As we’ve talked about before, if you’re in the business of selling products, there really is no excuse for you to not have an online presence. 31% of consumers indicated that online shopping is their preferred mode of shopping and the trend is rapidly going upwards.
Most vendors have thought about listing in one or more of the online marketplaces (like Amazon, Flipkart, EBay, Snapdeal etc.) at some point. Listing on these sites is appealing on several fronts.
- The well-known marketplaces are high traffic channels with millions of active buyers. It is the preferred mode of shopping for many buyers who enjoy the variety and seamless buying experience.
- Merchants gain increased exposure for their products which can lead to higher sales volumes.
- It opens doors to acquiring new customers who accidently stumble across your products while looking at competitors or simply while browsing randomly.
However, there are many hidden expenses and opportunity costs that could add up to ruin your business
- Retailers, especially the smaller ones, end up paying around 30-40% margin of their online sales to online marketplaces. This includes even lesser known ecommerce platforms like Koovs, Jabong and Myntra. These margins are high even when compared to rental spaces in the brick-and-mortar stores
- In addition to the high margins, marketplaces regularly push retailers to give an additional 15-20% discounts.
- Competition will be crazy. You will be ruthlessly compared with other competitors, product wise, with price being the biggest differentiator in a marketplace. This will force price wars at the expense of quality and brand name.
- Furthermore, if you come up with a unique product or idea, it will soon be copied and mass produced at lower rates. Even if your product has a patent, its enforcement and prosecution will be time consuming and cash hungry.
- It will be difficult to build up a brand or generate loyalty for your products.
- You need to have a corporate tax identity before selling on most e-marketplaces. This isn’t feasible if you are just starting out and selling from the back of your garage or house.
- The supply and operations process to list and distribute your product is cumbersome
- A fairly large amount of precious capital will need to be set aside to make sure you have enough stock and inventory and to order the MOQ (Minimum Order Quantity) from suppliers.
- It will take time, money and effort to find the right strategy that features your product over others. The strategy will have to be tweaked between marketplaces since each platform’s promotion algorithm differs.
These expenses are especially damaging if you are a small business competing with large multinational companies who have access to the massive budgets to spend on marketing and sales.
There are other options available to sell your products online or even just to channel traffic to increase sales offline
- Use social media to build brand awareness and direct traffic to offline stores
- Build your own website with shopping cart facilities from scratch
- Utilise custom built templates or platforms already available to create your own e-commerce store
- Hire a professional to build your website (maintenance problem)
Listing your products on an online marketplace does have its benefits, but, the hidden costs add-up to create a big dent in profits. What’s more, it is a constant uphill battle to monitor pricing and stay on top of latest platform related tweaks to make sure that your product is placed ahead of competitors. Selling through a marketplace doesn’t mean that you cannot also sell from your own e-commerce store to reap the benefits of both; Nor are you restricted to listing in only one marketplace. What is important is that you take the time to consider the options available and formulate a strategy that works the best for YOUR requirements. I will tackle the pros and cons of the other strategies, along with the tradeoffs in further posts.
This post was first published on LinkedIn, by Karina Pais, Consultant with Futureshift on Karina is an MBA graduate from UK and engaged with us as a consultant in digital marketing.