Practical Ecommerce

Third-party Marketplaces: What Merchants Should Know

Many online merchants have embraced third-party marketplaces. They’ve been seduced by promises of easy revenue growth and enabled by software solutions that make it easy to sell their products on those sites.

It’s true that marketplaces can pay dividends for merchants, at least for near-term revenue. That’s the good news. But in this article, I’ll review the bigger picture.

When a shopper buys from marketplaces like Amazon or Sears.com, it’s typically those brands that benefit when the transaction goes well. Shoppers pay little attention to the marketplace merchant who originally listed the product and shipped the merchandise.

The exception is when there are problems.

In those cases, marketplaces can point fingers at the merchant, regardless of whether the problem was within the merchant’s control. In other words, the merchant receives little credit for smooth transactions and gets blamed for problem ones. That’s not the best way for merchants to build their brands.

What Is the End Game?

Many merchants simply jump-in to marketplace selling before developing a strategy that anticipates the threats and opportunities. Those merchants risk becoming replaceable middlemen over the long-term.

In fact, any online retailer that doesn’t have significant influence over the supply of their best-selling products, or who doesn’t develop and effectively execute a sound brand and business strategy, will find it increasingly difficult to thrive over the long-term.

With that in mind, here are five reasons not to sell on third-party marketplaces.

1. You’ll be Lucky to Turn a Profit

Marketplaces like Amazon receive 15 percent or more of sales, which makes turning a profit difficult.

In cases where there is enough margin to cover the 15 percent, you can be sure the marketplace will pay attention. Online retailers my company has worked with often find that the marketplaces eventually cut them out and buy merchandise direct from their suppliers.

In those cases, not only do merchants miss out on sales they were generating from that marketplace, they’ll also see sales decline on their main stores as marketplaces ramp their search marketing for those products.

2. You Are Building Someone Else’s Brand

It’s the marketplace’s brand, not yours, that benefits the most when a transaction goes smoothly.

Large merchants like Amazon create marketplaces, in part, to extend the reach of their brands across millions of SKUs without expanding their overhead costs. They know shoppers prefer the convenience of buying from one or several online stores that offer everything they need.

It’s not a foregone conclusion, however, that marketplaces will dominate ecommerce. Many online retailers have learned how to compete successfully. Successful merchants think strategically about how they source products and execute thoughtful marketing and business strategies.

3. You Are Creating Duplicate Content

When you feed your product descriptions to marketplaces you give them the ability to use that content. If your product feed contains the same descriptions that are on your site, the marketplace could receive primary credit, and search engines could label you as a copycat.

We’ve seen this scenario harm the rankings of hundreds of merchants. Dealing with these issues can be complex, but you have options. For example, you could reformat your feed to supply uniquely written or computer-generated content to marketplaces.

4. You Are Making Paid Marketing Less Efficient

Marketplaces generate traffic and revenue using many of the same channels you do, like pay-per-click text ads and Product Listing Ads. As you feed your products to more marketplaces you’ll notice those marketplaces bidding against you in search results, which simultaneously decreases your traffic and increases your cost-per-click.

My team witnessed this recently with a merchant who manufactures everything it sells, and which recently made its products available on dozens of marketplaces.

The merchant’s Product Listing Ads in Google Shopping were performing exceptionally well until several weeks ago when marketplaces crowded out its listings on profitable search terms. As the manufacturer, this merchant benefited from sales through those marketplaces, but only after ceding a large revenue share and losing the branding benefit of selling to the customer directly.

5. You Are Spreading Yourself Too Thin

As an ecommerce executive or business owner, your most valuable asset is your time. While marketplaces seem to offer the promise of easy sales without any risk, the sales aren’t always easy, and the risk can be higher than you think.

To truly capitalize on marketplace selling over the long-term, your efforts must be supported by a broader strategy that addresses supply-chain-control and the opportunity to generate repeat sales and referrals from your satisfied customers.

That’s important work, and it doesn’t happen overnight. If you jump into marketplace selling unprepared, you may end up wasting time.

If you’re serious about marketplace selling, experiment with a limited selection of your inventory on a handful of marketplaces. Don’t go all in until you’ve considered the long-term effects.

Conclusion

Experienced marketplace sellers, such as those who have sold on eBay for 10 or more years, have learned the hard way the importance of controlling their own destiny. Many have branched out to focus on creating and advertising their own stand-alone ecommerce sites.

Other merchants are now rushing in to marketplaces without considering the pitfalls. Think carefully about your marketplace strategy. Don’t let marketplace sales cannibalize your efforts on your main store.

Many merchants have the opportunity to grow their stand-alone sites immediately, and without much risk. For example, they can drive repeat sales through email marketing, or focus on acquiring new customers using Product Listing Ads on Google Shopping.

In short, maximize revenue growth on your own store and develop a long-term strategy for it before making marketplace selling a priority.

Tags:      

Scott Smigler
Scott Smigler
Bio  |  RSS Feed


Get the Practical Ecommerce RSS feed

Comments ( 3 )

  1. Mario Rubios May 21, 2013 Reply

    good article, thanks, what do you think about etsy?

  2. eComengine June 13, 2013 Reply

    While there are good points in this article, third-party selling has one major advantage over independent sellers: a consumer audience is provided to them in spades. Startup independent merchants must start from scratch trying to attract customers to their brand. Third-party sellers who think strategically can sell on marketplaces like Amazon as long as they want to, if they are up to the challenge, and ready to do the work.

  3. eRetail Exec November 15, 2013 Reply

    While you have some valid considerations, your thesis is plain wrong. I used to work at Amazon in their 3rd Party division and in Retail. I now work for an IR100 company and I built a marketplace team from scratch and we went from $0 to $10M in one year. Year 2 and we’re closing in on $20M. The net profit margin on marketplaces is 500bps more profitable than our core business. It’s all about sales mix and long tail and providing exceptional customer service. We are converting 3% of marketplace customers directly back to our own customer base as new to file customers. That’s a Google and Amazon tax free, repeat customer.

Email Newsletter Signup

Sign up to receive EcommerceNotes,
our acclaimed email newsletter.

And receive a free copy of our ebook
50 Great Ecommerce Ideas