For Lego, Amazon is not a competitor.
“We are not going to be able to reach the scale of Amazon,” said Shehnaaz Chenia, EMEA director of eCommerce development, at the Tech. conference last month. “We differentiate based on other things.”
The comments from a brand going direct to consumers highlight a key question facing all companies trying to sell online – only 39 percent of whom sell via third party marketplaces, according to a report last year by VisualSoft. Should they be selling on platforms such as Amazon or trying to compete with them?
Why should retailers be on marketplaces?
The answer is probably a mixture of both. According to figures from InternetRetailing’s research arm RetailX, marketplaces take a 47 percent share of all web traffic to IREU Top500 websites from EEA member states. This rises to 61 percent in Germany and 58 percent in Italy – so the quickest way to gain a foothold in these countries is probably through engagement with marketplaces.
While the stats above might make it look like being on marketplaces is a matter of pure necessity, there are positive incentives for retailers looking to expand to new markets as well.
In a recent talk at the Rebound Returns conference, Global-e’s Europe CEO Neil Kuschel highlighted several essential boxes to be ticked in order to sell cross-border. These include offering payments in local currency, localised alternative payment methods, guaranteed duty and tax calculation, returns, and localised welcome and checkout.
Clearly, a marketplace – a localised portal with a range of pre-built delivery and payment option – provides a quick way to tick many of these boxes.
Additionally, as Steve Beckett, client services director at PushON, says, the infrastructure offered by marketplaces also allows small businesses to start selling products quickly and without the “hassle” required by fulfilment.
“When a business first starts out, customers will likely be unfamiliar with their brand or products,” says Beckett. “However, marketplaces provide the opportunity to promote products via their trusted platforms, with the reassurance and safeguards already in place.”
Jean Grant, purchasing and product development senior manager at specialist gift retailer Find Me A Gift, adds similarly that Amazon functions as a good “test bed” for retailers’ core businesses.
Why shouldn’t they be?
This doesn’t mean that being on a marketplace is necessary or even desirable for every brand.
Tim Johnson, head of sales at eCommerce agency Visualsoft, says there are several factors to consider. He highlights the selling fees that come with being on a third-party platform, although he says that listing a product on a retailer’s own site will come with its own challenges.
“Control is one of the biggest concerns,” says Beckett of PushON. “We’ve encountered a number of merchants recently that have built up their business via the marketplaces, but now realise they don’t have control of either their brand or product and are at the mercy of the marketplaces to a concerning degree.
“If Amazon was to suddenly de-list their products in this situation, it would have a very significant impact on the business.”
Accordingly, says Beckett, investing in a retailer’s own platform “provides [them with] the opportunity to implement intelligent marketing strategies to build customer lifetime value and retention through the website, meaning merchants can own and plan for their own future.”
So what are some techniques for tackling marketplaces? One approach, says Visualsoft’s Johnson, is to use marketplaces to sell “hero products” while keeping the bulk of the product range exclusive to the main site.
“Unique, “inelastic” products – for which demand is not overtly affected by price – are particularly effective to sell on marketplaces as brands can charge a higher price to offset hosting and selling fees,” says Johnson.
Grant of Find Me A Gift says that there are two basic strategies – fast-selling and low margin or slow-selling and high margin. Keeping prices low allows sellers to win a “Buy It Now” button for their product on Amazon, meaning a low margin but high volumes.
The other approach is to select relatively unique products with low competition to place on Amazon. ASOS, which has clearly been no slouch in building its own offering, also makes use of Amazon to sell a range of selected products.
Chris Cooper, head of planning at marketing agency smp, says that culture should be a key determiner.
"Is the marketplace in question a good cultural fit for the brand? Can it deliver, or increase, the brand experience in a relevant way, augmenting the brand’s narrative arc without disrupting it?"
If the answer is yes, then Cooper says the separate channels should be managed carefully to maximise brand and product exposure.
"A brand may launch a product a few days early on its own e-commerce platform, making it the only place customers can purchase it from. The brand can concurrently utilise the marketplace content to promote the product, driving traffic back to its own platform."
If retailers do decide to completely eschew the Amazon portal, it is important to know where they are going to differentiate on their own sites in order that people still choose their products.
While Amazon offers many best-in-class features, that doesn’t mean they are automatically the best at everything. As the Lego example shows, it doesn’t necessarily make sense for retailers to view their own portal as a competitor to Amazon.
Lego’s Chenia talked about how on its own website the toymaker offers a journey rather than simply a transactional platform. Alongside its products, the brand offers a number of web-based games, support functions such as assembly instructions and product categories tailored to factors such as age.
Specialist retailers in particular have a good opportunity to differentiate through in-depth knowledge of the products. A fifteen-minute consultation call by a customer service agent to discuss what a customer is actually looking for could make the difference between a conversion.
As Richard Davies, MD of Hattons Model Railways (which does not sell through Amazon) says, the marketplace has “no relationship with customers in the way I have.”
Davies says that the importance of building a long-term customer relationship has been “greatly overlooked” in the eCommerce world.
“Customer service is in danger of becoming customer avoidance – with bots.”
Davies says this is a big opportunity for companies like Hattons to offer a more personalised service, as long as things like logistics work to the high standard that Amazon has set.
“Amazon’s depersonalised approach could become outdated,” he predicts.
Additionally, Jimmy New, director at VoucherCodes.co.uk, cites research by his company showing that retailers are prioritising investing in eCommerce applications as a way to “forg[e] a digital-led connection with customers”.
Learning from the best
Whether or not they decide to use the marketplace channel, retailers can copy some of the best practices of marketplaces in their own eCommerce sites.
Amazon has done a lot to raise the bar for consumer standards, with Prime in particular pushing up the expectations for delivery times and features. At the same time, eBay offers options such as Click and Collect and its local delivery option eBay Now.
In this context, the old division between areas of the business that offer competitive advantage and the things that just need to work is important to bear in mind.
Hattons Model Railways’ decision to outsource logistics to GFS was a conscious effort to “follow in the slipstream” of Amazon, Davies said in a recent interview with InternetRetailing sister title eDelivery.
“[I am a] believer in practical systems that work today,” he says. “It’s for the bigger companies to innovate.”
There is clearly no one-size-fits-all strategy for approaching marketplaces. The likes of Amazon have set a benchmark for what customers expect from online retail and retailers need to take account of this when building their own infrastructure as well as when determining to use these channels.
But whether it is in more personalised customer experience or expertise about the products, there are also clear where retailers can do better than Amazon.
Images courtesy of Amazon, eBay, Alibaba Group, Fruugo and Etsy