E-commerce business is big. There are over one million sellers on Amazon who have at least one product listed. Selling on the many online marketplaces seems like a no-brainer. While selling on these marketplaces can position your business for success, you have to consider the different rules, target markets, and fees associated with each of them. There are some problems that seem to span most online marketplaces though. This blog post will provide you with a look at the top 3 problems of online marketplace selling.
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“Oh, I got it from Amazon.” Did you ever say that before you started selling online? Honestly, you may have heard it at a family or office party. The question of course is: Did they really get it “from” Amazon? Or via Amazon? We’re willing to bet the latter. This is why branding is a top concern for online marketplace businesses. With over 100 million Prime subscribers, brand loyalty is high, it just may not be for your brand.
There are over 1,000 on the Walmart Marketplace and more than 300,000 U.S. sellers on Amazon. Most customers can’t name a single one. Small marketplace businesses get swallowed up by the e-commerce giants’ names and logos.
Make the Marketplace Work For You
Most marketplaces are product focused, and that makes the sellers interchangeable for most consumers. Etsy is an exception to this. Once a customer finds an item to click on, they see other items listed by that seller on the page. When Amazon shows additional items, they don’t consider presenting the same seller. It’s usually “Other Amazon customers who bought ‘X’ also looked at these items.”
Why are they different? One of Etsy’s brand pillars is unique gifts made by people. The different sellers are a part of their brand and marketing strategy. The same isn’t true for marketplaces like Walmart and Amazon. For many marketplaces, you can’t even customize your storefront, further removing your brand from the products you’re selling. So what’s an online seller to do?
Treat Your Brand Like the Asset It Is
You have to place your brand out there for customers to engage with. Do your market research and understand where your customers like to be. Do you target a demographic that loves Instagram? Or maybe busy folks who appreciate a great newsletter delivered to their email? Find out, and engage your customers the way they prefer.
Reviews and Customer Service Are Key
Many marketplaces place the burden of customer service on the sellers. You often don’t get to engage with customers unless there is a problem. This makes your online presence (like your website and social media) even more of an asset to you. Reviews are hard to come by for some marketplaces. One out of every three eBay buyers leaves a review. For Amazon, the average is around one out of every thirty.
Build a strong following with your customers off of the marketplaces. You can engage with them on social media, through email marketing, and your website. Many happy customers for get to leave reviews. Ask your customers to leave a review of your product. Include the link for them. When you make leaving a review as easy as possible, you're more likely to get one.
Besides helping you connect with current customers, reviews influence potential customers. Around 88% of customers polled for a Zendesk report said that customer service reviews influenced their buying decision. So put some effort into getting those reviews. Most customers won't make a purchase without reading some.
Lower Profit Margins
Marketplace selling is a key to many e-commerce businesses’ success. No one can deny the amazing reach these platforms have. We shudder to imagine the amount of ad spend you’d have to commit to have the same visibility. That being said you must keep in mind that these marketplaces are looking make a profit as well. When you make a sale, so do they. There are a lot of little (and sometimes big) things that chip away at your actual profit.
If you plan for these fees, then you can still come away with a decent profit margin.
Commissions and Fees
Commissions and fees on the various marketplaces might surprise you! Take a look at some of the biggest marketplaces:
Amazon charges a referral fee of 6-20% of the sale price, depending on the product category. They apply a minimum referral fee if the percentage adds up to than a dollar ($1-2). In the media categories, Amazon charges a flat “variable closing fee” of $1.80. Then there are the Amazon Seller Account Fees. You can pay $0.99 per listing or you can upgrade to an Amazon Pro Merchant Account for $39.99 per month.
Unlike Amazon, Walmart doesn’t charge account fees or minimum referral fees. Their referral fees are similar though, usually 6-20%, depending on the product category. Walmart does review sellers more stringently than Amazon, however.
Etsy does a great job of appealing to their target seller with their fees. Each listing is .20, and is active for four months, or until it sells. Etsy then charges a 5% commission fee and 3% plus $0.25 for payment processing.
Overstock has a slightly different fee model. Their listing fees range from $0.10-3.15. If your item sells for under $25, the commission is only 3% of the listed price. They offer additional options like highlighting a listing ($5) and bolding a listing ($1) as well.
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Competition is Fierce in the Marketplaces
In case you hadn’t noticed, peer competition is fierce on these platforms. Some of it is just capitalism at work. Other times, it’s scammers looking to make a quick buck off of your hard work.
Price: The Race to the Bottom
Pricing is an important part of any decision regarding your products. It’s expected that you will reprice your products to suit the market demand. Repricing has gone high tech these days. There’s software you can use to make sure your competitors never have lower prices than you. The software runs on your computer and operates based off of a set of rules that you give it. You can also use this software to raise your prices. You have to decide just how important it is for you to have the lowest price though. Sell to low, and you won’t make a profit on any of your inventory.
These repricing programs are part of the reason prices can change so rapidly on the marketplaces. You may see multiple price changes per day. Or drastic price changes due to a software error. Like in 2014 when a glitch set thousands of products’ prices down to one penny. These sellers were using repricing software, and the company never revealed exactly what went wrong.
When using repricing software, be sure to set minimum and maximum limits so your prices don’t go where you don’t want them to.
Hijacking Listings and Counterfeit Products
In these cases, this goes beyond natural competition and into the land of unscrupulousness and even illegality. Listing hijackers sell private label products that don’t belong to them, or a very similar product made to look like yours. Depending on the product, it may be a breach of policy or a criminal act, like this seller’s hijacking experience.
The hijacker sells their very similar products and then disappears, leaving you and your customers to deal with counterfeit products and bad experience. These hijackers normally pop up with a new account a few days later to do it to someone else. It can be devastating to a small marketplace business. Inevitably, the one-star reviews begin to pour in, and you have a customer service nightmare on your hands.
Counterfeit products in these marketplaces is a whole other monster. If you participate in a marketplace fulfillment program, like Fulfillment By Amazon (known as FBA), your legitimate products may mix with counterfeit products. Because it’s an Amazon warehouse, you don’t have control over what other sellers introduce to the mix. The counterfeit product gets picked, packed, and shipped. You get a frustrated customer, wanting to know why the product isn’t what they purchased.
You may want to explore working with a third party logistics (3PL) company for your fulfillment needs if you don’t own your own warehouse. Your relationship with a 3PL can provide more quality assurance and a more granular look at their operations.
The Marketplaces Sell on Their Own Platforms
Not only are you competing with other marketplace businesses, but you’re also competing with the marketplace in some cases. Let’s use an example. When you search “toilet paper” on Amazon, you see common toilet paper brands. Amazon buyers may have also noticed a big push for Amazon brand toilet paper recently. They sell it under the brand name “Presto”, and it’s cheaper than most other options.
Marketplaces Might Start Selling Your Products
Let’s say you do market research, and you explore different products to introduce to your target market. Your customers like to shop on Amazon, so you get set up on Amazon, and things are going really well for you. Then out of nowhere, Amazon is selling your products, and they’re selling it for a lower price. What happened?
Sometimes marketplaces see a product performing well, and they approach the supplier for an arrangement of their own. Now big marketplaces like Amazon, Jet, and Walmart have the funds necessary to make a more attractive arrangement than you. You can still compete, but you’ll need to be savvy about it. That’s another blog post for another time.
Your Products Can be Restricted and Delisted at Any Time
Marketplaces control the products listed on their websites and can remove products at any time. And it isn’t always because you broke a rule. Many of these companies are large and make partnerships. One professional seller learned this lesson the hard way when Dunkin Donuts and Amazon made a deal. One day he was allowed to sell Dunkin coffee, and the next day he wasn’t.
Having the lowest price is extremely important to Walmart. It’s one of the pillars of their brand. As a result, while third-party sellers are allowed to set their own prices, Walmart can delist them if they find lower prices elsewhere. This is where your product development comes in. If you invest in products that aren’t incredibly common or have your company’s unique spin on them, then it’s less likely Walmart will find lower prices elsewhere.
If you sell on multiple marketplaces, then it may be that if a product becomes delisted, you can still sell it elsewhere. Be sure you carefully review each marketplaces terms of service. Then you’ll be able to make informed decisions about what inventory to sell where.
Plan Ahead and Don’t Let These Marketplace Selling Problems Surprise You
We firmly believe in the potential of every business to be a success. So this blog post isn’t meant to discourage you. However, you can’t successfully navigate the pitfalls of running an e-commerce business if you don’t know what they are. With an informed and innovative mindset, you can handle everything that comes your way.
Written by Ruthie Bowles
Ruthie is a content marketing consultant for Logiwa. Her specialties include small business development and inventory management.