Effective Strategies for 3rd Party Sales Success
In the context of e-commerce, the term 3rd party sales generally refers to partner sellers present on an e-retailer’s marketplace. In a marketplace, third-party sellers sell directly to the buyer and are legally responsible for the proper execution of the sale.
Depending on the case, third-party sellers can directly manage their products’ logistics (storage, shipping, etc.) or entrust part of them to the e-retailer offering marketplace services. It is the third-party sellers who decide on their sales prices. The marketplace manager takes a commission on sales.
Amazon would thus have several million third-party sellers on its various national marketplaces.
It should be noted that a customer who buys on the marketplace part of an e-retailer does not always realize that he is buying from a third-party seller and not from the marketplace operator.
Third-party sellers are often referred to by the abbreviation 3P.
How to monetize 3rd party sales
There are several ways you can make money from third-party selling.
The first method is commission based. It’s also the most common way. The platform will usually charge sellers a commission on the Gross Value.
It’s important to note that commission fees don’t comprise shipping fees since they could impact the ability to secure Vendors.
There are several types of commissions: seller and category commission. The former is based on the value of the order, and the latter on the item category.
The second method is wholesale. In this model, you, as a retailer, can negotiate listed product prices. You can see this price on the platform, along with the sale and retail price.
Once the product is sold, the seller or Vendor gets the agreed list price. It s a great method for retailers with a considerable customer base. They usually like to give discounts and promotions without affecting the value agreed with the Vendor.
Rebates are also a great earning model. This is a particularly useful monetization model offering considerable price competitiveness to retailers.
A rebate represents the total sales’ percentage generated for the specific seller. It s paid back to the retailer after a certain period, usually annually or monthly.
When determining a discount, Sellers will set a target sales goal for a specific time frame, with the discount amount depending on whether the sales meet or exceed that goal (e.g. a 5% discount for total sales surpassing $2 million for the year, and 3% for sales below $1.5 million). Discounts should be adaptable since they are closely linked to the product category and the Seller.
Third-party sellers on online marketplaces can monetize through subscription fees, advertising, value-added services, and transaction fees. Subscription models are common for service platforms, while transaction fees are charged for each sale made.
Tips for 3rd party sales Model Strategy
You can earn a great profit once you properly set your third party selles strategy. Let’s see some important factors that could affect the success of your online retail business.
First of all, you need to assess the type of your potential sellers particularly in the first year of business. Bad customer experience can greatly impact confidence especially when cross docking. Delays in Third Party fulfillment can impact the time customers get their packages.
Create service level agreements with vendors and make sure it’s included in your new vendor contracts.
Also you should properly monitor ratings and seller performances and customer reviews to eliminate low-performing ones.
You should not go for back orders and should ensure your sellers are providing real time inventory lists since it is important customers get their products rather than being informed just their order is out of stock after they place the order. This can harm the business and lead to very bad reviews.
In your retail business you should set realistic expectations regarding your seller. Some retailers who choose going for a third party selling model over estimate the potential value and revenue. As a business owner, you need to be patient and build slowly.
Develop your monetisation strategy that will easily attract new sellers. From your seller’s perspective, new third party channels are risky. That’s because they need to put additional effort into approaching new customers handling new catalogs.
Therefore, your task is to make it easier for sellers to join your platform without importing subscription fees. If you are confident of driving profits, focus on the rebates model. It’s a method offering the best cost and benefits mix for new sellers.
Bottom Line
Marketers working on 3rd party sales should understand and align incentives with channel partners, provide exceptional sales support, and create demand for their product. It is important for marketers to optimize existing structures, make it easy for third-party sales teams to become experts in the product, and ensure the product is valuable to customers. Getting the marketing mix right is crucial, especially when distribution channels create complexity.
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