There is no denying and ignoring any more. Ecommerce is ever changing and marketplaces are becoming an increasingly important channel in the consumer journey whether you like it or not. The trend has been going on for several years now but especially in 2019 (and even looking forward to 2020) it seems no week goes by without an event or article about marketplaces. Statistics prove the importance: marketplaces are the popular first touchpoint for online shoppers and brands need to have a marketplace strategy to maintain (or grow) their competitiveness. Now is the time for brands to consider a marketplace strategy. Also, for brands that sell on marketplaces already, it is important to review their marketplace strategy regularly because of changing selling conditions. Read on to find out more about recent changes to the Amazon marketplace model and how this impacts brands.
Let’s start off with a few facts about the changing ecommere landscape.
1- Consumers become more demanding and less loyal. 65% of them discontinues the purchase and buys from a different seller if a product is not in stock or they find a better price, lower delivery cost or smoother client experience elsewhere
2- Competition on a marketplace is much higher than in a traditional physical retail store. Amazon has approximately 250 million competitive references compared to a hypermarket such as Walmart or Carrefour which has 65 million.
3- Cross-borders changes the business model. Selling on a marketplace can open your business doors to so many more international markets, which is a great thing for you as a seller. Others think the same of course so competition from other markets is high. China understood this very well and early on. Chinese sellers account for 35% of sellers on Amazon Germany. This is even higher in countries such as the UK, Italy, France and Spain where this percentage is 40, 45, 47 and 52 respectively.
Not only should you as a brand keep your eyes on the competition and the changing consumer behavior. Before jumping on a marketplace just because you think you can’t stay behind, you should review the various possibilities, marketplace models, conditions, pros and cons. Moreover, their models can change over time as we saw happening with Amazon. Let’s take a closer look at that and what it means for brands.
Amazon and the self-service mindset
As automation minded as Amazon is, over the past years the company has been strongly focusing on computers taking over more and more human tasks in a pilot project named Hands Off The Wheel. Many services, from Stock Management to Amazon advertising to Vendor Management, in the chain that Amazon was managing initially, are now taken care of by either algorithms or vendors themselves. This way, Amazon is becoming a self-service platform. For vendors this means they need to take more and different skills in-house to keep up with the additional diversified work.
1P/3P (or vendor/seller): what is changing?
A first-party relationship (1P) means the marketplace acts as the retailer and the brand is the wholesale supplier. For this, you need a vendor account on Amazon. A third-party relationship (3P) is when the brand is the retailer, and sells directly to buyers via the marketplace. This is the case when you have a seller account on Amazon.
In the overview below, you see the main differences between the two different accounts. However, lately Amazon has been making changes to both making the seller account in particular more of an interesting choice.
In March 2019, over 10.000 small vendors in the US were forced to shut down their vendor account with Amazon. Another step of Amazon towards increased profitability.
So what is all of this telling us? Small vendors which are not profitable enough for Amazon, are forced to start selling with a seller account. Big or high potential sellers with high volumes are asked by Amazon to become a vendor. A third relationship model that has gained popularity is what is unofficially being called the hybrid model. It’s when a brand sells via Amazon through both a vendor account AND a seller account, thereby profiting from the best of both worlds:
- Control over pricing (of at least part of their selection)
- Independence from Amazon’s logistical challenges
- Less profitability negotiations with Amazon and
- Ability to use inhouse skills instead of Amazon automated services
With every decision, it is wise to weigh the benefits against the disadvantages. Operating a hybrid model means more work for you and your team because you have to deal with multiple accounts and platforms. You will also have two different sets of reports to review. To manage all of this, you need more resources and knowledge. Furthermore, to officially be allowed to operate a hybrid model, you will need Amazon’s approval which is not always guaranteed.
How to succeed with the hybrid model
If the hybrid model is the right choice for your brand, then here are 8 best practises to keep in mind:
If you have any further questions about this topic, our e-retail team will be more than happy to help you. Simply email email@example.com to get in touch.
Liza Merkourieva, Business Development and Marketing Communications Consultant