What are the pros and cons of selling on marketplaces?
Online market places might seem like a very attractive option because they allow you to sell products without the need to set up a personal online store. By using an online marketplace you can avoid high start-up costs, and keep your flexibility. To top it off, setting up your own online shop can be quite challenging. According to B2C Europe, 60% of newly opened online stores close within the first four years. Keeping this in mind, there are a number of advantages and disadvantages to using marketplaces as a platform to sell and promote.
Let's start with the advantages:
1. You can start selling your products fast
“Nearly half of all online shoppers go directly on Amazon to look for a product”
Marketplaces have become a great opportunity for businesses that want to start selling their products fast. Just to give a small insight, Amazon has about 250 million active members and 300 million active Prime users. This shows that Amazon is a huge marketplace that allows many sellers to find success and stay on top of the game by monitoring competitors and access tools to manage inventory and SKU management system. Nearly half of all online shoppers go directly on Amazon to look for a product, letting Amazon gain nearly $259.22 billion in online sales in 2018. This number is only expected to grow, as more than half of all millennials prefer to use online marketplaces such as Amazon compared to baby boomers.
However, giants like Amazon and eBay are not the only marketplaces where vendors can promote their products and kick start the business. More than 63% of all vendors sell exclusively on marketplaces. A marketplace can grow faster than any other business, which can easily create an advantage if you’re searching for an investment.
2. It’s cheaper
Unlike online brands, marketplaces have to satisfy both parties—sellers and buyers. By joining a marketplace, you’re bound to get allies on both sides. Plus, spending money on ads for your personal website involves large sums of money, however, in the marketplace each deal involves a market and a seller. This means that if both sides are satisfied with your service, they can spread the good news and add to the promotion on your part.
Picking a platform to sell on can also be challenging. For example, Facebook lets you sell for free, while eBay takes a 10% fee. Although eBay attracts a wider audience, Facebook can be beneficial if you are targeting local groups. It also depends on the kind of goods you want to sell; popular and more bulky and breakable items sell better on Facebook, while rare objects are more in demand on eBay. Social networks like Facebook also allow you to localize your buyers and alert all your friends and followers every time you post. eBay, on the other hand, gives you an idea of what your item is worth by providing a ‘completed listings’ item search function. Of course, your options are not limited to just Facebook and eBay, there are many other websites, such as Etsy, Rakuten, Newegg, and Sears just to name a few, where you can sell your merchandise.
3. The majority of the risk is not on you
Think of all the possible issues that could come up throughout the process when it comes to points like delivery, handling, logistics and returns policies. If you decide to go with selling on the marketplace instead of launching a personal e-commerce website, you can avoid all the potential issues that can arise in the process. You don’t need to worry about legal policy, stock or logistics policy. On some marketplaces like Amazon, the business would happen by itself, and you would only have to focus on product design and development.
However, that can be true only for some marketplaces. As a vendor, you can constantly experience difficulties when it comes to returning policy. Although a good return policy can make customers happy, it can present challenges for many sellers, because they have to deal with the return of damaged or used goods. On top of that, payment delays can also be a burden. With online payments, getting checks on time is not a norm. If something goes wrong with the transaction, a seller has no power in influencing the process.
4. More interesting monetization options
There are several options to make a profit:
Commission: so far one of the most popular monetization policies. This means that you can charge a percentage on every sale or agree on a fixed fee.
Membership fee: In cases where the commission is out, you can consider implementing a membership fee paid by either buyers, sellers or both.
Listing fee: this can be another way of earning extra money. Think of Etsy that uses extra cash infusion, lead fee.
Freemium: You can start off with basic free options, but you’ll have to see a few powerful, paid features on your platform.
Ads and featured listings: this is still a widely used and effective method. You can think of it as a form of non-intrusive advertising.
These are just a few common methods that could be used to help your business and increase overall profit.
But it’s important to keep in mind that there are a number of disadvantages. Despite a number of benefits you can get by selling your products in the marketplace, you’re bound to face trade-offs and difficulties. Here are some of the issues that you should consider:
1. Difficult to achieve loyalty
This is probably one of the most common drawbacks. There is not really a way for you to get any sort of loyalty without having a personal website. You can’t really attract clients to ‘your’ platform. Your best bet is that the customer notices your product and recommends it to others. Today, only 30% of millennials claim that they feel loyal to brands. This also means that loyalty is actually a declining factor and might not affect your sales. Instead, you can focus on aspects such as choosing a solid platform as your marketplace; the one that can assure on-time delivery and handle the logistics well. Just in the US, Amazon has hit 49% of the US e-commerce market; that’s 5% of all retail spending across the country.
Consumer behavior trends are constantly changing, but it’s clear that with a strategy that aims to get more traffic based solely on loyalty is not going to work. The behavior is also largely affected by the technology that is being introduced on a daily basis. Forbes states that consumers are no longer loyal to brands; they are loyal to a particular brand experience offered by the brand.
2. Stiff competition
When it comes to traditional online sellers, you can find a lot of brands that sell similar products with similar strategies. However, what makes it possible to compete with each other is their limited inventory. Marketplaces, on the other hand, are a different story. There is a large number of brands that you would be competing against. To avoid this, you can try and specialize, but this can lead to a loss of market share. Forbes states that e-commerce site offers so many products to consumers that it can be hard for smaller e-commerce sites to compete because marketplaces like Amazon are able to offer a variety of products that could be ordered at the same place and time.
Ranking high can definitely make you stand out among your competitors. High-quality product photography is more important than anything else. It’s not the cheapest item with the highest ranking that sells out the fastest, but the one with a high-quality image next to it. A professionally taken photo will help clients trust your products and services. On top of that, most marketplaces have pretty strict rules regarding product photography. For example, Amazon allows only images that are 1000 x 1000 pixels or larger with a white background. eBay, on the other hand, requires the images to be 1600 x 800 pixels and with clear or white backgrounds. Etsy, on the other hand, has a minimum requirement of 1050 pixels and the background is not specified.
Nordstrom, an American chain of luxury department stores, imposes strict guidelines on their product photography. For example, the file format has to be Jpeg with minimum dimensions of 2400 x 3600 pixels and 8000 x 12267 pixels. In addition, Nordstrom requires natural quality lighting, shadows that don’t create a sharp contrast, no tone in the background and minimal shadow on the floor.
With everything mentioned earlier, it’s important to know that you can easily outsource your photography services to professionals. At Meero, we’re specializing in making your photography process flawless. By letting us do all the work for you, we guarantee to pair you with the most well-suited and experienced photographer near you. We partner with 58,000 professional photographers in more than 100 countries. While a 60-minute shoot takes a photographer on average four hours of post-production work, Meero’s AI is able to complete the same work in seconds. Meero can deliver new content that is:
Consistent at any scale
With limitless capability
Thanks to its adaptable and scalable solutions, Meero can provide a prime packshot delivery in less than 24 hours.
3. No control on transaction processes and restrictions on branding
A marketplace is a facilitator of the process between you and the consumer. Once you sign up for the services, you have zero power when it comes to transaction processes. Late delivery? Bad customer support services? Well, in this case, there is nothing you can do to change things.
According to BigCommerce, 25% of US customers abandon their carts because their preferred method of transaction is not there. Take Walmart for example, they offer payment options such as credit cards, Paypal, gift cards, Visa Checkout, Cash, Chase Pay, Amex and more.
On top of that, you don’t really get to design and decide the branding of your products. Product photography and descriptions are as far as you can get. Plus, websites like eBay filter what and how much you can post. For example, to sell high-end brands such as Dior, you need to get a certain number of positive reviews and be on the market for at least 90 days. These are just some of the pain points you can face once you decide to sell on the marketplace.