Traditional E-Commerce or Marketplace; Comprehensive Comparison

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E-Commerce or Marketplace

Amazon and eBay represent two very important resources for every digital entrepreneur to grow the turnover of their company.

However, this aspect of your business must be carefully analyzed and placed under close strategic and analytical control. In short, like every other aspect of business life, it can not and should not be left to chance.

In any case, I believe that for an e-commerce company the site should be the main sales channel or, in any case, not represent less than 50% of its revenue. So it is clear that all activities and resources should be aimed at achieving this result, because, otherwise, the fate of our company would be tied to market dynamics and commercial choices over which we would have no control and this would translate into a significant risk for the company.

E-Commerce & Marketplace: Which Is More Convenient?

Let’s start with fundamental facts, every time a customer completes the purchase of one of our products on a marketplace, we will find ourselves in the position of having to pay a commission to the company that hosts our online store.

The commission requested by the marketplace (which averages between 10% and 15% of the sale price) erodes our profit margin and, consequently, represents a cost for our business. In other words, the commission on sales performance is configured as a real decrease in our turnover.

But this is only the tip of the iceberg. Let’s see in more detail what are the aspects to be taken into consideration to make a prudent choice.

Profitability

Profitability refers to the profit margin on each transaction. I believe an example can help to better understand this aspect.

Let’s assume a sale on Amazon of some products whose average profit margin is 30%. From this percentage, we should subtract (always on average) about 15% as a marketplace commission as well as shipping costs and all other operating and management costs (therefore, logistics, operations, etc.) which theoretically should account for about 7 % -10%.To these, we must then add the business risk associated with the purchase and sale of these goods as well as the possibility that they will arrive damaged. At the end of the day, we will settle with a net margin of around 10% -12%.

Of course, we will certainly not be the only sellers on the marketplace, and, certainly, there will be competitors who have opted for an aggressive approach to the market and are therefore willing to lower their net margin even up to 1% in order to conclude a sale. This downward game does nothing but gnaw almost that initial 30% margin!

For this reason, many companies, in the long run, decide to withdraw their products from the marketplaces and seek to safeguard that average 10% -15% margin that ends up being absorbed by Amazon and companions and which instead could be destined for other activities of the company.

All other conditions being equal, therefore, the strategic aspect that should be assessed is whether that 10% -15% could be converted into marketing investments, which our company would be forced to do not being able to count on the passive visibility offered from the marketplace window (in a bit like it happens inside a shopping center).

Competitiveness

In light of the foregoing, it is necessary to analyze in-depth the level of competitiveness of the market/sector/segment/niche within which we decide to venture.

Competitiveness is a predominant factor for all sellers who intend to place their goods on marketplaces and this is because the search algorithms that characterize these platforms tend to give visibility to retailers with the lowest price and the highest sales rates. What does not happen on Google, where SEO and site quality are decisive.

For this reason, the decision on which products to offer within a marketplace passes by an accurate analysis of potential competitors, trying to focus on the prices offered as well as on their strengths and weaknesses.

Logistics and Shipping

The intrinsic logics linked to this aspect are valid both for marketplaces and for proprietary e-commerce. In fact, the correct fulfillment of orders is one of the cardinal aspects on which the life of an e-shop is based.

Specifically, the risk of even a small series of sales contested by customers can, for example, lead to the temporary closure of the store on Amazon. Therefore, considering that users who choose to buy on marketplaces do not do so out of loyalty towards a company, but because of the variety of products or because they found the lowest price, the loss of positions in the internal ranking of the platform translates into an immediate slump in sales.

The Substantial Value of the Transaction

One of the aspects on which to put more emphasis is that relating to the substantial value of the transaction. In other words, the added value that every single sale brings to our company beyond its mere monetary value.

Let Us Try To Make This Aspect Better

Within marketplaces, whether it’s Amazon or eBay, a transaction is the expression of a sales performance. Its added value that this sale can bring to our e-commerce can be represented at most by a good review. However, this represents a meager consolation, as much of the substantial value of the transaction will remain within the guest platforms, which will enjoy the benefits of our salesman skills. Need skill assessment, there are several platforms working.

In this way, marketplaces obtain an economic value given by the commission paid by the seller, as well as an added value which is represented by an increase in social trust, therefore of reliability and credibility, gained thanks to the seller’s commitment. In other words, Amazon and its brothers benefit from the reflected trust because (except in cases of goods sold directly by Amazon) the quality of the product and the efficiency of the shipment depending on the seriousness and ability of those who sell it.

The speech changes completely when we market the product directly within our e-commerce, because, in this case, all the added value that we should have given to the shifting marketplace would remain inside, for the total benefit of our company.

By selling the product/service directly on our e-commerce site, we would keep intact the possibility of retaining our customer (ours, not Amazon or eBay), to contact him via email to offer customized offers or promotions or to field up actions. selling. In short, an extra sale on our e-commerce helps to increase its value and communicate our brand.

This does not mean that the marketplaces are ugly and bad, on the contrary, they represent a huge business opportunity that cannot and must not be put aside. There is a large slice of buyers who are willing to buy only from Amazon and who, therefore, we could only intercept by carefully guarding those channels, but taking the necessary precautions just they select pet rescue blog for cute boy cat names.

Visibility and Resources

Amazon is one of the most important companies in the world, with dizzying turnover and marketing investments to make anyone pale. The visibility that marketplaces have acquired on search engines in recent years is not comparable to that of any independent e-commerce shop, in any product sector.

This has made it almost impossible for anyone to compete for the top positions in the SERPs (Search Engine Result Pages) on high traffic keywords. As a consequence of this, every e-commerce should choose to focus its investments on those so-called long-tail keywords.

Therefore, the job of managing the marketplaces – at least from the marketing point of view – is much simpler and requires fewer resources than the activity necessary to grow a proprietary e-shop. In any case, the lower use of resources translates only apparently into savings by the company, given that, as we have seen, this must take into account the sales commission to be paid to the marketplaces and the transfer of the added value deriving from every transaction.

E-Commerce or Marketplace: A Strategic Choice

From what we have said so far emerges the need to adequately reflect and ponder your choices when deciding to tackle a project to launch an e-commerce site. This is because very often you go into areas that are believed to generate easy earnings and you find yourself with so many cats to skin.

The one between proprietary e-commerce and marketplace is a strategic choice that should not be taken hastily, but by evaluating all the pros and cons of the two online business modes.

In any case, my opinion is that every e-commerce project should provide for a balance between the two main sales channels, so as not to miss any sales opportunity and thus optimize the number of possible transactions. Of course, it is necessary to carefully evaluate the conversion costs (and many other KPIs ) of both channels and carefully analyze the margins of each product, in order to obtain the maximum possible result and increase the profitability of our company.

Excluding a channel, a priori would be a big mistake, as it could be deleterious to overestimate its return by investing a quantity of budget that we will never be able to recover.

Make your own assessments and always remember to ask for help from professionals in the sector who will certainly be able to guide you and guide you towards the most suitable choice for your needs.

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