Amazon, Tmall, Rakuten, Mercado Libre. The allure of these ecommerce marketplaces, and their promise to put your product in front of a cross-border audience of millions, can be hard to resist—and rightly so. There are many compelling reasons to use these platforms. However, if your objective is to stake a claim on the mind and loyalties of the international consumer, you need to be aware of the pitfalls too.
So, why use a marketplace? For small companies with limited resources, a digital marketplace is a viable way to test new markets, with features such as:
- Gigantic user base
Marketplaces draw millions of users, many of whom first search for products on the marketplace before visiting Google, Baidu, or the local search engine of choice.
- Access to logistics network
Sellers using the Fulfillment by Amazon (FBA) program can ship their goods in bulk to Amazon warehouses, list on Amazon’s country marketplaces, and use their packers and shippers, customer service, and returns capabilities. (Tmall does not provide such logistics services. Rakuten and Mercado Libre provide more limited logistics services for additional fees.)
- Reduced hassle
Selling through a digital marketplace can eliminate much of the fulfillment workload, from packing and sorting to carrier management and returns.
- Potential savings
Sometimes businesses can save money by shipping items in bulk to a marketplace warehouse rather than to individual consumers.
Such features provide strong motivation. After all, selling cross border can be a tricky business, and each of these players has established a strong brand association in the minds of the consumer, and earned their trust.
However, therein lies the rub. Customers become loyal to marketplaces – not the brands selling on them. Consider some of the disadvantages of using a marketplace;
- No control over shopping experience or brand message
When selling through an e-marketplace such as Amazon or Tmall, you don’t control the shopping experience; your customer is always on the marketplace site, not yours. If you sell exclusive or unique products, you cannot create and preserve a compelling brand image. Price is king.
- No customer relationship
Typically, the marketplace owns the customer relationship; you don’t. Amazon doesn’t let you market to customers post-purchase, which affects loyalty and repeat business. A good experience might help a customer choose your product again but more often than not, best price or special placement (e.g., Amazon’s “Buy Box”) will win out. In addition, valuable shopper data is now controlled and disseminated by the marketplace. You may be able to buy reports but you don’t control the data, which is critical to driving better business decisions.
- Customers don’t visit your website
Customers that normally visit your site to engage with your brand will now arrive at the marketplace instead. Previously, your shopper might have searched the marketplace first, and having not found you there, searched Google and clicked through to your site (where you can harvest data). Keyword searches will now land the customer on the marketplace, where your brand message is diluted in a sea of choice.
- Increased competition
Marketplaces have lots of customers, but they also have lots of sellers. (Amazon has more than two million.) Unless your product is truly unique, you will be competing directly with other marketplace sellers. Depending on their cost structure, ability to scale, and so on, you may have to reduce your margin to stay in the game.
- Comingled inventory risk
Your brand image could be at risk if you sell items that other vendors also sell. Amazon, for instance, can require that inventory is stored in its warehouses without labels so it can be part of a giant pool of the same items. If any other vendors’ products are inferior to yours and/or counterfeit, your company could easily suffer a negative association, and costly returns.
- High fees
Marketplaces charge a percentage for all merchandise sold, in addition to storage and shipping fees, with slow moving or bulky inventory costing more. Whereas many retailers have complained about hikes in Amazon’s fees, eBay and Tmall charge less – but you have to handle storage and shipping. Rakuten charges a low monthly fee but up to 20% commission, with additional fees for various web services and reporting.
Many agree that Customer Lifetime Value is the most important metric, and efforts to move this dial boil down to a simple question, “Once a customer has bought from me, how can I ensure that she will buy from me again?” Analytics can answer this question, but when you lose control of the customer experience, you surrender the ability to understand and influence behavior.
Brand building is tough. Perhaps unsurprisingly then, companies with recognizable, exclusive, or unique brands tend to avoid marketplaces for international ecommerce. Selling direct allows control over the ‘look and feel’ of the end to end customer journey, and delivers actionable data. Cross-border selling can be complex, however, so leveraging cross-border ecommerce expertise, either internally or through an experienced partner, can often be the difference between success and failure.
Scott Lindsay is Head of Digital Marketing at eShopWorld.