Are marketplaces right for your business? The Pros and Cons
A challenge which many retailers face at different points throughout their journey includes whether to list their products on a marketplace or not, which is a tough decision to make for many reasons, yet is commonly known to have its advantages for doing so.
Having a marketplace strategy is often a large element of many retailers’ sales mix, and contributes in a big way to the online revenue generated by an eCommerce retailer. In this article, we explore the key pros and cons which we often hear from our clients or prospects and aim to explain a well-balanced view on selling via marketplaces.
Most start-up retailers see selling on a marketplace as a fantastic opportunity to get their brand off the ground and introduce their products to potential customers who have not heard of them or who are not brand-conscious.
What is an online marketplace and what are the opportunities
Marketplace websites can be viewed as similar propositions to a department store, where lots of different brands and products are sold.
The biggest marketplace in the world is Amazon, which has a website for almost every country in the world (e.g. Amazon.co.uk for UK customers, Amazon.fr for French customers, Amazon.de for German customers etc). Collectively, these websites generated over $230m in 2018 and are commonly known as a location where you can buy ‘almost’ any product and are therefore generating the largest revenue of any eCommerce retailer in the world.
Second to Amazon, is JD.com (Jingdong) which operates out of Beijing and is rivalled by the third-largest retailer, Alibaba. Both of these websites were started in the late ’90s and have a similar proposition, yet they compete heavily when it comes to their high-tech delivery systems, drones/robot tech and warehousing tech.
Marketplaces dominate the list of the largest eCommerce companies in the world, with eBay, Rakuten, B2W, Etsy and Zalando also all listed.
Within the marketplace space, there are two types of sites – retail and auction. An auction site allows individuals to sell their products directly to others (private sales), but on a retail marketplace, only a business can sell to the consumer (a B2C marketplace) or to other businesses (a B2B marketplace).
Looking at the opportunity and differences between Amazon and eBay from a retailer's point of view, there are several points to consider.
- Firstly, Amazon receives 5x more traffic than eBay, therefore your total reach and brand awareness opportunity are much greater on Amazon.
Pros for selling via marketplaces
- Growing popularity: with Amazon nearly having 50% share of the retail sales market in the US, there is a huge chance that most consumers will either begin or include Amazon in their purchase ‘research’ phase. All marketplaces are growing in market share and this trend will likely continue in the coming years.
Cons for selling via marketplaces
- Marketplaces like Amazon are in full control and are strict when it comes to delivery/customer feedback etc. Amazon also sells their own private label products, which almost always win the Buy Boy (a mechanism by which retailers compete against each other on price/sales/click-through-rate, to win the ‘Add to bag’ button).
Integrating your site with a marketplace (which we have done hundreds of times for our clients) is crucial for ensuring efficiency and effective trading, and if this is technically possible then we strongly recommend integrating with as many marketplaces if commercially possible. All in all, it’s best to spread out and sell your products across different channels, but ignoring your own website and only focusing on marketplace sales would be a mistake and can stunt online growth.