Online marketplaces have emerged as a powerful means of increasing revenue and driving business development. But with competition at an all-time high, how can you leverage these unique trading platforms to support your business’ aspirations for growth?
In our ultimate guide to online markets, we’ll cover the things you need to consider when setting up your business on web marketplaces, as well as the pros and cons that can help you ascertain if they represent the right approach for your business.
Quick Links
- What is an Online Marketplace?
- What Are the Pros and Cons of Selling Through an Online Marketplace?
- Key Things to Consider When Setting Up Your Business on an Online Marketplace
What is an Online Marketplace?
An online marketplace is an e-commerce website where businesses can sell goods and connect with customers. They differ from customary sites in that all transactions are managed by the marketplace owner and not by individual brands.
As a concept, the online marketplace has been around since 1995, the same year that eBay was founded. Since then, several other similar sites have launched, including Amazon, easily the best-known and most prominent online marketplace of them all.
Over time, online marketplaces have grown significantly, both in the volume of their sellers and buyers, and in the features and integrations they offer brands. Indeed, for many online retailers, web markets like Amazon, eBay, Etsy and Not On The High Street represent primary sales channels, so it’s vital they offer the functionality brands need to drive sales and support business growth.
Today, there are hundreds of online marketplaces where retailers can host a shop and list some or all of their product inventory. Naturally, sites that attract the greatest virtual footfall (Amazon, eBay) are the most expensive, but there are lots of options depending on a brand’s budget and product range, including Wayfair, Folksy, Wish, Fruugo, OnBuy, Cratejoy and Newegg to name but a few.
Given the popularity of online marketplaces, countless software providers now offer management and optimisation services for brands that rely on web markets as primary sales channels. With specialist features to simplify day-to-day management, omnichannel marketplace operators such as Lengow, 247 Commerce, Linnworks and Channel Advisor are useful for brands who wish to sell on multiple web marketplaces with all marketplace sales managed via one platform. These marketplace management platforms can also be integrated with ERP software for more effective inventory management.
What Are the Pros and Cons of Selling Through an Online Marketplace?
On paper, selling via an online marketplace sounds universally beneficial for brands whose products suit this type of e-commerce infrastructure. And while there are certainly lots of advantages to setting up your business on a web market, there are downsides to take note of, too.
Here, we address the pros and cons of selling through an online marketplace.
The Pros
- A lucrative revenue stream – managed well, web markets offer a valuable supplementary source of revenue, and may even become a primary income stream for SMEs who don’t operate a standard e-commerce site.
- Reduced marketing costs – building and marketing an e-commerce website can be expensive, both in terms of time and cost. Hosting products on a site like eBay means operating from an established platform, reducing the need for single-site marketing.
- Increased custom and brand awareness – a large majority of customers prefer to buy from online marketplaces because they allow them to compare different products and brands. By hosting your business on such a platform, you can increase brand awareness and may see an increase in sales for some inventory items.
- Potential to expand operations overseas – online marketplaces have the potential to connect your business to a larger customer pool, including those in other countries. This can support aspirations for overseas growth and expansion.
The Cons
- Fees and sales percentage – online marketplaces make money by charging businesses either a store hosting fee or a sales percentage tax. This can make it more difficult to turn a profit, with a percentage of each sale going to the marketplace, or a subscription to consider alongside other monthly overheads.
- Highly competitive sales arena – there’s no getting around the fact that online marketplaces are extremely competitive. With no limits on the number of vendors which can sell a particular item, you’ll be competing within an aggressive, global sales arena, making affordable prices and positive customer reviews an absolute must.
- Loss of brand identity – if you’ve spent years cultivating a specific identity for your business, selling through an online marketplace could take away from the substance of your image and philosophy. With limited customisation options on some marketplaces, it can be tricky to present your brand in an engaging way to potential customers.
- Hard to maintain profitability – as touched on above, the competitiveness of online markets means there’s little wiggle room when it comes to pricing. Customers who buy on platforms such as Amazon and eBay are mainly motivated by price, so it can be tricky to maintain profitability if you’re constantly being undercut by competitors.
- A technological disconnect can cause inventory management issues – for brands not familiar with trading on an online marketplace, adjusting to the logistics of the arrangement can lead to stock and inventory issues. And when every positive and negative review counts, you need to get things started on the right foot.
Key Things to Consider When Setting Up Your Business on an Online Marketplace
If having read our pros and cons you’re keen to set up your business on an online marketplace as soon as possible, there are a few things to consider before wading in. Heed the following advice to make a success of your marketplace efforts from the get-go.
Have a Clear Strategy and Game Plan
The notion of selling reams of stock on sites such as Amazon and eBay may be alluring, but don’t let the promise of guaranteed sales cloud your judgement. Before floating your products on any marketplace, it pays to have a plan in place to deal with sales volumes and avoid negative reviews which could prove detrimental in the long term.
It can help to approach selling on an online marketplace like starting a business from scratch. Research what competitors are doing, perform due diligence and risk assessments and find out what customers like and don’t like about your rivals’ services using tools such as Jungle Schout. From there, you can draw up a strategy to inform your approach to this new sales channel.
Make Sure Marketplace Sales Channels Are Properly Resourced
When dipping your toe into any new sales channel, it’s easy to underestimate the required level of resource needed to manage things effectively. Such is the case with online marketplaces, where customer orders and enquiries can come thick and fast, placing added strain on your order processing and inventory management chains.
As part of your online marketplace strategy, consider the resources required to manage the channel. You may need to create a standalone business function to oversee things effectively, with dedicated personnel to handle customer enquiries, complaints, and order fulfilment.
Consider Focusing on a Niche Product or Marketplace
While sites such as Amazon and eBay can seem like the obvious choice when selecting an online marketplace, remember that they’re also among the most competitive. If you’re concerned the cost of your products would inhibit sales in such an uncompromising trading arena, it could be worth focusing your attention on a more niche web marketplace.
As mentioned earlier, there are now countless online marketplaces available, catering to sellers of all sizes and niches. For example, if your business supplies car parts, it could be worth hosting products on a motoring marketplace as opposed to a more general trading site.
Integrate Your Marketplace Sales Channel with Other Business Systems
To ensure timely order fulfilment, effective inventory management and accurate sales forecasting and reporting, it’s important to integrate existing systems with new marketplace sales channels when sales volumes scale. This will ensure that stock, sales and deliveries are seamlessly managed from one system to another – for complete transparency and efficiency across your inventory stream.
However, whilst direct integration with sites such as eBay or Amazon can be facilitated by your ERP provider it’s important to note there will be associated integration costs.
Be Careful When Choosing a Marketplace Management Service
Should selling via an online market become a primary sales channel, you might consider investing in a marketplace management platform. Such software (offered by the likes of Lengow and 247 Commerce) can be a powerful way to boost sales and manage orders within an online marketplace, but you need to be careful when selecting the right provider.
Remember, when selling through online markets, margins and profitability are of the essence. Can you afford to pay for additional services on top of existing fees and overheads? How might this affect your bottom line? And are there any hidden costs for some services?
What’s more, it’s certainly worth enquiring with your ERP software provider to find out which services they integrate with, as some platforms have built-in marketplace management integration as standard. Integrating your ERP software with your chosen marketplace platform is one of the best ways to unify new and existing sales channels. Such systems enable you to scale and add on additional marketplace retailers with ease with all sales activity streamlined into one place. Finding out which marketplace platforms your ERP provider has chosen to integrate with at an early stage could save you a lot of hassle and money down the road.
We hope this guide on setting up your business on an online marketplace proves useful in expanding your sales channels and profitability. If you need help growing your business, our future-fit ERP software and business management solutions could be just the thing to drive things forward. For more information or to discuss your requirements with our in-house specialists, visit the homepage or get in touch today.
