90% of U.S. and U.K. independent retailers sell through online marketplace sites. There’s a good reason why so many retailers use sites like Amazon, eBay, Sears, Newegg, etc. They are an easy way for retailers to get their products in front of millions of potential customers.
However, is selling on marketplaces a guaranteed way to grow your sales?
Online marketplace sites have their own unique challenges that can put a retailer’s business at risk. This article uncovers some of those risks that you might experience. Knowing these challenges upfront can help you decide if selling on online marketplace is right for your business.
5 Risks of Selling on Online Marketplace Sites
A recent BloomReach Inc study found that 55% of people go to Amazon.com’s site or app when searching for products. Knowing this, retailers are tempted to flock to online marketplaces such as Amazon as a way to expand their business and grow their sales, and many of them do.
Online marketplaces are designed to be easy. You can make an account within minutes and quickly list your items. You then will have access to a huge, engaged audience to sell to.
Some retailers owe most of their success to online marketplaces. However, other retailers have realized that marketplaces aren’t always what they’re made up to be.
Before diving into selling on any marketplace, recognize that these risks below could prohibit the long term success for your business.
1. Low Profit Margins
One of the biggest culprits of a retailer’s success on a marketplace is low profit margins.
An online marketplace site has seller fees. There can be any combination of monthly seller fees, per-item fees, shipping fess, referral fees, and closing fees. It’s all part of the cost of doing business on an already built selling platform.
You also have to deal with stiff competition. Customers are often looking for the lowest priced item. This forces sellers to continually lower the price of their items.
These two factors together can really squeeze a retailer’s profit by the time you finally make a sale. According to Web Retailer, around one-fifth of sellers operate on margins under 10%. Margins also will vary considerably across product categories.
For some sellers, the risk of low profit margins is very real.
2. Operating on “Rented Land”
Online marketplaces offer an established platform for you to sell on. You don’t have to worry about maintenance, branding, or set-up. Sellers just have to comply with the site’s selling rules.
However, what happens when the platform makes a major change? For example, Amazon frequently changes its fees for FBA during the holiday months. You’ll have to pay the higher fees to continually use FBA.
What happens when you make a selling mistake? Some sellers have a hard time keeping accurate stock levels on marketplaces. If you oversell on Amazon, they can kick you off the site for good!
These are some of the risks sellers face when selling on marketplace sites. You’re essentially operating on “rented land.” This means that your subject to comply with their rules and changes. You’re not in control or in charge of what happens.
3. No Opportunities to Control Brand Image
Marketplace sellers must face the reality that you don’t get to control your brand image. There will be little opportunity for you to brand your products as your own.
Unlike your own eCommerce platforms, you don’t have a storefront to brand. If you don’t fulfill items yourself, shipping materials can not branded to your unique company. Instead, the marketplace’s branding is front and center for customers.
Some retailers don’t want to take the time, effort, and resources to do their own branding. For others, this is a missed opportunity to strengthen your brand image with your customers.
4. Counterfeit Products
Counterfeit products can be a serious problems for some sellers. You’re not always the only person selling your products and have to compete with other retailers. These other sellers can sell counterfeits, which diminish the value of your authentic products.
For example, Amazon has had a known problem with counterfeits. Amazon’s FBA program can use a process that commingles your inventory at its fulfillment centers, mixing authentic and fake products together.
Commingling inventory allows Amazon to efficiently ship items to their customers. (Learn more about it here.) But, it can be at the cost of your business. Amazon can send a counterfeit product in lieu of your real one. However, your business gets the bad review and ding on your account when the customer discovers the fake.
Also, competitors can sell counterfeits at a lower price, while passing them off as authentic. This can diminish the value of your products. Problems like these have lead to some major brands like Birkenstock to leave Amazon’s platform.
5. Competing Against the Marketplace
Most marketplaces carry their own products for sale. One of your biggest competitors then is the platform itself. This is a tough competitor to be up against. They’ve got access to data and resources you don’t.
If you sell a product that starts doing well, the marketplace could take notice and start selling it themselves. Some feel like the marketplace is a competitor that they will never beat.
What to Do Next
It’s easy to see the advantages of selling on online marketplace sites. You can have an account set-up in minutes. You have a captivated audience that you couldn’t sell to before. However, it’s also easy to overlook some of the risks.
Selling on marketplaces doesn’t mean guaranteed success. Knowing both the advantages and challenges, you can make the best decision for your business. It’s all about who your audience is, what you sell, and what your business goals are.
Check out these other articles about selling on online marketplaces to continue to learn more: