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11 juli 2022
When entering a marketplace, businesses often face the question of the best strategy to sell their products on that specific platform.
Approaching the decision with caution is understandable; after all, making sales is a pretty critical factor in any successful brand’s business model, so it’s only natural to want to get this right as quickly as possible.
Generally, there are three potential routes to choose from. The first two are the vendor (1p) model and the seller (3p) model — each of which brings its own set of pros and cons to consider carefully.
Figure 1. 3 models for entering marketplaces
The third option is a more flexible hybrid solution that allows you to take advantage of both benefits.
We called on ChannelEngine CEO Jorrit Steinz to discuss each option and explain why more brands should utilize a hybrid selling model when operating on marketplaces. With 20 years of e-commerce experience, Jorrit has helped build and reshape hundreds of platforms for some of the world’s leading retailers.
The vendor model sees the business as a wholesaler or supplier to the chosen marketplace. Brands that operate this way are commonly known as first-party sellers (1P) and deal directly with the marketplace rather than the consumer.
Marketplaces will send your business purchase orders based on their expected demand. Once the PO is fulfilled, the marketplace controls the product, content, and pricing.
The vendor model can be advantageous as it streamlines the brand's sales and logistics process. Sales are often made in bulk directly to the marketplace, making it simpler than fulfilling multiple orders from multiple buyers.
Other benefits include access to more advanced advertising tools and the opportunity to quickly build credibility by tapping into the marketplace’s already-established customer base.
However, passing on much of this responsibility does pose several risks for a business.
One of the most common complaints is pricing issues. Wholesale prices usually mean lower margins, and marketplaces will use their own algorithms to adjust prices once a PO has been fulfilled—often breaking Minimum Advertised Price agreements (MAP)—meaning there is a constant risk of the vendor losing out on additional revenue.
You also lose significant control over your brand identity as the marketplace decides on essential factors like shipping packaging, descriptions, and the majority of the on-site consumer experience.
Take, for instance, this Burberry perfume. On the brand’s own site, the photography is sharp, and the description is highly-detailed, aligning with the identity you’d likely associate with a luxury brand. Meanwhile, the same product on Amazon is almost unrecognizable in comparison. The brand name is in capitals, the image and pricing are different, and there is no product description.
The seller model—known as third-party or 3P—allows your business to retain its status as the retailer, offering greater control over your product information, pricing, stock, and fulfillment methods. It is worth noting this does naturally translate to more leg work, however.
The 3P model lets you sell directly to consumers on the marketplace, giving you much greater control over each sale funnel stage. This extends to deciding on how you ship your products, too, be that through marketplace fulfillment (e.g., Fulfilment by Amazon - FBA), (Fulfilment by Merchant - FBM), or in the case of advanced FBM sellers, through Seller Fulfilled Prime(SFP) once accepted — we’ll go into this in more detail below.
Perhaps most importantly, you have the final say on pricing, allowing you to maintain an equal price across all channels (or not drop below a set price). At the same time, ChannelEngine’s repricing software easily enables brands to create dynamic pricing rules to factor in shipping costs, different marketplace fees, and scheduled discounts. This software can also provide in-depth competitor insights and is invaluable in maximizing profits when there is less competition.
The most obvious drawback is the work that goes into maintaining the above points, which can be incredibly time-consuming, and sellers are subject to several marketplace fees. On top of that, you also become responsible for your advertising, which brings added costs and requires time and skills to operate effectively.
Figure 2. Benefits of the seller model
That said, naturally, the ideal approach is to take all the benefits of the seller and vendor model and combine them into a single strategy.
Employing a hybrid model when it comes to selling on marketplaces allows you to act simultaneously as a vendor and a seller. You can take advantage of both 1P and 3P selling and move between the two with agility as and when it is needed.
Say, for instance, you’re selling three-quarters of your stock through the vendor model, but the marketplace has no interest in that final quarter. Rather than the remaining inventory sitting in a warehouse, a hybrid model allows you to sell it through 3P and make sales you otherwise might not have.
Another example of the hybrid model proving priceless presented itself for one of our clients early in the pandemic. Brabantia had been selling well through Amazon’s vendor model. However, when the platform’s attention switched toward sanitation products, the POs quickly slowed. Luckily, they had used ChannelEngine to integrate the 3P model, meaning they could seamlessly switch over and maintain sales, growing from 1 to 10 seller positions in a one-year timespan, and significantly reducing pressure on the business’ in-house IT department.
“After a successful implementation, many new possibilities opened up for us to become active on certain marketplaces across Europe. It couldn't have been timed better! In the months following our onboarding, we faced a global pandemic and uncertainty of vendor turnover. A significant portion of vendor business was temporarily paused or reduced, after which our newly set up Seller accounts were able to take over much of the lost business. Because of this, we hit the ground running with our ChannelEngine connected marketplaces.”
Given how frequently Amazon, Bol, and other online marketplaces change their algorithms and product priorities, the flexibility a hybrid model affords businesses can be vital, as no time is wasted having to adjust.
Figure 3. Benefits of the hybrid model
Similarly, marketplaces also regularly switch the method of fulfillment they favor, making a hybrid delivery approach incredibly useful.
Let’s say you’re initially selling a product using Fulfilment by Amazon, as it gives you access to Prime delivery services and usually boosts your chance of winning the BuyBox. If this channel runs out of stock, a hybrid delivery model means you can instantly switch to alternative fulfillment solutions, continue selling and reduce any damage to your BuyBox share.
Likewise, to avoid overloading themselves in the build-up to major shopping holidays, marketplaces tend to switch their delivery preferences, which could be disastrous if your brand relied solely on marketplace fulfillment. In contrast, a hybrid delivery model means you can continue selling using your own fulfillment. ChannelEngine provides an automatic switch between marketplace and merchant fulfilled, minimizing disruption.
The decision on how you sell will always come down to your business’ circumstances. Things like existing fulfillment methods, revenue targets, and the size of your operation all need to be considered.
That said, while a hybrid or seller model may be more demanding, the overall benefits in comparison to relying on a single method are clear. To help manage the increased workload, an integrator like ChannelEngine removes the heavy lifting, allowing you to optimize your offering effortlessly across different selling models and other global marketplaces. Additionally, ChannelEngine has a strong partner network that can help brands further maximize their seller accounts, aiding with vital elements like advertising, SEO, and fulfillment.
Request a demo and learn how to make a smooth connection to some of the most promising marketplaces.
