More retailers want in on online marketplaces
According to the National Retail Federation’s (NRF) "State of Retailing Online 2015" report, online marketplaces — whereby a retailer sells goods via another retailer’s site — now ranks fifth in terms of its effectiveness among customer acquisition tools. Thirty-two percent of retailers plan to spend more on online marketplaces in 2015 versus 2014.
On average, the 240 retailers surveyed in May and June 2015 indicated online marketplaces is tied for second as far as how they allocate their digital marketing budgets:
- Search engine marketing: 33 percent
- Search engine optimization: 16 percent
- Online marketplace initiatives and operations: 16 percent
- E-mail marketing: 14 percent
- Remarketing: 13 percent
- Social: 11 percent
- Affiliate: 11 percent
"From Walmart and Alibaba, to Sears and Macy’s, the collective world of e-commerce has integrated the use of marketplaces into their business and benefited from the increased customer traffic," said Forrester VP and principal analyst, Sucharita Mulpuru, in a statement. "For many retailers, using marketplaces gives them a new way to compete with Amazon, even if that means selling their products on Amazon itself."
Photo: Amazon Fulfillment
Indeed, the growth in retailers’ use of online marketplaces appears to be due largely to the expansion by Amazon’s third-party seller business. In the just-reported second quarter, worldwide seller units accounted for 45 percent of all paid units, up from 41 percent a year ago. Amazon officials have touted how third-party sellers are benefiting from its FBA (Fulfillment By Amazon) program.
Also, 39 percent of U.S. online shoppers began researching their purchases on Amazon.com in 2014’s third quarter versus only 11 percent started on search engines like Google, according to Forrester. In 2009, 24 percent started searching on search engines versus 18 percent on Amazon.com.
Retailers are also diversifying as more platforms arrive. Options include online marketplaces from store-based retailers such as Walmart, Macy’s, Best Buy and Sears, as well as online platforms such as eBay, Newegg, Jet, Alibaba, Overstock and Rakuten.
In a column on Internet Retailer, "Should you sell on online marketplaces?," Eric Roth, head of the Retail and Consumer Group at Lazard Middle Market LLC, wrote that online marketplaces can help retailers attract new customers. On the downside, many limit or prevent sellers from steering customers to their own websites.
He wrote, "As businesses become larger and more mature, their brand awareness increases and the marketplace dynamics incentivize a shift away from marketplace participation to focus on channels more suited to long-term customer-relationship development."
- One-Quarter Of Online Retailers Say Facebook Among Top New Customer Acquisition Marketing Tactics – Forrester
- The State Of Retailing Online 2015: Marketing And Merchandising – National Retail Federation (purchase required)
- Study Shows Retailers Use Marketplaces to Acquire New Customers – EcommerceBytes.com
- Should you sell on online marketplaces? – Internet Retailer
- Google Shopping to Counter Amazon – The Wall Street Journal (sub. required)
- It’s good to be an Amazon Marketplace seller – RetailWire
Discussion Questions
What are the pros and cons for retailers around selling on Amazon.com and other online marketplaces? How should retailers react to search engines such as Google losing their influence as the first place to start online product searches?
Poll
BrainTrust
Chris Petersen, PhD.
President, Integrated Marketing Solutions
Gene Detroyer
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Be careful when you swim with a shark.
Remoras are very successfully evolved to live with sharks. The reason a shark does not eat them is because they get rid of pesky parasites that may congregate on a shark’s skin.
If a retailer can open marketplaces on Amazon that are good for Amazon it can benefit both. But Amazon benefits most by getting another player to help fund distribution infrastructure and costs.
But history shows that if a category takes off and becomes significant, Amazon can quickly find suppliers to compete in that category directly.
Amazon is still the great white shark of e-commerce. But there is another whale called Alibaba. And Walmart is becoming credible and expanding third-party sellers. The key is being able to use different marketplaces to reach your target consumers where they shop.
The obvious first reaction to this question is the potential loss of the retailer’s own brand identity if they choose to sell through another online retailer. That said, if you are a smaller retailer with more sales to gain than brand equity to lose, selling on Amazon is likely a good decision.
For larger retailers, whose brand equity and product integrity are vital components of their go-to-market strategy, there are risks aplenty with subordinating your online strategy to a company that will become the customer-facing retail brand to the consumer, leaving the individual retailer as a mere commodity brand.
I am not an SEO expert, but there are plenty of syntax rules and strategies a good digital agency can offer to insure a retailer’s fair share of online search traffic. What is more important, in my view, is having an expansive variety of online products, an easy to navigate website and a strong online advertising program to fuel online sales.
Remember, “location, location, location.”
It is as important in the online world as the real estate world.
Amazon, et. al., have the locations. That is where the shoppers are. Why would you build your “store” someplace else?
“You knew what I was when you picked me up,” is a line from American folklore. I believe this is something retailers who elect to be part of Amazon’s marketplace should keep in mind.
Yes you get exposure you might not have been able to achieve on your own, but if you become really successful you also get something else. A large, well-funded competitor.
I look at online marketplaces as a virtual mall. Retailers pay rent to the mall management or ownership. If it is the Amazon.com marketplace, the “sliver to deliver” is the rent. So does the retailer want to expand to other (online) “malls?” Even if Amazon has more SEO than the retailer, once the customer buys through that channel, the retailer now has a direct connection. I’m a fan of this concept.
Seems pretty simple to me.
The huge pro is the exposure, especially for little guys who have a hard time coming up to the top in Google searches.
The down side is the loss of margin as you are often times undercutting yourself to play in that market on top of Amazon taking their cut.
While the concept itself may be sound, the idea of helping to fund what could be your competition is a concern, as is giving up your brand identity. If you are small and need to ramp up your brand, this might be a good approach. But otherwise, proceed with caution.
Retailers should focus more on platform sharing and warehouse sharing the same way e-commerce share data centers and financial markets share trading platforms.
Virtual malls are a 1990s fad—today is more cloud-based mobile interactions and BOPIS. Amazon third party sellers are only successful because of abandonment from eBay and do not signify a new market opportunity.
I call online marketplaces the “other m-commerce” and it’s nice to see that they are finally being acknowledged as a separate business opportunity rather than getting lumped in with e-commerce. Marketplaces are really just a digital version of retailer-to-retailer partnerships (much like shop-in-shops in physical retail). Marketplaces are a potential life-saver for category killers like Staples that must expand into non-core categories or play race-to-the-bottom with Amazon. For niche specialty retailers and those that operate in markets where digital expansion is more difficult to execute (South America, for example), selling on others marketplaces is a viable way for brick and mortar retailers to expand into e-commerce.
I’m a fan.
Selling on Amazon can be a blessing and a curse for retailers. On the positive side, they get access to an established customer base. Presence on the marketplace can help newer sellers gain validity and improve inventory management (if they use FBA).
On the other hand, they also have to give up their data to the marketplace. On Amazon, this can lead to getting undercut on price and even get retailers into price wars. It’s also much harder to create a branded experience, so standing out from all of those competitors is more difficult.
It’s not necessarily a bad thing that many shoppers start their shopping journey on Amazon. It just means that in order to stay relevant, retailers must be on the marketplace and have appealing pricing.
Selling on Amazon can be difficult when you are also competing with Amazon. The cons are clear, including giving support to your competition, losing profits over having Amazon do your inventory and marketing, as well as not being able to compete with your competitor who is using all of your own leverage against you.
Not surprisingly, most of the responses to this question have focused on Amazon. But equating marketplaces with Amazon misses the rest of the opportunity.
The best value marketplaces offer is access to a new customer base. In other words, marketplaces bring customers you would not have a realistic shot of acquiring if you tried to sell directly to them.
Alibaba, and to a lesser extent JD.com, bring the Chinese middle class to global retailers. This amounts to 557 million internet users. Amazon uses Alibaba’s Tmall platform to sell to Chinese shoppers, as does Costco and Macy’s.
Marketplaces that tap global markets, especially those lacking Western goods, provide an upside to retailers large and small.
Digital commerce has been a fluid environment since the beginning. Such is the nature of the Internet. Any company wishing to reach consumers must participate in variants like marketplaces as they develop. Non-participation means sales erosion.
90 percent of Chinese e-commerce is conducted on marketplaces. Only around 27 percent of U.S. e-commerce is done on marketplaces. In Europe, marketplace penetration as a percentage of population is nearly twice that of the U.S.
These numbers were accurate when I started typing this post. Since then they’ve gotten worse for retailers.
If you needle into Amazon’s last two quarters you’ll see that Amazon is not a pure-play retailer. Amazon.com is a product search engine with fulfillment capacity.
43 percent of what Amazon shipped last quarter was not their product. And it accounted for more operating profit than their 57 percent.
Retail is treacherous everywhere.
It depends on the context the retailer is in and their objectives. For example if they are losing sales, not there online, are looking to expand online quickly, want to test some categories or are very small, the online marketplace game plan is an important one to consider.
From our experience working with leading marketplaces, even some of the bigger retailers benefit by participating in marketplaces.
Manufacturers too are increasingly using marketplaces as a channel though it may not be the best channel, especially for luxury/premium brands or manufacturers that need a lot of control of their pricing and image.