In eCommerce, they are two main channels you can use to sell your products to consumers. This could be either through your own online store or through an online marketplace such as Amazon, eBay & Etsy.
In this article, we are going to explore both options and help you decide which one would be best suited for your business.
Before we continue, let me ask you the following question…
“If you were planning to start a physical business, would you prefer to have your own independent shop or have a stall inside a shopping centre?”
If you were to have a stall inside a shopping centre, you would benefit from the guaranteed constant flow of “ready-to-buy” customers it attracts as all the marketing efforts would be handled by the shopping centre. However, you would also most likely be restricted by the rules & regulations the shopping centre would impose on you in terms of the stall layout, the products your allowed to sell and opening hours. Your business would also probably have to pay a hefty rent fee and/or a percentage of its sales to the shopping centre.
If you were to open an independent brick & mortar shop, you’ll have more freedom to setup and run the business as you want. You also wouldn’t have to worry about following rules & regulations that have the potential to change at any time and have a negative impact on your business. However, you would also have to put more money, time & effort into marketing your business and attracting customers to your shop.
In eCommerce, similar concepts apply. Let’s go through the benefits & drawbacks of selling on an online marketplace vs an online store.
BENEFITS OF ONLINE MARKETPLACES
Easier & cheaper to setup – Online marketplaces already have an infrastructure in place that sellers can leverage to sell their products without having to invest a lot of time and/or money into building a website from scratch.
Guaranteed Traffic – Online marketplaces, especially the big ones such as Amazon & eBay are already established, highly-trusted websites that generate millions of visitors every month. Most of these visitors are probably actively searching products and ready to buy.
Assistance with Logistics & Order Fulfilment – In order to provide a seamless shopping experience for their visitors, some marketplaces support sellers with warehousing, logistics & order fulfilment facilities. For example, Amazon have a service called “Fulfilled by Amazon” that handles.
DRAWBACKS OF ONLINE MARKETPLACES
Marketplace Fees – Online marketplaces often come with their fair share of payable fees. There will most likely be a listing fee for every item you list for sale and may even have to pay a percentage of your sales revenue to the marketplace also. Make sure you understand the fee structure of the marketplace you intend to sell on before launching your business on it.
Limited Customer Information – Since the customers that buy from your store are technically the marketplace’s customers, they don’t give release much information about the customers to sellers about from their order details and delivery address. This makes it more difficult for sellers to build relationships, offer loyalty schemes, create personalised shopping experiences for their customers.
Lack of Independence – Similar to the “stall in a shopping centre scenario”, your online store will be subject to the rules & regulations imposed by the marketplace. Because of this, you will often be limited in terms of the products your business is allowed to sell and also how it brands itself to customers. Your business could also go completely under water if the marketplace suddenly decides to close your store for with little or no notice.
High Competition – Competition on online marketplaces is very fierce, especially if the niche is popular. In order to remain competitive, you would most likely have to offer cheap prices which would affect your profit margins.
Copycat Selling - If your products start making a large number of sales, other sellers and even the marketplace itself may decide to start selling a similar product themselves and undercut you. In some cases, the products sold by your store could almost disappear from search results as the marketplace pushes its own products.
BENEFITS OF AN ECOMMERCE WEBSITE
Complete control over the business – Having your own eCommerce website gives you total freedom over a number of things that could make it easier to entice your visitors to buy from you. A few examples of these are:
· The branding, design & structure of your website.
· Marketing & promotional campaigns
· Shipping costs and duration
· Customer service
Less competition – As long as you have established your USP (Unique Selling Point) and accurately identified your ideal target market, having your own eCommerce website makes it easier for your business to stand out from its competitors. You can run your business without having to worry too much about having to compete on price and can still make decent profit margin on your products.
Easier to build customer relationships – Since your customers would be dealing with your business directly and not through a third party, you can use this as an opportunity to build a long-term relationship with your customers so that they will come back to your website and buy from you again in the future. This is called customer retention and major aspect of any successful eCommerce business you see today. Popular customer retention methods include:
· Encouraging customers to sign up to a loyalty reward scheme.
· Sending regular promotions and discount codes to customers.
· Providing exceptional customer service.
DRAWBACKS OF AN ECOMMERCE WEBSITE
More expensive to setup – There are often a lot of costs/expenses involved when setting up an eCommerce website which only get higher as the size and complexity of the business increases. Some of the costs/expenses that need to be taken into consideration are:
· Domain & Hosting costs
· eCommerce Platform costs
· Web Development/Design costs
· Payment Processor costs
· Maintenance costs
This list isn’t exhaustive and may vary depending on the nature of your business and the platform you use.
Must make sure that it complies with Security & Data regulations – As an owner of an independent eCommerce business, the responsibility of making sure that your business is complaint with its local security & data regulations (such as PCI & GDPR) would unfortunately fall on you. Failing to do this could end up in your business receiving hefty fines and/or legal action being taken against it. Luckily, most eCommerce providers & payment processors already handle the security part by regularly maintaining & updating their platforms. However, please make sure that you have taken the necessary measures to ensure that your eCommerce business is compliant with GDPR and other data regulations.
More effort has to be put into marketing & promotion – As an independent eCommerce business, you will have to boost brand awareness and generate traffic with your own resources. Driving traffic to a newly established eCommerce website is probably one of the biggest challenges that business owners face and a challenge that often requires a lot of time, money and effort to overcome. I would certainly recommend in hiring a marketing consultant/agency to help you out with this as they would help ensure that your marketing budget is being invested in the most efficient way possible.
There are major pros & cons to both options so I can’t say one is better than the other. A lot of eCommerce business are now starting to adopt a hybrid model where they sell through an online marketplace and also through their own website. Not only does this allow them to reap the advantages of both options, but it ensures that they are engaging with as many potential customers as possible.
So, if you’re having a tough time deciding between the two options, the hybrid model may be the answer however I wouldn’t recommend starting with it. Choose one selling channel first, grow your business and then expand into the other channel when the time is right.
Which eCommerce channel do you think is most suitable for your business? Let me know in the comment section below…