Should businesses sell on marketplaces in 2020?

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Should businesses sell on marketplaces in 2020?

At Microsoft’s Christmas party this year in Miami, I had a fascinating conversation with one of their employees.  He told me how, under the leadership of Satya Nadella, cooperation and ‘coopetition’ with other companies has been a key part of the business’ cultural change and its ongoing success.

What’s coopetition? It’s what happens when competing companies decide that it makes sense to work together for mutually beneficial results.

While some companies are thriving thanks to coopetition and collaboration, others have decided to take a different path. It’s going to be very interesting to see which model is more effective and opinions on the subject are very diverse.

For example, following the recent announcements by Nike that they will stop selling their products on Amazon, I read many people on social media congratulating Nike. There has been much debate on whether companies should sell or not through such channels. I meet e-commerce leaders of Fortune 500 companies every week and it’s probably the question that I’m asked most, so I wanted to share with you some perspectives and considerations.

In my opinion the real conversation should be “how do I make sure I am not dependent on one marketplace and build a truly multi-channel sales strategy?” Dependency on a single sales channel or client has never been a good thing and never will be.

To answer that question, let’s think about three dimensions:

  1. Pros and cons of selling on large marketplaces 
  2. Key capabilities and skills for an effective Direct to Consumer (DTC) strategy
  3. Personal recommendations on next steps and the future

 

  1. Pros and cons of selling on large marketplaces

Here’s a non-exhaustive list in order of priority.

 

Pros Cons
The traffic of consumers who are looking to buy products Losing control of customer data and relationship (and possibly becoming a commodity)
Access to leading edge technology (AR functionalities, payment, visibility, analytics) Sales depend on your ranking on the search (and you don’t control that unless you pay for ads)
Turn key solution to start selling online, easy promotion of your product Fees can be significant for large businesses with large transaction volumes
Ability to leverage marketplace’s logistics infrastructure Your product could be replicated with private label
You can set up and sell very quickly Limitations on packaging and personalization. No control over packing and last mile experience

Anything missing? Please add any comments at the end of this article.

  1. Key capabilities and skills for an effective DTC strategy

An effective DTC strategy must have:

  • A team of digital marketing rockstars

All the major success stories of DTC – brands such as Casper, Warby Parker and Gymshark – have had a deep understanding of social media, the new rules regarding influencers and how to effectively sell direct.

  • A brand with true customer loyalty

Think of a large brand like Disney, or a high growth company like Kylie Jenner Cosmetics.

  • A logistics infrastructure and service level that can compete with large marketplaces. 

Even if you are not as fast as the largest marketplaces, you need to offer a great experience which is at least close to their speed and quality, combined with a unique experience in terms of packaging and logistics. It’s why Shopify announced a $1bn investment earlier this year in its fulfillment network to “arm merchants with these capabilities”. 

  • A pricing and incentive strategy for your Direct channel

Offers are a key differentiator, and one company that is doing a great job on that is Nespresso. Every time I buy on Nespresso, I get a discount for next purchases

  • Exclusivity of some products in your DTC sales channel

That way, if a customer wants a product, they have to go to your website. Apple does this really well.

None of these dimensions are quick wins, easy to build or inexpensive, so it’s critical to work with partners to develop them. It won’t be effective to do it alone. 

Note: it’s extremely hard to catch up and compete head-to-head with the best known of the marketplaces. They are 20 years ahead with scale, has deep pockets, the ability to fund itself with income from its other businesses, and is focused on long-term dominance rather than short term quarterly/yearly results and/or stock market movement. 

  1. Personal recommendations on next steps and the future

Taking all of the above into account, my personal recommendation is that brands should be selling direct to the consumer and on marketplaces. The percentage split between channels depend on companies and products but a simple way to start would be probably 20% on marketplaces and 80% DTC. 

What’s my reasoning for this?

You need to be present where consumers are looking for products, and product search are now happening primarily on marketplaces (Ie: Amazon surpassed Google in product search in 2018 with 56% of product searches)

If you are not on marketplaces, consumers might find alternative options – your competitor products, private labels or knockoff

The other challenge is that one of your distributors or franchisees may be selling your products on the marketplaces anyway.

In summary, a marketplace is an additional sales channel to sell your product. It’s important to diversify and sell on multiple marketplaces and multiple sales channels. 

More than that though, you need to focus on building the consumer experience, intimacy and customer relationship which is ultimately what will help brands and companies to thrive in the future. 

Nabil Malouli is VP, Global E-commerce for DHL Supply Chain where he leads the innovation, strategy and product development of its e-commerce fulfilment and last-mile solutions.

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