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Marketplaces in eCommerce: Profits or pitfalls?

At Meet Magento UK this year, we had the pleasure of hosting Marion Freijsen on our Platform track – who gave an exceptional talk about marketplaces and their role in eCommerce. With so much growth happening in marketplaces, and many merchants curious about them, we wanted to explore the topic a little further here on the JH blog.

What is a marketplace, and what’s so important about them?

So should you add a marketplace as an additional revenue stream for your eCommerce brand? Which one should you choose? Should you build your own? And what potential pitfalls should you look out for? That’s what we’re exploring in this post…

Marketplaces are defined ‘as a system of buying and selling within competitive conditions’. When you consider the huge variety of products on offer within global marketplaces like Amazon, eBay and Etsy, coupled with powerful search functions, and independent review and customer service functions, it’s no wonder that consumers flock to marketplaces.

The numbers are staggering – consumers in the UK are four times as likely to purchase through a marketplace than they are to shop online with a retailer directly. Research from just last year found that 57% of regular online shoppers bought through a marketplace, compared with only 17% purchasing directly from a retailer’s website. Plus, global marketplace sales reached a total of $2 trillion last year alone, and are set to double in the next few years.

Whether it’s down to consumer trust of marketplaces, ease of checkout, or variety of products on offer – there’s no denying there’s consumer demand.

Why should you list your products on a marketplace?

Consumers are looking for products, not brands

The way we shop has changed considerably over the past few years – for many of us, we regularly know the product we want before we know the brand that offers it. Whether it’s a lawnmower or new shampoo; dog treats or running shoes; the purchase journey often begins with a search on Google, or directly on a marketplace like Amazon. Instead of brand names, we might begin by seeking product specifications: diesel powered, sulfate-free, high protein, arch support. Branding is still important, and forms a key part of the purchase and retention journey – but marketplaces also offer other influences on purchase decisions, and buyers might base their decisions partly on other factors, from independent reviews to price comparisons.

Marketplaces are used by businesses as well as consumers

Shopping on marketplaces has seen a big rise within businesses too – when it’s easy to restock your printer ink, jiffy bags, or office snack cupboard in two clicks on Amazon (and have them delivered tomorrow for free), most employees won’t go to the trouble of using antiquated ordering systems from traditional B2B suppliers. Marketplaces have noticed this trend, and many now offer special business accounts that provide VAT receipts and other perks to business customers.

They’re a default for Millennials and Gen Z

Both Millennials and Gen Z have grown up with the internet – and using marketplaces to source products for their personal needs is second nature to them – 97% of Millennials report using marketplaces to purchase their personal goods. And as both generations enter the workforce and rise into decision-making positions or start their own businesses, those choices will translate into purchasing products for their companies as well. For brands, being visible on marketplaces could be an excellent way to tap into a new generation of buyers and brand advocates.

You should be selling where your customers are, not relying on them to come to you

Truly customer-centric brands flex to their customers’ needs, rather than expecting customers to do what the brand would like them to. If you know your customers prefer to purchase through a marketplace, then avoiding selling there is going against your claims of ‘customer-first’ business practices – and while you may see issues with profit margins or brand dilution, customers will only see convenience; or if you decide not to sell through a marketplace, they simply won’t see your brand at all.

If you don’t get on a marketplace, someone else might  

For brands who choose to avoid adding their products to marketplaces, they’ll often have that decision made for them. Third parties or trade partners may see the gap and try to capitalise on it by listing your products themselves, or even worse, one of your competitors will happily swallow that demand that could have been for your products. It’s relatively easy to set up an Amazon seller account, and even easier to create one on eBay, which has led to a large community of resellers buying up everything in demand – from limited edition Lego sets to blow-up jacuzzis – to then sell on at inflated prices to make a quick profit. 

Some marketplaces also invest in white labelled products where they see a high demand – you’ve probably heard of Amazon Basics, but Amazon have also created other in-house brands including Wag pet food, Mama Bear baby products and Presto! for household cleaning. It stands to reason that if Amazon went to the trouble of creating their own in-house brands, it’s likely the demand on their site was outstripping the supply they could source from current brands stocked on the marketplace.

What are the pitfalls of selling through a marketplace?

You might lose the opportunity to build the customer relationship

If the success of your brand hinges on building that personal relationship with your customers, a marketplace might not be the right fit for you. When your customers purchase your products through a marketplace, their relationship with that marketplace is built much faster than the relationship with your brand. Of course, you still have the power to build loyalty and brand recognition – there’s a lot you can do with packaging, or by choosing to handle all the fulfilment of your products – but you’ll have to work much harder to bring a marketplace customer to you directly. Remembering that some marketplace customers will only ever be marketplace customers is key to remember here.

Key data touchpoints are lost through marketplace purchases

Customers who purchase from your retail site give you all kinds of data and information about what drove them to purchase – from their purchase journey and dwell time to searches and product preferences, as well as their contact details and consent to email marketing. Most if not all of these are lost when a customer goes through a marketplace – making understanding and remarketing to those customers much more difficult.

The marketplace could end up in competition with your retail site

It’s almost always preferable to have a customer purchase directly from you, rather than through a marketplace – but what happens if a marketplace starts taking business away from your own site? Some businesses find that offering a reduced range on marketplaces (with the full range on their own site) or exclusive offers, deals and bundles can ensure their retail site stays ahead, but this is definitely one to be aware of. What strategies will you have in place to ensure your customers don’t stop using your own touchpoints?

Should you join a marketplace, or build your own?

An interesting question, this – while joining an established marketplace has many benefits, namely convenience, brand awareness, and minimal investment, some retailers choose to build their own bespoke one, incorporating their own choice of functionality, branding, product ranges, and vendors. While most businesses will choose the former – and benefit from added value like third-party fulfillment – others may decide their own bespoke marketplace is the better option for their brand. The decision is all down to your business goals and future plans.

Is a marketplace part of your business’ future roadmap?

There’s plenty of things to think about when considering joining or creating a marketplace – and that’s before you even start working on the strategy! For future insight, be sure to check out Marion’s talk from Meet Magento UK 2021, which is available on demand now.