Driven to generate revenue in the post-covid economy, many retailers have looked to create marketplaces for growth opportunities. Companies from Kroger to J Crew have opened their ecommerce sites to third-party vendors to sell products through their website, expanding the products sold and creating more of a one-stop-shop for customers. Marketplaces provide benefits to sellers by providing the trust of a more known brand and access to a larger customer base. However, there are several considerations for selling on a retail marketplace that sellers should weigh before making an investment in one.
What is a Marketplace?
As mentioned in the first piece on hosting a marketplace, a marketplace is a webstore that allows third-party groups to list and sell products through a consolidated front. The provider of that marketplace is referred to as the host, and the third party doing the selling is often referred to as the seller.
With a traditional marketplace, the third-party seller retains the inventory and the associated costs of manufacturing and storing those items, while the marketplace host provides a location to list products and facilitates the customer transaction. Once the sale is completed and the third party ships the product, the marketplace often retains a portion of that sale and passes the rest onto the seller.
Benefits of Selling on a Retail Marketplace
For sellers, marketplaces provide multiple benefits. Upon joining a marketplace, sellers can get instant access to a large existing customer base without having to spend large sums on marketing or promotional efforts. Additionally, marketplaces can be a great way to establish an ecommerce presence without the initial investment in a webstore of your own. Sellers on marketplaces also benefit from the level of trust the customer has with that marketplace. Customers may be wary of new webstores they have not purchased from before, but on a marketplace, sellers gain the trust the customer has from previous purchases.
For wholesalers, marketplace selling can be a way to begin building a direct customer relationship or to experiment with price points. Increased customer visibility can provide benefits not achieved through traditional retailers, allowing you to see behaviors and preferences that may not be provided by existing retail partners.
Marketplaces can provide a unique opportunity to sellers who already have their own webstore, receiving the benefits of a marketplace while also driving traffic to your site. For example, 800razors used Amazon to sell their razor sets and shaving products but would only sell the replenishment cartridges and individual soaps on their brand’s website. This allowed the company to get the additional traffic that Amazon provided, while also achieving more direct revenue once they had converted customers to their brand. This intentional product selection of what is sold on a marketplace can help grow brands without “cannibalizing” their own sales.
Listing on a marketplace can also allow a seller to decouple the process of setting up their own webstore. These sellers can leverage the front end of the marketplace and focus any internal resources on building out the fulfillment side of the business. Once the fulfillment is well established, the team can turn their attention to building out the front end of their own webstore. This dissociating of the front end from fulfillment allows a seller to generate revenue while still building out internal capabilities.
What to Be Aware Of When Selling on a Retail Marketplace
Sellers on retail marketplaces must also evaluate the rules of each marketplace before joining. Marketplaces will take a percentage of sales as a revenue stream, so each seller should evaluate their options when considering which marketplace to list their products on. Additionally, there may be requirements for shipping times, returns, or customer service that sellers must meet to remain in good standing with the host. Any organization working on multiple marketplaces or with a large product list must also consider the technical support for managing product listing, inventory levels, and price. Larger companies with robust IT services can often integrate with the marketplace host, but other companies may have to manage this manually.
Lastly, any wholesalers looking to get involved in marketplaces must consider some of the intricacies of switching from bulk fulfillment to individual shipments. They should evaluate some of the additional challenges that may come with the individual unit pricing and order tracking to end customers rather than a large organization designed for receiving large quantities of products.
Marketplaces are a growing option to generate revenue for both sellers and marketplace hosts, but several considerations must be reviewed before getting a product into a customer’s hands. These challenges are tricky but companies that can do this well have a lot to gain. If you’re interested in reviewing your options with our retail experts, please reach out to our team.