Why Ecommerce Merchants Need to Be on Third-Party Marketplaces

Posted on Tue, November 08, 2016 in Business Strategy, eCommerce Tips, by Paul Weinert

Many businesses are missing out on the biggest opportunity on the internet to reach their consumers directly. This opportunity is third-party marketplaces. They are currently doing to online retailers, what WalMart did to local mom and pop stores in the 80’s and 90’s. By virtue of their massive scale, they are building one-stop shops online that can help your business reach more customers, expand your brand presence and increase your profit margin.

The big boy in the US is Amazon.com

According to analysts [ reference], last year, Amazon sales accounted for 38 cents of every dollar spent on US ecommerce. Moreover, as the ecommerce segment grows, they will be capturing 51% of that growth. This remaining 38% is equal to the market share percentage totals from the next 21 biggest merchants combined — that includes big names like eBay, WalMart, BestBuy, and Sears among others. Altogether, almost 80% of every dollar spent on ecommerce stores is at the top 25 marketplaces; and that’s just the US market. Most of the big marketplaces are also international or have an international equivalent.

This presents an enormous challenge and opportunity for merchants. On one hand, they need to maintain their own ecommerce experience to reach consumers directly, but to be in front of customers where they are actually shopping as well, requires managing a marketplace presence on these third-party sites. Each marketplace has their own rules, as well as pros and cons for selling on the platform, but generally they are a pain as you have to play by their various and varying rules. Still the benefits can be quite significant if you’re willing to put up with the pain.

The benefits of selling on third-party marketplaces

First, the size of the addressable market is just massive compared to what your site can get. Looking at the top two marketplaces, Amazon.com had 183 million unique visitors in the US, and Walmart.com had 91.6 million unique visitors. Think about those numbers. The US population is 324 million people — so 56% of the US population visited Amazon.com last month. When you decide to not list your products on these sites, you’re missing out on the lion’s share of US ecommerce sales. If you sell on a marketplace, you won’t be totally in control of your customer’s experience, and you’ll need to pay sales fees to the marketplace, but you need to be where the masses are at. Moreover, once you add in the international potential… the market is just massive.

Secondly, considering the size of the addressable market, third-party marketplaces also represent a huge opportunity and challenge for brand building and brand management. On more marketplaces, each product is represented by one single page, regardless of the number of sellers. That means everyone contributes photos, video, descriptions and product specifications about the same product. If you are the manufacturer of a product, that content needs to be representative of your messaging and contain accurate product details in order for the majority of people to accurately understand your product. This is true regardless of if they purchase on the marketplace or not – they are learning about your brand and what you stand for. You can use third-party listings to control your brand presentation to a vast audience.

Finally, third-party marketplaces allow a merchant or manufacturer to actually make more money than at traditional retail. Most marketplaces charge a 10-20% sales fee for all products sold on the platform, but they also take care of the item fulfillment and transaction. For manufacturers who normally sell at wholesale to retailers, you can sell direct and claim a significantly higher percent of margin than you do currently. If you are used to paying outside reps, this route can also be in your favor as you are reducing the number of middlemen. For merchants, you can reduce your sales costs by letting the marketplaces handle the transactions, fulfillment and logistics.

The opportunity for each brand and your products is huge — you can get in front of more people, expand your brand’s reach and increase your profits in the process. The future belongs to both direct-to-consumer ecommerce as well as third-party marketplaces. Stop ignoring most of your market and start controlling your marketplace presentation.

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