A Second Look at Third Party Selling

Allan Peretz
Post by Allan Peretz
October 22, 2020
A Second Look at Third Party Selling

For many mid to large sized branded goods companies today, “third party” eCommerce marketplaces are a headache. They are messy, unpredictable, disruptive, and complicated. After focusing the last few years on learning their inner-workings, however, we’ve come to believe that marketplaces have a much bigger role to play for both big and small brands alike – especially as Amazon.com continues to limit participation in its Vendor program.


If you’re a marketing or sales leader in CPG, you’ve likely gotten an urgent call that goes something 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?” Although pricing is at the retailer’s sole discretion, you decide to investigate anyway so that you can respond to your internal team with the facts.

As you dig in, you discover that Retailer Y did not, in fact, lower or change their prices at all but a “third party” seller in their marketplace set a new price floor that appears as the new 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.


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). This is not because other non-Amazon marketplaces aren’t critical parts of the equation – they are and in future reports, we’ll also cover Walmart, Jet, Alibaba, and others in depth. Per latest reports, however, Amazon represents about 49% of US eCommerce sales, over 6X that of their nearest competitor. Further, Amazon’s Marketplace is huge in proportion to their overall retail business – it represents roughly half of all Amazon unit sales and that’s growing. Amazon has also been more liberal in building their Marketplace which now has millions (!) of sellers compared to only thousands for their most direct competitors. Here’s why brands are joining fast:

  1. The opportunity for increased profitability: The most important difference between first-party and third-party selling is the financial model. 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. Note that Amazon recently took their grocery referral fees down to only 8% as a temporary competitive measure. 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 room for substantial margin improvement if you can structure your offering and services (including your fulfillment costs) appropriately. You should be “designing to market” for marketplace SKUs in order to hit the right price points, minimize shipping costs, and ultimately grow your sales and margins.
  2. Access to high-converting shoppers: Per latest estimates, Amazon.com’s Prime service has 90 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 own fulfillment and customer service capability as part of the “Seller Fulfilled Prime” program. Prime is a major trust driver and enables higher conversion rates – it’s like a seal of approval from Amazon. In addition to great conversion rates, however, 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 costs 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 when it comes to 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 who have had their messages watered down or otherwise adapted in other channels. It is trivial and fast to change your copy, remove a newly unsupportable claim, introduce seasonal themes, or improve your images. Sellers are also directly responsible for setting their pricing and promotion strategies, and in the case where they are the sole seller of their items, they will establish item price levels in the marketplace.
  4. Brand protection: For both first and third-party brands with documented USPTO trademark registration, Amazon offers “brand protection” through its Brand Registry (now v2.0) program. This allows sellers to report violations of your trademarks and / or 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, which can sometimes take up to a month but is usually faster, a marketplace seller on Amazon can have a new item created 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. For a brand wanting to get their new product “out there” quickly, Amazon’s Marketplace can be a great enabler. For a brand wanting to remove a product from the marketplace, this can also be done extremely 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: About a year ago, the case could be made that a key disadvantage of third party 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. Major promotional and marketing tactics like Brand Coupons, Headline Search Ads, Subscribe and Save, and Brand Stores have all been added recently to the marketplace seller’s toolkit. Some of the remaining tools not available to the average third party seller can be obtained if you join special Amazon partner programs such as the “Amazon Exclusives” program. We will cover these programs in detail in future articles.
  7. Shopper insight: The ability to control and rapidly change your content allows for robust “A/B” testing of content alternatives. In a short period and with the help of readily available analysis tools, you can evaluate the content decisions that will most impact your sales – main product image, listing title, listing copy, and “back-end” keywords. In addition, other tools will allow you to quickly survey people interacting with your brand online for more robust and detailed insight about your brand’s experience. With the number of shoppers and research options available, you can get more “in situ” data from Amazon’s marketplace than any other place other than your own website – you can use this data to guide creative decisions everywhere.


  1. You’ll likely need new work processes & capabilities: While getting a product onto Amazon’s Marketplace is fairly easy, getting it to sell can be much tougher – and you don’t have a retail buying team helping you out 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 potentially internal politics and policy. If your company doesn’t have reasonably high risk tolerance, it may also be extremely difficult to get approval to do anything that might be interpreted as competition by your retail partners. 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 direct on your company website, you have opportunity to create a lasting relationship with the shopper with email and through 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 both by systems and by Amazon’s TOS (Terms of Service) which also prevent your 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.


Your third party marketplace approach, on Amazon or otherwise, 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 special 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 big and isn’t going anywhere – you can choose to ignore it or treat it as a nuisance but why not make it work for you instead? For many brands looking to grow your Amazon business, it could soon become your only option - start learning today!

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Allan Peretz
Post by Allan Peretz
October 22, 2020
Allan's an accomplished eCommerce leader with experience on brands of all sizes including SK-II, The Art of Shaving, Samsung, and Pampers. He's responsible for maintaining the strategies and "playbook" that we use to grow your business.