Why sell on online marketplaces – six great reasons and three warnings
Online market places allow you to sell goods without setting up your own online store. Selling through online market places provides a flexible business opportunity with relatively low start-up costs. Amazon, eBay, TMall are three well-known brands marketplaces but there are at least 500 more across the world.
It is expected that by 2020 marketplaces will account for around 40% of global online retail (Ecommerce foundation and Nyenrode Business University), but patterns and developments differ by country: in the Nordics the share of market places is less than 30%, whereas the Polish market place Allegro accounts for 60% of online retail sales. In the North America, Amazon and eBay account for 30% of online retail sales (Internet Retailer). In the largest online retail market, China, marketplaces already account of 90% of all online sales, so we would not be surprised if the 40% will be surpassed. In the UK we estimate the share to be 40% already. For the UK around 17 million people per month are visiting eBay and 20 million Amazon. Considering that the UK has population of 60 million which include elderly and children without a credit card, these are staggering numbers. On average 80% of online shoppers are buying product from market places (Post Office study Delivery Matters), and note this statistic: in the USA already significantly more online shoppers start their product searches on Amazon than on Google.
So, what are the benefits of selling through online marketplaces?
- Additional route to market – with 40% of online retail sales taking place on these platforms, can you afford to stay out? Also remember the point made above, marketplaces have become very important in the product search behaviour of online shoppers.
- Higher initial credibility and trust for online start-ups – the credibility of the marketplace is leveraged by any new comer, not only through the history and quality controls of the marketplace, but also through e.g. the impartial reviews.
- Lower start-up costs vs your own online webshop – setting up your own webshop not only requires building and operating your own webstore but setting up and/or maintaining a full blown B2C operation. For manufacturers selling through retailers the step towards marketplaces might be easier to take than the step towards setting up an own online direct to customer channel. The same operating costs logic will apply to start up online sellers. Although it has to be said that depending on the product and scale of operations a webshop might be as or even more economical to run in the longer term.
- Some operating or other costs benefits – most platforms can provide a lower fulfilment and delivery cost per parcel simply through their massive economics of scale.
- Ease of internationalisation. Many platforms provide easy extension solution to take your local listing to other countries, solutions in the form of registration, listings, VAT payment and in some cases also attractive cross-border fulfilment and delivery solutions.
- Brand protection – this might sound counter intuitive as many branded goods sellers still have the opinion that marketplaces are in essence only suitable for price fighters. First of all brands have started to become mainstream on marketplaces. Secondly, if you do not sell your brand on the relevant marketplace, someone else will. As brand owner you have some protection on some platforms, e.g. through Brandregistry on Amazon, which allows you at least to control the picture quality and some elements of the description also of other sellers of your brand!
There are some disadvantages also, and although they seem few they are big enough for some sellers to give up on marktplatforms:
- Marketplaces charge commission – normally on every sale, and often with a fixed fee per month. Make sure you understand the full cost structure and how this will impact on your bottom line. Make sure you keep an eye on this and to compare it regularly with your other online B2C cost of doing business.
- Marketplaces have their own rules – some market places provide no or very limited scope for branding your products. If ‘telling your story’ is important for your sales, make sure you include this consideration in your assessment whether marketplaces are the most suitable route to market for you. Marketplaces might also have restrictions on communication with your customer – the problem being that the people buying from you might not be your customer (but of the marketplace) in the first place. If you can not guarantee fast response times and very low product defects be mindful, as marketplaces monitor your performance and after one yellow card you can quickly get suspended.
- Marketplaces can be notoriously difficult to communicate and deal with. I can guarantee you, you will have days you wished you had never started!
In 2017 Tamebay suggested that ultimately market place will be come a part of the omnichannel retail landscape, together with retailers and direct-to-consumer website. It is our opinion that prophesy has arrived early – already today, market places are one of the corner stones of online retailing and no brand or seller should ignore this.
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