon’s TOS (Terms of Service), which also prevents including in-pack inserts that direct shoppers to your website, etc. Amazon’s marketplace is not in the business of driving traffic to your brand’s website.

HOW TO DO IT RIGHT:

On Amazon or otherwise, your third party marketplace approach should be part of a broader “direct to consumer” (DTC) strategy. By defining this strategy clearly, you’ll avoid further complicating what’s already likely a complicated dynamic for your business. Here are some questions to consider carefully with your team:

• Are there parts of our portfolio that could / should be sold direct-only?
• Can DTC & marketplace selling be a way we “test and learn” with new products and flavors?
• Can we use unique value-add / seasonal offerings to encourage brand awareness and interest on marketplaces?
• How is our competition using marketplaces, and what does that mean for us?
• How will we communicate our approach & activities to other interested retailers?

Marketplace selling is significant and isn’t going anywhere – you can ignore it or treat it as a nuisance, but why not make it work for you instead? It could soon become your only option for many brands looking to grow their Amazon business - start learning today!

Article originally published October 22, 2020.

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