An online marketplace as sales channel: advantages and disadvantages

In recent years the marketplace has emerged and established itself as the dominant online sales model, generating billions of dollars in the process and becoming hard-to-avoid competition for small e-commerce players. We ask five key questions to shed some light on these indispensable arenas for buying and selling..  

What is a marketplace exactly?

A marketplace is a secure online intermediation platform connecting buyers and sellers where things are bought and sold according to a previously defined compensation model and legal framework.

Sellers can be professionals, for example on Amazon, or private individuals, for example on Facebook's Marketplace. Other marketplaces facilitate transactions between professionals only, like on Alibaba.com and Amazon Business.

How does it work?

A marketplace generally takes a commission on sales made on its platform, with the exception of marketplaces where only consumers carry out transactions between themselves (such as Facebook's Marketplace) and which are generally free.

Other marketplaces operate using a monthly subscription system which allows sellers to display their shop on the marketplace's website. As you can see, marketplaces use a variety of economic models.

You can find absolutely anything on these sites, which offer a bewildering selection of products to consumers. In just a few clicks you can buy clothing, high-tech gadgets, jewellery, toys, furniture, DIY supplies, and more.

How is it different from e-commerce?

The majority of e-commerce sites are now marketplaces. The e-commerce model is thriving. By contrast, not all e-commerce sites are marketplaces.

E-commerce sites and marketplaces obviously have the same purpose: to sell products and services online.

However, these sales models differ when it comes to how they operate and the parties involved.

On e-commerce sites, sellers sell directly to buyers. The seller creates the e-commerce site where only their products can be found. E-commerce websites are therefore the digital version of a retail shop where two parties interact: the seller and their customer.

On the other hand, when it comes to marketplaces, there is a variety of buyers and sellers on the same platform. In this case, the marketplace is a third party connecting buyers and sellers. An analogy could be made with an online shopping centre.

The sellers are therefore the customers of the marketplace, on whose platform they find their own customers while taking advantage of its infrastructure and visibility.

To put it simply, e-commerce sites and marketplaces are different online sales models.

What are the advantages of a marketplace?

In short, sellers who decide to do business on a marketplace will be able to take advantage of its users and the platform's features.

Marketplaces offer a clear advantage in several respects: 

Visibility and reputation

A shop that appears on a marketplace will benefit from the platform's online visibility and reputation. These marketplaces have excellent SEO rankings and they very often receive huge amounts of traffic. Thousands and even millions of people visit them every minute and therefore become potential customers. Furthermore, these platforms have unparalleled budgets for digital marketing and advertising while offering users a secure and quick shopping experience.

Sales volume and growth

This visibility will obviously boost sales and offer major growth opportunities through the acquisition of new customers without any financial investment. It is therefore possible to infinitely increase the variety of products and the number of items you propose to visitors by adapting to the constantly changing demand.

It is important to note that this growth will go hand in hand with larger investments in logistics and after-sales services, aspects which are entirely your responsibility if the marketplace does manage them.

Logistics and technology

Marketplaces also have the advantage of providing more developed solutions, therefore cutting costs related to logistics and technological development.

Some platforms propose built-in solutions for managing stocks, inventories, invoicing, flow synchronisation and logistics (dispatching products).

What are the disadvantages of marketplaces?

The lack of personalisation

The major disadvantage of marketplaces is that they are very often generalist websites. In other words, they offer a plethora of products. Nearly everything that can be purchased online can be found there, and your products risk getting lost in this limitless ocean.

Moreover, a marketplace could never promote your products as well as a personalised e-commerce site, which recreates the brand universe and values that you want to showcase.

However, there are more specialised marketplaces that position themselves in a specific niche, for example decorations or cosmetics. These marketplaces are generally more selective when it comes to choosing the sellers they decide to host on their platform. They have a more specialised selection in order to create a specific universe despite a wide range of products.

The type of customers

Another aspect that may be to your disadvantage on a marketplace is that the customers are not exactly your customers. It is therefore impossible to win their loyalty, maintain a long-term relationship or convince them to buy into your concept. They will always remain the marketplace's customers.

The competition

On a marketplace, you face many competitors given the multitude of sellers that are featured side by side on the platform. On the one hand, jumping into this sort of competition could be an opportunity to propose more competitive prices and attract customers, but it could also work against you by pushing your prices down.

This is even more true when the marketplace also sells its own products on the platform at the lowest prices.

The cost of the marketplace

Lastly, the commission or percentage deducted by the marketplace on your transactions will obviously reduce your margins when compared with your own e-commerce site.

Conclusion

Marketplaces play a big role in the dynamics and growth of e-commerce across all sectors. If you carefully choose a marketplace that matches your brand universe, you will enhance your e-commerce reputation and increase your sales. You must consider this option if it is consistent with your business model.