Weighing the risks and rewards of selling on a marketplace - Digital Commerce 360

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Published: Aug 30th, 2022
Weighing the risks and rewards of selling on a marketplace - Digital Commerce 360

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The vice president of marketing for Paper Mart recently decided to stop selling products on Amazon.
’” In addition, Amazon’s regulations for marketplace sellers put a burden on Paper Mart’s staff.
” advertisement A second factor in the decision to pull out of the Amazon marketplace was that Paper Mart found itself competing against its own customers who bought and then resold the retailer’s gift bags, tape, decorative ribbons and more on the marketplace.
Paper Mart may have left Amazon, but it’s not abandoning the marketplace world entirely.
” As importantly, Paper Mart joined Walmart’s marketplace four years ago because its products weren’t resold there.

Weighing the risks and rewards of selling on a marketplace - Digital Commerce 360

Allison McGuire has had it with the Amazon marketplace. The vice president of marketing for Paper Mart recently decided to stop selling products on Amazon. The reasons, McGuire says, are varied. First, the high fees charged by Amazon for its Fulfillment by Amazon (FBA) program were problematic. “The FBA program was very difficult just because of the fees involved,” she says, “and they keep adding another $2 to every transaction and it just keeps adding up and then at some point, it’s like, “‘enough.’” In addition, Amazon’s regulations for marketplace sellers put a burden on Paper Mart’s staff. “FBA requires everything to have a different label on it. So you have to re-label everything and then enter the order in their dashboard and then send them the weights of every single box and all these additional touch points that are required,” she says. “It interrupts the flow of things and it’s very labor intensive. So, at some point, you just have to do an analysis of profit. And when you add in that extra, you know, manual piece that comes with all of it, it’s just not worth it for us.” A second factor in the decision to pull out of the Amazon marketplace was that Paper Mart found itself competing against its own customers who bought and then resold the retailer’s gift bags, tape, decorative ribbons and more on the marketplace. “We didn’t want to fight with our customers,” McGuire says. “If they’re willing to do all the work and sell our product on Amazon, at the end of the day, it’s like, well, why are we trying to do the same thing that they are willing to do as well? It’s just an odd marketplace that people are so willing to take the deep discount and give lower margin for that channel. I think that channel probably works better for smaller businesses that are doing the work themselves, or maybe it’s their only channel.” Selling on a marketplace? Choosing whether to sell on a marketplace is a complicated decision for retailers. Marketplaces often allow retailers to immediately grow sales and reach a larger audience. But marketplaces usually take a large percentage of the sale, plus other fees, and it can be hard to get noticed among so many other products on a marketplace. So how should a retailer decide on marketplace selling? What products work best on which marketplaces? Industry experts say the key factor is the nature of shoppers on any given marketplace. “Brands must be where their core customer is already going, because it’s extremely difficult to coax them into shopping different spaces solely for one brand,” Melissa Minkow, director of retail strategy at CI&T, says. “The products that are sold via a marketplace must also align with the audience’s expectations of that platform. Are the core customers typically going there for the trendiest items? Or are they usually going there for staples? How is that marketplace already positioned in the core consumer’s mind? How will those items be merchandised? Meaning, what brands are going to be next to what’s chosen? That’s really what should dictate the marketplace assortment.” Breaking into the market Many retailers that sell on marketplaces do so to break into a market. The idea is that by appearing on Amazon or Walmart or any of the hundreds of other marketplaces, a brand can introduce itself to potential customers. However, Minkow says both established retailers and rookies might benefit from a marketplace’s reach. “Interestingly, it’s often in a brand’s best interest to sell on a marketplace both when a brand is well-known and desired by consumers and when it’s not.” Many previously pure-play direct-to-consumer brands have opened their strategy to include selling via marketplaces. That’s because consumers expect them to be there,” says Minkow, whose company offers strategy, technology and design services to retailers. “On the other hand, marketplaces can aid in growing a less well-known brand by offering a key discovery moment that wouldn’t exist otherwise. If that brand’s product has great reviews and is able to appear earlier in search results, new customers will be reached., she says. That’s similar to the advice that Marcel Hollerbach, CIO of Productsup, offers to retailers. “Customers nowadays expect brands to be on the channels they’re active on,” says Hollerbach, whose company helps retailers syndicate product content to all digital marketing and shopping channels such as Google, Amazon, Facebook and Walmart. The key is to find the right mix of standardization and variety across marketplaces. “The way products are presented across multiple marketplaces should be consistent. Brands should ensure that product content like images and descriptions match, but also that price and availability are synced,” Hollerbach says. “Yet consistency does not mean that brands are sending the same catalog content to all marketplaces. Promoting products on Amazon requires a different approach than selling through a channel like Facebook Marketplace. Amazon, for example, will let brands create more engaging experiences that can be enriched with additional content, such as videos.” Pareto principle Starting with the local powerhouse among marketplaces makes the most sense for most brands. “I would always apply the Pareto principle here. In reality, it can be expected that one marketplace will make up 80% of the revenues. In the U.S. that would mean starting with Amazon and then afterward maybe expanding to Walmart,” Hollerbach says. The Pareto principle states that for many outcomes, roughly 80% of consequences come from 20% of causes. Tom Funk would agree. “Amazon is our only marketplace, and Amazon is probably 80% of our revenue,” says Funk, director of ecommerce for Ann Clark Cookie Cutters. He says 30% of Ann Clark’s sales are in 17 markets outside the U.S. where shoppers can access the marketplace, including Australia, Japan, the United Kingdom and the United Arab Emirates. By contrast, Tamika Richie, who sells gift items under the brand Just What You Need, optimizes her products for search and advertising across multiple marketplaces, including eBay Inc. (No. 5 on the Digital Commerce 360 Online Marketplaces database), Etsy Inc. (No. 18) and Amazon. The biggest retailers It can be illuminating to look at how the largest retailers view marketplaces. And the data suggests that most of them view marketplaces as worth using. More than half of the Top 1000 retailers and more than half of the Next 1000 retailers sell on marketplaces, according to a Digital Commerce 360 analysis. For the largest retailers in the United States, Amazon can be both a blessing and a curse. Amazon is both the largest online U.S. retailer and the largest U.S.-based online marketplace. That means Amazon can be a competitor or a marketing partner for other top retailers — sometimes both. Still, the data suggest that despite the competitive risk, most top U.S. retailers are willing to do business on the Amazon marketplace. More importantly, the data shows that retailers who sell on a marketplace see higher growth in their collective Web sales than retailers that do not. Yet even the retailers that choose to sell on Amazon often deploy widely different tactics. For example, Nike walked away from selling directly on Amazon in 2019, according to research from Similarweb. Before that decision, in Q3 2019, Nike’s first-party (1P) sales on Amazon were approximately 36% of all Nike sales on the site. By contrast, Johnson & Johnson outsources all its 1P sales to a third-party (3P) provider, Pharmapacks.com. This has allowed Johnson & Johnson to effectively outsource its brand management and experience to a third party while still reaping the benefits of selling on Amazon. Finding your niche Some retailers may want to consider a particular marketplace type for their products: the niche marketplace. These are non-mass merchant marketplaces that sell in a particular category. There are 46 such niche marketplaces in the Top 100. Examples include: Houzz (No.17), which sells housewares and home furnishings. Choron24 (No. 29), a Germany-based marketplace for jewelry. Drizly (No. 41), which delivers alcohol from local retailers. Newest niche marketplace The latest niche marketplace to debut is Gear Exchange, a marketplace for used musical instruments and equipment. Gear Exchange has an unusual business model in that one of its main goals is to drive sales of new instruments on the website of its parent company – Sweetwater. “It’s a growth initiative for sure,” says Andy Rossi, vice president of Gear Exchange. “And it’s sort of parallel world to what sweetwater.com is known for, which is new products.” The key to Gear Exchange is that sellers can avoid any fees associated with selling their equipment if they take their payment in the form of a gift card for Sweetwater. “You can hold on to 100% of what you sell that product for, and you put it into a Sweetwater gift card and then use it on SweetWater.com for any of the millions of products that are on that site,” Rossi says. “That is boosting your buying power. That is the most cost-effective way to sell and buy. Sweetwater is an active new product seller connected to an active used seller marketplace. That connection is unique.” Sweetwater, based in Fort Wayne, Indiana, ranks No. 71 in the Digital Commerce 360 Top 100 database of online retailers. Find your marketplace In the end, choosing a marketplace is decision that only a brand can make for itself. And that comes down to knowing what works and what doesn’t for the brand’s business as a whole. Paper Mart may have left Amazon, but it’s not abandoning the marketplace world entirely. “We’re staying on Walmart’s marketplace,” McGuire says. “They don’t seem to take an exorbitant amount of fees. And it just works better for us.” As importantly, Paper Mart joined Walmart’s marketplace four years ago because its products weren’t resold there. “So, we thought that was going to be the entry point to not compete against our own customers. And it was a whole new opportunity to find new customers that shop just on Walmart,” McGuire says. “So, we got there with our own brand and our own products first and now we own that solely.” Global Online Marketplaces Database Leading 100 global online marketplaces. Access includes up to 5 years of third-party and total GMV, c ompany information, average tickets, conversion rates, # of sellers and SKUs, and more. Web sales range from $14 million to over $711 billion annually. View Details Sign up Stay on top of the latest developments in the ecommerce industry. Sign up for a complimentary subscription to Digital Commerce 360 Retail News. Follow us on LinkedIn, Twitter and Facebook. Be the first to know when Digital Commerce 360 publishes news content.
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