Choosing an online marketplace

Online marketplaces can be a fast-track route to grow sales. But meticulous planning and execution is essential for success

Marketplaces such as Amazon, eBay, or Etsy can be lucrative sales channels for SMEs. Andy Geldman, founder of Web Retailer, a website dedicated to providing information and research about marketplaces, says the primary benefit is the huge number of serious buyers on these websites which provide ‘ready-made’ large audiences to tap into.

Research by ChannelAdvisor conducted in August 2020 actually shows that since the outbreak of Covid-19, 58% of UK consumers who have purchased online, discovered those products by browsing marketplaces – higher than any other method of finding products (such as brand or retailer websites, search engines or social media) .

It is also relatively easy for businesses to get up and running, and what Andy has found is that being on a marketplace is often a trigger to start selling internationally. He says: “If businesses start selling on an Amazon or eBay in the UK, they will quickly realise that adding countries to that sales channel – using these same marketplaces – is not that big a leap.”

But, says Andy, it’s not all upside: “With large marketplaces comes lots of competition. This is ultimately why they are so successful. They are pitting sellers against each other to compete on price (primarily), but also on service and quality of information. It can be really difficult and expensive to stand out, particularly if you don’t have a recognised brand.”

Sifting through the options

“There are plenty of online marketplaces, but that doesn’t mean there are plenty of strong marketplaces. And they won’t all be appropriate for your business. It takes a lot of careful thought and planning to select the right one(s) for you.” says Andy. In fact, Web Retailer recently published an article reviewing the top 17 online marketplaces for selling to UK customers.

He says for most businesses targeting UK customers, Amazon and eBay are the obvious choices, simply because they sell such a wide product range and because of their size. Amazon has more than 20 times, and eBay more than 10 times, the number of website visits than Etsy, the third most popular marketplace in the UK .

Outside of the ‘big 2’, most marketplaces could be described as semi-niche or niche. Etsy and Notonthehighstreet have an emphasis on arts, crafts, and gifts. Then there are category-specific niche marketplaces such as Wayfair (homewares), Game (e-gaming) or Zalando (fashion).

For businesses interested in exporting, Andy says this is very country specific. In the US and Europe, Amazon is again the market leader. It is also expanding rapidly in other markets such as Australia and Latin America.

For those looking to China as a market, the Chinese ecommerce giants have marketplaces set up specifically for overseas businesses. The main options would be Alibaba’s TMallGlobal and JD Group’s JD Worldwide. Royal Mail has even set up a ‘store within a store’ for UK businesses to sell through TMallGlobal. Andy recommends businesses considering ‘e-exporting’ look at the UK Department for International Trade’s guidance as a starting point.

Businesses should also not think online marketplaces are only for business to consumer (B2C) markets. For B2B businesses, Amazon is again the dominant player through Amazon Business. According to its website, it has over a million business buyers worldwide.

Taking the plunge (or not)

Izabela Catiru, product marketing manager at ChannelAdvisor, an e-commerce cloud platform used by businesses to manage and streamline their e-commerce operations, says nearly all products can be sold through marketplaces and that there are hardly any unsuitable products. But she does highlight a number of categories that consistently perform the best: clothing, fashion and accessories; health and beauty; and home and garden products.

She says it’s probably easier to say which businesses would not be a good fit – those which operate with very thin margins: “Marketplaces take a percentage of sales, so do the payment providers such as Paypal or Stripe. On top of that, investing in advertising on the larger marketplaces is really a prerequisite for success. These costs add up and can make the channel unviable.”

The other caution she sounds is that businesses should make sure they are able to meet the fulfilment requirements of their chosen marketplaces, which are often quite demanding: “Marketplaces will have minimum standards for things like delivery times. If you persistently fail to meet these or if you run out of stock, you might be removed from the marketplace which can be hugely damaging.”

However, says Izabela, this is precisely the reason that the fulfilment services provided by some of the marketplaces (Amazon in particular) are so popular. For a fee, businesses can have their products collected by Amazon and delivered to customers, or they can ship a bulk pallet to Amazon for it to manage the fulfilment process.

But she also stresses that the smaller or niche marketplaces shouldn’t be ignored: “Even though they won’t have the volume of sales going through them and they may not have the logistical support offerings of the larger marketplaces, they might be better because it could be easier to generate sales. These niche marketplaces tend to have ‘high intent’ audiences, and the competition might be less too.”

This article is written for the St James’ Place Entrepreneurs Club newsletter.