Pros and Cons of Selling on Online Marketplaces

In our recent blog about Trends for The Future of Ecommerce we referred to the explosive global dominance of online marketplaces with 62% of global web sales in 2020!

 
An online marketplace is a website or app that connects buyers with sellers from many different sources. The marketplace operator does not own any stock; their business is to present other people’s products or services to customers and process a transaction. Examples that spring to many minds include eBay and Amazon.

These platforms have been disrupting how we do business online for years and what’s significant is their impact on small businesses. While presenting advantages and disadvantages, the ease of use and massive customer reach of marketplaces have made them an ideal channel for small businesses looking to expand their customer base online.

What are the Pros and Cons of Online Marketplaces?

First, let’s have a look at different types of marketplace…

A vertical marketplace sells products from many sources, but they are all of one type. Look at Etsy with its focus on handcrafts.

A horizontal marketplace is more of a ‘one-stop-shop,’ allowing customers to purchase everything under one roof. This is Amazon territory.

Typically, online marketplaces are about the retail sale of products. Still, they have been adapted to function in an enormous variety of capacities to transform how we sell goods and services in almost every industry.

Specific retail marketplaces exist to cater to the niche needs of vastly different types of businesses, specific industries, or groups of consumers.

And services have found a home with many small and local service businesses and freelancers using specialist platforms fuelling the ‘gig economy.’

How online marketplaces are helping small businesses evolve

These relatively new marketplaces can make it much easier and cheaper for small businesses and start-ups to break into markets and compete with larger and more established businesses.

It’s been observed that when customers shop in online marketplaces, they mostly search for solutions, not brands. This can be a good thing for a smaller business starting out whose ‘solution’ is probably stronger than their brand. 

Offline Impediment > Online Equaliser

A handicap with bricks and mortar stores is their limited space and the need to stock their shelves with exactly those products that consumers are likely to buy. The internet has no such space restrictions - anyone can offer their products alongside those of established competitors under the same, or similar, search terms. Naturally, known brands still benefit from their established reputations, but start-ups also get their opportunity to join the fray and compete.

Unprecedented Growth Potential

Not only can your business become instantly more visible to your target market, but online marketplaces can also get around geographical limitations. Your market reach can extend beyond regional to national or even international in scope.

And perhaps the best advantage is the head start you get from immediate access to the marketplace’s users. Bypass all the months or years spent on digital marketing to attract significant web traffic to your own site. If your product or service is good, you can start making sales practically straight away. See how here.

The perceivable positives of online marketplaces are that they help to level the playing field for businesses and offer consumers more choice. Innovative start-ups with breakthrough solutions get a better chance to be noticed and to gain traction. But that’s not quite the whole story…

Downsides of Selling Through Marketplaces

There’s no argument that marketplaces can be a prime selling tool for small businesses, but there are also some downsides to these platforms that can’t be ignored.

Expenses Need to be Considered

The inescapable drawback of selling on marketplaces is the related expenses. Fees placed on third-party retailers vary by platform but generally come in the form of subscriptions, insertion fees, final value fees, and more. For many smaller retailers, the profits driven through marketplace sales outweigh these costs, but it’s still an important consideration to factor in.

Customer Relationships Can Suffer

While the customer experience on marketplaces is generally positive, small businesses must also sacrifice control over the experience that their customers are having.
Establishing a strong, personalised relationship with your customer is critical to the differentiation and success of your own online business presence.

But that hard-won position is compromised when selling through a marketplace. If you’re a small business that has been working to build brand awareness online, missing out on an interpersonal connection with customers makes it more difficult to create a sustained relationship.

Afterword

It looks inevitable that marketplaces will continue to play an integral role in the omnichannel strategy of retailers big and small.

Their global reach combined with the sophistication of their marketing efforts offers an opportunity – and momentum - that is hard to resist. Small retailers can effectively reach potential customers at a scale that once seemed virtually unattainable, especially for those with little to no brand recognition outside of their physical location.

So, they may not be the only answer to your ongoing sales strategy but definitely demand strong consideration. Learn more here.

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