In the competitive world of e-commerce, marketplaces like Amazon, Google Shopping, eBay, and Idealo have become key players, connecting buyers with sellers and offering a simple way to comparison shop. Amazon, for example, captures 37.8% of all e-commerce sales in the United States. However, while selling on marketplaces can enable brands to reach new customers and increase sales, it also has its disadvantages, including increased competition and decreased profit margins.
To be successful in marketplace sales, businesses need to understand the role they play in retail and how to differentiate themselves among a sea of sellers. In this blog, Omnia will explore the realities of selling on marketplaces, best practices, while adding our predictions on the future of marketplace sales.
The role of marketplaces in the e-commerce landscape
Marketplaces exist to connect buyers with sellers. With so many e-commerce brands and retailers competing for sales – somewhere between 12 and 24 million worldwide – marketplaces have become key players in online sales, enabling customers to simplify comparison shopping. The coronavirus pandemic boosted the relevance of marketplaces as well, as customers looked for places they could buy many different products in one location.
So how do the marketplaces actually make money? There are a variety of business models. Some charge commissions, where they receive a percentage of each transaction. There are general listing fees, featured listings, and ads where sellers can boost their products to the top of search results. Some marketplaces also offer to take part of the process over for the seller; for example, the Fulfilment by Amazon (FBA) model, when a manufacturer chooses to outsource shipping and warehousing to Amazon.
In a survey from Digital Commerce 360 and Bizrate Insights, 84% of respondents in the US said they make purchases on marketplaces at least once per month. 35% buy from marketplaces at least weekly.
Common categories for purchases differ by country and website, but below are some of the most successful shopping categories for top marketplaces:
The realities of selling on marketplaces
As with any retail channel, there are benefits and challenges that accompany selling products on a marketplace. Some of the advantages and disadvantages include:
Expansion: Marketplaces enable existing brands to expand their reach, whether from selling in new regions or reaching new customer demographics.
Trust and traffic: Marketplaces provide a major advantage to new e-commerce stores: web traffic and trustworthiness. Buyers may be hesitant to purchase from an unfamiliar website, but they feel more secure making a purchase on a well-known platform such as Amazon.
New revenue streams: Marketplaces provide new revenue opportunities to e-commerce businesses, allowing them to access new customers and increase sales. For example, Amazon claims that companies selling on their marketplace can increase sales up to 50%.
Decreased profit margins: Transaction fees are a marketplace norm, so total profits from selling the same product at the same price will be lower than selling D2C from your website. With transaction, advertising, and fulfilment fees, Amazon can take up to 50% of a seller’s revenue.
Increased competition: Raising prices to cover marketplace fees might not be such a simple option, as competitors may be selling similar products at a better price. Unless you're selling something unique, you'll likely need to compete on both price and visibility, which are highly connected and dependent on each other.
Giving up control: The marketplace processes transactions and is the primary source for customer service. This means businesses will give up some control over their customer experience, data, and product perception compared to when they are hosted on their own websites.
Selling through any third party where the business has less control will have implications for the customer experience. When building a marketplace strategy and choosing which marketplaces to work with, brands should keep in mind the concerns that customers may have:
The graphic above shows that 45% of customers found that prices were higher on marketplaces in May 2022 compared to the past, indicating how little control a brand can have over its prices on a marketplace. Other challenges marketplace customers encountered also have to do with limited control over customer experience; longer lead times for delivery (36%) and products out of stock (35%) would be the fault of the marketplace if they run fulfilment, such as the FBA model at Amazon. Shipping fees (24%), limited assortment (21%), and customer service wait times (16%) are also dictated by the marketplace.
10 important factors for successful marketplace selling
To successfully sell a brand’s products on marketplaces, businesses will need to make their product listings stand out, promote and advertise, differentiate from competitors and other channels, and more.
High-quality product listings: Creating well-written, accurate, and detailed product listings that include high-quality images and videos can help attract potential customers and increase sales. When selling in a new market with a different language, consider working with a native speaker for translation or editing to ensure product descriptions do not sound like they came from an online translation service.
Positive customer reviews: Positive customer reviews are a powerful tool for building trust and credibility. According to one US survey, nearly all (99.9%) consumers say they read reviews at least sometimes when shopping online. Encourage your customers to leave feedback on your products and services.
Product assortment: Offering a diverse range of products can help attract more customers and increase your chances of making a sale. Ensure that your product selection is relevant to your target audience and differentiated as needed between marketplaces or retailers and your D2C channels.
Strategic advertising: Marketplace ads and paid listings can boost the visibility of your items or store and improve search result rankings. However, be mindful of budget when engaging in any type of advertising.
Optimization for search: Optimise your product listings for search engine visibility by including relevant keywords and phrases in your titles and descriptions.
Promotions and discounts: Offering discounts can increase brand loyalty if a customer has bought from you before, but even more importantly in the competitive marketplace environment, it helps attract new buyers. According to RetailMeNot, 80% of consumers feel more encouraged to buy from a brand that is new to them if there is a discount or offer.
Competitive differentiation: Differentiate yourself from the competition by offering unique product features or bundles. For example, if you are wanting to create a sportswear line, Nike and Adidas own the majority of customer sales in this category, however, is there something they are missing? Creating what is called a “challenger brand” is about finding a gap in the market and using it as the key to your success.
Compliance with marketplace policies: Ensure that you comply with the marketplace's policies regarding product quality, returns, and refunds to avoid penalties and maintain your store's reputation.
Stock levels: If a product is not in stock, customers cannot buy it; but the seller can also get penalised by the marketplace if its products are not consistently in stock and available for purchase.
Pricing: Marketplace sellers need to constantly adjust their pricing to stay near the top of the results and avoid being undercut by competitors while still maintaining reasonable profit margins. Dynamic pricing software like Omnia enables sellers to automate the price and price perception management based on large quantities of data, ensuring products are always priced in a way that fits the company’s pricing strategy.
All of the above factors, especially reviews, stock levels, and the quality of a competitor’s listing, can be used as additional data when formulating a pricing strategy. A vendor may choose only to compare and adjust its price with offers of the same quality, or might not adjust a price to match an offer if there is no stock available. All these factors are taken into account when automated pricing is applied.
How the relationship between brands and marketplaces is changing
The relationship between brands and the marketplaces they sell on has been evolving over time. Let’s consider Amazon as an example. Brands who want to sell through the retail giant can either offer their products as a vendor or a seller:
Vendor model: Amazon's vendor model involves buying products directly from the brand-name manufacturer, then selling the products under their own label on their platform. Otto and Zalando operate with this model as well.
Seller model: Under the seller model, brand manufacturers use Amazon purely as a platform to market and sell their goods, but ownership remains with the manufacturer until the goods are sold to the end consumer.
One of the main differentiators between these models is price: Under the vendor model, Amazon sets the price; with the seller model, the brand sets its own price. This level of control is appealing to brands, and there is a trend in the current landscape of more brands moving from the vendor model to the seller model on Amazon, giving them complete control over their pricing.
Some of this shift away from the vendor model is happening by force: Amazon contacted vendors telling them the company would be actively pursuing direct partnerships with brands beginning on January 15th, 2024.
The future of marketplaces
No one can predict the future, but while marketplaces surely are not going anywhere, the way brands and customers interact through this third party is likely to continue evolving in the coming years.