Analysis: Are online marketplaces heaven or hell for retailers? - PC Retail

Analysis: Are online marketplaces heaven or hell for retailers?

Amazon, eBay and Play all offer retailers relatively easy routes to market – on the surface at least. But there are pitfalls online
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Online marketplaces should be win-win marketplaces. They provide retailers who don’t want to build their own ecommerce site with a cheap way to get online. For those with already established sites, they simply add further channels for sale.

Steven Heywood, eBay Marketplaces, comments: “We passionately believe we are a great platform for retailers.” And indeed retailers from Argos and Maplin through to countless indies are using marketplaces such as Amazon, eBay and Play.com to increase revenues. 

But amongst the victories a retailer can gain on these sites lie a number of potential pitfalls, from focusing on price until there is no margin left at all, to forgetting the importance of reputation.

Craig Constantinides, director of computer games etailer Go2Games, says that entry into this market is harder than it looks: “Go2Games.com has found in its infancy many challenges on a very steep learning curve.

 “One of the first steps to becoming a true multichannel retailer is getting the systems in place to allow your products to be listed on a single stock management platform which has the ability to hook up to each specific channel’s API needs. Each platform has specific rules to be followed.”

Once set up, retailers then have to battle against others for the consumer’s attention. When faced with a number of shops that may not be well-known names, many customers will make a decision based on price.

However, while discounting might be good for consumer wallets, it results in poor margins for retailers, and brands can be damaged too. Once Super-duper Games Peripheral has been sold for 49p, will customers ever pay the RRP of £25.69 again?

"Eventually you’re down to getting no margin at all, just for the sake of the sale. In the end everyone is losing out."

Craig Constantinides, Go2Games.com

Constantinides continues: “It can result in company A shaving off a penny to be the cheapest, then company B, then eventually you’re down to getting no margin at all, just for the sake of the sale. In the end everyone is losing out.”

How then, do firms grab consumers’ attention if not by price?

FEEDBACK

Reputation is important – which, in marketplace territory, is often better known as feedback. It’s not foolproof, and heavily weighted towards buyers, yet getting it right will mean getting more sales.

Neal Somaia from retailer Mighty Micro notes: “You’ll struggle to sell if your feedback is poor, no matter how cheap you are.”

Protection for consumers is good for retail generally, but can be tough on individual businesses at times.

Constantinides says: “These channels have a habit awarding the customer their money back, without even giving you a chance to get the stock back from said customer. This also ties into the fact that a merchant cannot give positive or negative feedback in the opposite direction if they feel that they have done everything in their power to ensure customer satisfaction.”

"Your reputation is crucial to long term success – though price is more crucial initially until you have built some feedback up."

Martin Slade, Bits and PCs

Martin Slade from Bits and PCs says: “It’s very important to ensure you have some tracking information or proof of postage. It is also important to describe the items you are selling accurately and stick to your delivery timescales. Your reputation is crucial to long term success – though price is more crucial initially until you have built some feedback up.”

Good feedback, good prices, good sales – what next? Can you convert these customers to repeat buyers – or even better, someone who will buy from you directly next time? Constantinides notes: “We’re constantly looking for new ways to convert customers from those channels to our main site. How many other ways can a retailer promote themselves as unique, bar taking each order to customers’ houses and washing their dishes as part of the service?”

THE COMPETITION

The people you’re competing against in an online marketplace will not all be retailers. Some will be consumers selling second-hand goods. They don’t need to worry about margin, and so it’s a waste of time to compete with their prices.

When it comes to distributors and vendors selling on these platforms, the situation gets a bit murkier. After all, these firms can get products at a lower cost than retailers – if they choose to sell direct to consumer at that lower cost, retailers will not be able to compete.

James Dean, from sales and PR agency Kuoda, who’s represented many vendors entering the UK market, provides another perspective: “The online marketplaces are usually where we find grey stock being sold at reduced prices, which can cause turmoil in the channel. 

"The online marketplaces are usually where we find grey stock being sold at reduced prices, which can cause turmoil in the channel." 

James Dean, Kuoda

“As for vendors selling direct to consumer, I have not seen this with any of our vendor clients, mainly down to logistics – it’s far easier going through the main Amazon channel, for example. However, eBay is often a good place to shift refurbished items; several international brands do that in some shape or form.

“As for distributors, I’m sure some are using marketplaces to sell at either lower cost or higher margin. However, this will simply create issues in distributor and reseller relationships.”

This is already happening. One retailer, who would prefer to remain anonymous, has reported that a distributor they work with is selling direct to consumers through Amazon’s marketplace, below RRP – and making complaints about retailers who aggressively compete against them. This is damaging the very retailers they are supposed to be supporting.

C Kohli from PC retailer YOYOTech has told PCR he doesn’t believe it’s a level playing field, after spending some time looking at how different retailers operate on Amazon. He says:“I’d like to encourage other independent retailers to get involved in this discussion.”

"There’s money to be made from online marketplaces, but beware of the pitfalls.” 

Neal Somaia, Mighty Micro

As Neal Somaia, Mighty Micro, comments: “There’s money to be made from online marketplaces, but beware of the pitfalls.” 

ONBUY.CO.UK

A new player that’s due to arrive on the marketplace scene this July is OnBuy.co.uk – which has, interestingly, seen significant investment from distributor Centerprise International (which has made it clear that it won't sell direct to consumer itself through the service).

The firm says that OnBuy will offer sellers a unique management service; all they have to do is send over product images and numbers and OnBuy will do the rest, including uploading and managing their inventories.

“We want to offer a better service than the leading marketplaces, for both buyers and sellers,” says MD Cas Paton.

And in a month or so, you’ll be able to see whether it might be another viable channel for your business to sell through.

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