October 18, 2013, 10:45 AM
Blogger

Finding the right online marketplace: six questions for retailers

Mike Effle

CEO, Vendio.

At the dawn of the Internet, retailers wanting to boost revenues by selling online had to do everything for themselves, from building shopping web sites to driving customer traffic. Merchants nowadays have a much easier way to go. By setting up storefronts in one of the growing number of online marketplaces, they can relatively efficiently market their wares to a ready audience of potential customers—sometimes millions of potential customers, if those marketplaces happen to be industry leaders like eBay or Amazon Marketplace.

Selecting the right marketplace for your products is not a simple coin toss, however. There are dozens of marketplaces on the Web today, among them mass merchants offering everything under the sun, category-killers aimed at specific types of merchandise, and boutique marketplaces offering niche and handmade items. Each has its own base of regular shoppers, its own set of merchant charges and fees, and its own rules for joining and operating shops.

Finding the one that best matches your products and sales strategy takes research and thought. To get you started, here are some basic questions to ask as you make your decision:

 Should I set up shop in an open marketplace?

In wide-open marketplaces such as eBay, just about anybody can sell virtually anything, as long as it’s legal. Because entry barriers are low, open marketplaces are suited to retailers who are just getting started in online commerce or run very small businesses. Because they aggregate an incredible variety of goods, open marketplaces tend to attract heavy traffic, which can be beneficial to vendors looking to sell to the widest possible customer base.

 Unfortunately, in open marketplaces it’s sometimes pretty easy for scammers, counterfeiters and other shady types to sneak onto the website posing as legitimate vendors. Clued-in consumers recognize these risks and may want to be compensated in some way, usually with lower prices. This, along with the fact that products are often sold alongside similar-but-cheaper used and refurbished goods, can lead shoppers to expect unrealistically low prices even for top-quality merchandise. A bargain-basement atmosphere can make it difficult for retailers to compete while still maintaining decent profit margins. Being lumped together with sellers of second-hand and low-quality goods does little to burnish your brand.

 What about marketplaces restricted to particular merchants and products?

Some marketplaces, such as web sites run by Wal-Mart and Sears, are selective when it comes to who is allowed to sell on their platforms, as well as what they are allowed to sell. These marketplace operators aim to augment their web site’s product assortment while protecting their own brand and maintaining a quality shopping experience. This is accomplished by inviting experienced, trustworthy partners/vendors that can bring a lot of merchandise to the party, at the same time independently handling high-volume sales, fulfillment and shipping.

 If you are a larger, more established online retailer with your own well-developed back-end systems, joining a “curated” marketplace can be a good way to reach new customers. Their sales environments tend to be uniform and predictable, which makes buyers more comfortable and able to buy with confidence without a lot of hand-holding. This translates into more straightforward and smoother sales and lower per-transaction costs. However, while it’s great to be selling alongside a better class of merchants and consumers, you’ll have to play by the marketplace’s rules (some may require you to honor a standard return policy, for example) and the site generally charges a higher success fee on every sale you make. In some cases, the marketplace may even require you to allow them to lower the sales prices on some of your items without notice, which obviously can hurt margins.

 Do I belong in a vertical marketplace or a broad merchandise marketplace?

Choosing a marketplace requires you to consider how a particular buying audience fits your offerings and how you can connect with that audience. General marketplaces like Amazon and eBay have high traffic and sales volumes but it can be hard to get customers’ attention amid all the noise. More specialized marketplaces like Etsy, which deals in vintage and handmade goods, or Newegg, known for consumer electronics, may be a better fit for merchants that sell products in the appropriate categories. There’s comparatively less traffic, but the shoppers who are there are more likely to match your target demographic. 

 How much will it cost to join and sell on the platform?

Obviously, your profitability will be impacted by marketplace fees and charges. Most charge vendors a “referral fee” on each sale; these fees can range from as little as 3.5% of the sale to 25% or more. In addition, there can be variable selling costs that need to be considered. Many marketplaces charge what are called “listing fees” or “insertion fees” that really add up over time, especially if you turn over a lot of inventory. When choosing a marketplace, it’s important to estimate the impact of these fees to arrive at an accurate cost-per-sale figure. And don’t forget to factor in variable costs such as customer-service spending.

 Does the marketplace provide marketing help—or any help at all?

Some marketplace-style shopping web sites are little more than digital accumulations of products and eyeballs. They offer vendors no marketing tools and they spend nothing to promote their vendors or drive traffic—it’s all up to participating vendors to drive their own traffic to the platform through offsite marketing.

 Others pitch in with advertising to generate traffic, but their marketing goals and yours may not align. For example, a marketplace might spend money promoting consumer electronics, which boosts overall traffic but does nothing to increase sales for the web site’s apparel retailers. And in certain popular marketplaces, woe to the merchant who is not a low-price leader—also-rans in the pricing department don’t show up on product pages, meaning they are invisible to consumers and have the lack of sales to prove it. When choosing among marketplaces, be sure to weigh how each web site supports its vendors against the fees shop owners are required to pay. You don’t want to pay a lot while getting almost nothing in return.

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