The last few years have seen the rise of marketplaces on eBay and Amazon, as well as others such as Play.com.
There are tremendous benefits with marketplaces, but there are some downsides too. However, a marketplace can be a useful adjunct to your own web store.
Forbes magazine states that eBay has around 100 million current users in the world. There are around 200 million products listed at any one time and over 10 million of these are added or delisted each day. eBay itself says that around 100,000 buyers join each day.
The UK boasts to the order of 16 million eBay visitors per month, so it has a major share of total sales and some entrepreneurs have achieved fantastic results. eBay recently stated that five businesses had made more than £1 million sales in their first year and it expects a tenth of businesses to eventually achieve sales of over £3 million.
Around 30 per cent of sales on the Amazon platform are third-party sales (ie, made by merchants other than Amazon).
The percentage is roughly static and so third party merchant sales are growing at the same outstanding rate – around 40 per cent – as total Amazon sales. It should, however, be noted that the number of people selling on Amazon has also grown substantially, so the average merchant has not seen the same growth as the platform.
When you compare Amazon with Walmart, the world’s largest retailer, you see how phenomenal its business performance is. Amazon has grown much more rapidly in its first 15 years than Walmart did in its formative stage, so there’s an argument to get onside with Amazon while there is still time.
Selling on Amazon or eBay is like taking on a franchise. They provide a lot of support, but you have to play by the rules, with the franchisor taking a big share of the spoils. These marketplaces can let you both build and expand your business, but make sure you own the long term value. The tips here try to enable you to take advantage of the opportunities while minimising the risks.
Promote your own store
It may be a good idea to think of marketplaces a little like advertising – you are promoting your products and service for a price, generally the listing or commission fee.
Maximise the opportunity by including a flyer or marketing brochure for your own store, possibly with a discount for coming direct.
Understand the benefits of marketplaces
Marketplaces enable you to start getting visitors straightaway and hence to start selling quickly. This is a huge benefit and is the reason why large numbers of merchants have started selling online through this route.
Many merchants with their own websites also sell through Amazon, eBay and others. Many new start-ups are initially weak in marketing and that’s where the marketplaces help. Tens of millions of buyers search them every month, so if you have the right products at the right price with great service, you will make sales.
Other reasons for using marketplaces include the following:
• Low start-up costs, because no money needs to be spent on marketing or technology.
• You are effectively addressing a captive market of people already searching on the marketplaces.
• Payment options have already been sorted out.
• You can choose between auctioning products and fixed price sales (eBay only).
• Extra services are provided, such as leaflets that can be dispatched with orders, emails promoting repeat business (eBay only) and provision of business loans for expansion (Amazon only).
• Fraud protection.
• A community of other merchants who can help.
• Provision of warehousing, picking and delivery service (Amazon only).
There are issues with marketplaces
The benefits are straightforward, so it’s worth outlining the problems. First there is the cost. The transaction and listing fees are expensive.
The second issue is control. You must obey the strict rules of the marketplaces or your business can be suspended in an instant. This last disadvantage would be comical if it wasn’t so real. It’s not hard to find stories of merchants who have been cut off in their prime if you search online. That’s why I strongly advise businesses never to rely solely on one marketplace.
Keep the risk under control
It is certainly possible to build a business just on marketplaces and it can be an excellent strategy to get started. But the downside risk is real, so it’s important to grow into other channels, such as your own standalone ecommerce store, as you become successful.
The reasons to go beyond marketplaces are:
• To find channels where higher margins can be sustained by avoiding the fees and unrelenting pricing pressure.
• To reduce the risk.
• To expand sales.
You need to always be looking for changes to get to a more successful formula and to minimise risk. Harvard Business Review studied successful entrepreneurs a few years ago and found they weren’t blind risk takers. One of the common factors among the most successful was a good ability to assess risk. The danger with marketplaces is that you build their business more than your own.
Understand the pricing dynamic
Due to the competition, prices on marketplaces are generally lower than on alternative channels, although a few merchants can manage to achieve higher prices to offset the fees.
The fact it is so easy to start up on eBay and Amazon is a double-edged sword. eBay and Amazon help to level the playing field with the big boys, which is good.
Against this is that they encourage swathes of new, naive sellers. A lot of these are new to business and think they should compete by having low prices. They don’t last long, as they lose money for a while and then drop out. Unfortunately, they are then replaced by more of the same. In the meantime they devastate everyone’s margins.
Getting your pricing right
To get your pricing right you first need to understand your own costs, including aspects like labour, returns, charge backs, breakages, packing materials, delivery and market place fees. You cannot scrimp, as poor feedback will destroy your business.
Look at the same or similar products to your own and track the high and low prices over time. Keep this in a spreadsheet or database, so you have a reference when setting your prices. Remember that loss leaders are simply likely to be loss makers when most people are looking for only one item. The only excuse to sell at low prices is to do so for a limited period in order to build up substantial positive feedback prior to moving to realistic prices.
Provide great service
Great service on marketplaces is the single most critical factor. It means packing items well, dispatching them promptly and using good couriers to ensure they arrive on time and in great condition.
The principle applied by the marketplaces is that the customer is always right. Customers rate you and even when you are almost perfect a few misguided individuals will still give you poor ratings. If you get many low ratings you will get almost no orders and below a certain threshold you will be thrown off the platform. So respond as quickly as you can to incoming orders and never be found selling items that are out of stock.
Good packing materials are a must, as nothing destroys more value than the delivery of damaged goods. Your quality of carrier is critical for speed, certainty and quality.
You will find some carriers sometimes claim to have left a card at a customer’s premises, but haven’t even been there. Others toss things into gardens as a form of delivery when they are in a hurry. The turnout of the driver and van, the persistence in trying to get the door answered and their collection of a proof of delivery or leaving a card all make a massive impression, so watch them like a hawk.
Offering a ‘no questions’ refund for a reasonable time is well worth the cost, as it minimises time, morale sapping disputes and negative feedback. Good service is impossible to overemphasise. Unfortunately, it’s all about huge attention to detail and hard work.
Consider exporting
It’s easier to start selling overseas on a marketplace than from your own store, as you don’t need to market in the overseas territory. Generally, the marketplaces will be much more trusted than a site found overseas on Google and a lot of the needed infrastructure is already in place.
Just remember that the cost of shipping is usually much greater. You must allow for some non-payers and potential fraud risk too. Some of the most successful eBay-based companies have developed exports as a very major part of their business. eBay states that 98 per cent of businesses turning over more than £1 million boosted takings through overseas sales. The top export markets for UK retailers are the United States, Ireland, France, Australia and Germany.
Chris Barling is co-founder and chairman of ecommerce software and EPOS systems supplier SellerDeck and has over 17 years’ experience of helping small and medium size retailers with advice on trading online.
In his third book he shares the basic steps to setting up shop on the web, together with the key lessons he has learned that can make the difference between success and failure. The 440-plus tips are organised into a series of nine sections, so that it’s easy to dip in and out of.
The paperback edition is £12.99 from www.sellerdeck.co.uk/insider and a Kindle version is also available on Amazon for £6.49.
