Business as usual is becoming difficult or coming to an end for many third-party sellers. Competition on Amazon.in or Flipkart is reaching new heights and it’s only going to get worse from here.
The original categories of top third-party sellers have saturated. So they’re entering new categories – categories you may be selling in – and all of the systems and resources that took them to the top of their original categories are coming with them.
The supply chain is shrinking fast. Manufacturers and brands are cutting out the middleman – you and other third-party sellers – and going direct. According to Forbes: “The number of manufacturers selling directly to consumers is expected to grow 71% this year to more than 40% of all manufacturers.”
All this increased competition has resulted in a ‘race to the bottom’ in many categories on Amazon and Flipkart. Top third-party sellers, manufacturers and brands, however, have more pricing flexibility with lower costs and higher margins. Many third-party sellers are finding that they have to work harder and harder to generate the same top line sales but are not receiving the same bottom line profit.
When you add it all up, it’s easy to see that the long-term viability of the reseller model is very much in doubt. The situation isn’t hopeless, however. This guide lays out what you can do as a third-party seller to put your business in the most competitive position possible.
To stand a chance of surviving, you must do one of two things. The first is develop a unique sourcing advantage. There must be something unique about your supply chain or how you source products to sell. But what if you can’t negotiate exclusive distribution agreements with your suppliers or don’t want to create your own private label products?
You Need to Achieve Economies of Scale to Last Long as a Third-Party Seller
Achieving economies of scale isn’t the only thing you need to do to stay relevant. There are several other things you need to do, or do differently, keeping in mind that speed and accuracy are now basic competitive requirements.
Now, more than ever, you need to protect your margins and Buy Box ownership. There should never be a time when your products are overpriced or under-priced.
You never want to be at the mercy of only one fulfillment method, one or two suppliers, or a handful of products. You need to develop the capability to quickly diversify your fulfillment, product and channel mix
Underdeveloped Categories are Under Attack
Many suppliers don’t limit the number of resellers who can sell their products. This means competing with dozens, hundreds, and sometimes even thousands of other sellers who are offering the same products at the same or lower prices.
What’s worse, many top third-party sellers who started out selling clothing or books or hardware are using their expertise and tools to enter other categories – because their original categories are starting to saturate.
Category expansion was how Amazon and Flipkart became household names.
According to Forrester: “Many retailers are increasing the number of SKUs they sell online by a factor of 5-to-10 times. Brands too are increasing the number of SKUs they offer with new sub-brands, private label products, and a general diversification of product lines.”
If you have trouble winning the Buy Box now – imagine how much more difficult it will be in one, two or five years.
Shrinking Supply Chain
If you’ve made exclusive distribution agreements with your suppliers, you’re in a better position than most third-party sellers – at least for now. However, the number of manufacturers and brands willing to do this is steadily decreasing. And there’s a good reason why this is happening. You now have to watch out for those you may have considered allies!
The supply chain is shrinking because more and more manufacturers and brands are cutting out the middleman and selling directly to consumers. This undeniable shift is already wreaking havoc on businesses of many third-party sellers.
According to Forbes: “The number of manufacturers selling directly to consumers is expected to grow 71% this year to more than 40% of all manufacturers. And over a third of consumers report they bought directly from a brand manufacturer’s web site last year.”
By creating direct-to-consumer (DTC) channels, they gain more control over their brand image, pricing and the way their products are presented. With the customer information collected, they can consistently improve the brand experience, sharpen their marketing strategy and offer lower prices.
Also, research shows consumers prefer buying directly from manufacturers and brands instead of from third-party sellers who offer multiple brands. Millennials drive this shift in buying behaviour because they view the product content of manufacturers and brands as being more reliable and appealing.
Battle of Efficiency and Margins
The sharp rise in competition is causing a ‘race to the bottom’ in many categories. Top third-party sellers, and manufacturers and brands have more pricing flexibility because their costs are lower, and margins are higher. Some third-party sellers are finding out they have to work harder and harder each year to generate the same top-line revenue but are not receiving the same bottom-line profit. It’s no one’s fault – it’s the nature of these marketplaces. It’s designed to be easy for anyone to list products for sale, and their Buy Box algorithm gives preferential treatment to the most efficient and profitable sellers who can offer the lowest price.
Here’s what it will take for you to have a realistic chance of success selling on Amazon, Flipkart and other marketplaces from now on.
What It Takes to Win
To survive and prosper, third-party sellers must develop a unique sourcing advantage. There must be something different or special about your supply chain. This is typically done by negotiating exclusive distribution agreements with suppliers or carving out a niche and creating your own private label products.
You want to be the only authorised reseller, or one of a select few. And you want to get your supplier to agree to not compete against you. This is easier said than done because not only is it becoming easier and easier for suppliers to sell direct – it’s also in their best interest! And creating your own private label products comes with its own set of challenges. One of them being the fact that you’re highly dependent on your supplier in terms of quality and production.
Achieving Economies of Scale
If you can’t negotiate exclusive distribution agreements with suppliers or create private label products, you need to achieve economies of scale to compete long-term as a third-party seller. You need to buy and sell in larger quantities. To do this, you must lower your costs, then your prices. There are three costs that you have a realistic chance of lowering: product, shipping and operating.
Price Your Products Correctly
You need to ensure your products are never overpriced or under-priced. You must be able to precisely raise or lower prices as soon as possible after your costs – or your competitors’ prices – change. You never want to be guessing or slow to react. You must make it your mission to always be selling at the right price no matter who you buy from, where you sell, or how you ship. To do this you need to use a repricer.
Diversify How You Ship and What You Sell
Use alternate fulfilment methods such as cross-docking or drop shipping to test the viability of large numbers of new products – without having to purchase them in advance. Once you find out what sells and at what price, and what doesn’t sell, you can better decide what to stock in your warehouse or FBA/FA.
You don’t want to be at the mercy of only one or two suppliers, or a small number of high performing products. Look into streamlining and automating the processes you use to seek out new suppliers and list new products. To be competitive, you should be able to change what you sell at any time by quickly identifying the best new suppliers and listing their products for sale.
How Do I Do All of the Above?
All of these processes are complex, but complexity also creates opportunity. If you can automate or eliminate the majority of the work so you only have to deal with exceptions, you’ll gain a competitive advantage over those doing it the longer, slower way. To do this, the front- and back-end of your business must be connected.
Driving Operational Innovation and Efficiency
You’ll find the operational innovation and efficiency you need by replacing disconnected point solutions and processes with a single unified platform. A multi-channel eCommerce solution like Ezeetrak that connects every area of your business – from purchasing to fulfillment. Top third-party sellers have agile and resilient businesses because they have a single source of truth.
With a single integrated platform like Ezeetrak you can:
Achieve Economies of Scale, avoid hiring employees and run your business for less than your competitors. Maintain or lower operating costs and offer lower prices. Out-price and outsell competitors. Use sales volume increase to lower product costs with suppliers. Offer lowest prices and dominate your category.