Differences between selling on your own E-commerce platform and selling on an E-commerce marketplace
06 Apr 2018 Differences between selling on your own E-commerce platform and selling on an E-commerce marketplace
For a large or small-scale retailer foraying into the world of online sales, developing an effective B2B E-commerce marketing strategy is of primary importance. As an online retailer, you have the choice of implementing either of the following business models for your E-commerce strategy:
- Selling your retail products on your own E-commerce platform or website.
- Selling your retail products on an existing E-commerce marketplace such as Amazon or Flipkart.
The first approach, also called as the Direct Model, serves to create a B2B E-commerce portal for a specific brand and is dedicated towards selling products of only that brand.
The second approach (or the Marketplace Model) is a B2B E-commerce portal where the brand sells its products through a marketplace environment, which also positions its competitor products. So, what is marketplace defined as in the world of online retail sales? The marketplace is the online platform (or website) where products from multiple vendors are offered to online retail customers, who can then choose the right product from the available choices. The marketplace business owner is responsible for attracting customers and ensuring secure payments, while each of the multiple vendors (registered on the marketplace) handles the product inventory and customer inventory. The most common marketplace model is the B-to-B-to-C (Business to Business to Consumer) model.
This article evaluates the differences between these two business models for E-commerce retail.
Despite the differences, the cost of launching your own E-commerce website as against an E-commerce marketplace platform is roughly the same. However, retailers, implementing the Direct model, need to make a higher initial investment in order to build and sustain their product inventory. On the other hand, the Marketplace model requires the business to make lower investments for their inventory, as product stocks are maintained by the third-party vendors themselves.
In the Direct model, retailers need to maintain a higher inventory model, as only a bigger product catalogue can ensure higher sales. Due to the relevance of the Pareto principle in online retail, majority of the retail sales will be dominated by a few products or product lines. This means that retailers, in order to refurbish their inventory stock, will have to get rid of their unsold inventory by lowering the prices.
The Marketplace model allows retailers to deactivate or remove any unsold product easily without worrying about their inventory levels.
Retailers, operating in the Marketplace model, need to share a percentage of their sales revenue with the marketplace owner, who is promoting their products, thus resulting in lower price margins. This requires that the Marketplace model needs to generate a higher sales volume to meet the revenue target of each party involved.
On the other hand, the price margin for sales in the Direct model is higher as compared to the Marketplace model, hence a lower sales volume is required to meet the same revenue targets.
Due to favorable factors such as lower initial investment and product inventory, retailers can achieve scalability and economies of scale more easily with the Marketplace model. This enables them to grow faster than direct E-commerce retailers.
Brand Equity and Customer Experience
To develop customer loyalty, retailers in the Direct business model must not only sell quality products but also provide exceptional customer service, in order to ensure a completely positive customer experience. On the other hand, the Marketplace model only needs to serve as a convenient mediator between the customer and the seller to ensure a positive customer experience.
The Marketplace model can, however, reduce the brand building initiative or brand equity of smaller brands, as online customers only identify with the brand equity of the marketplace provider.
This article highlighted the differences between these two main business models that E-commerce retailers can use. Selecting either of these business models can influence the relationship that you, as the retailer, will have with your online customer, along with the growth of your retail business in the online space.
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