Big online marketplaces like those of Amazon, eBay and Wal-Mart draw many consumers, but there are downsides to consider.

Rafael Lourenco, executive vice president, ClearSale

Rafael Lourenco, executive vice president, ClearSale

Summer 2017 was a big season for online retail news, as Amazon.com Inc. announced plans to acquire  Whole Foods Market and its big rival, Wal-Mart Stores Inc. bought Bonobos to expand its product offerings. Both companies, as well as eBay Inc. and Chinese marketplace platform Alibaba, spent the summer courting U.S. sellers to grow their marketplaces, which independent sellers can use as another channel to complement their own online stores or as their only storefront.

The concept is appealing: These platforms offer access to millions of shoppers worldwide, and they give SMBs selling and payment tools they might not otherwise afford. But there are a few downsides to marketplace selling, so it’s important that online sellers know what to expect before they set up a marketplace shop

The pros of selling on marketplaces

There are many reasons to sell on a marketplace in addition to selling in an online store. Some of the most notable advantages marketplaces offer are:

Marketplaces connect online sellers to more potential customers

Almost all US online shoppers buy on marketplaces at least some of the time. A Q1 2017 UPS/comScore report found that 97% of these consumers shop on marketplaces, and 90% of those people shop on Amazon. Many shoppers—38%–begin their online shopping by searching a marketplace for what they want. Because marketplaces are so popular among consumers, merchants who don’t participate run the risk of missing sales.

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Marketplaces have their own shopping apps

Consumers love searching for products on their mobile devices, but buying on the go can be a challenge, thanks to poor mobile optimization and checkout processes at many online stores. Business Insider found that in Q2 2015, 59% of U.S. adults’ online time was spent on mobile devices but only 15% of their purchases were made there. Many shoppers found it easier to switch to desktop to buy. Amazon, Walmart, and eBay have all put years into developing their apps to make browsing and checkout easy for mobile users, and their marketplace sellers can benefit from that tech investment.

Many marketplace shoppers are loyal to price rather than to brand or seller.

Amazon Marketplace can handle online sellers’ fulfillment

Fulfillment by Amazon lets Amazon Marketplace sellers outsource their product storage, picking, packing, shipping and some customer service functions to the marketplace. The company also offers its marketplace sellers the option of multichannel fulfillment services for sales. These fulfillment services carry fees but can allow small business owners with rapidly growing sales to scale successfully and stay focused on their core business.

Marketplaces can make cross-border marketing, sales, and payments easier

Cross-border shoppers, like domestic shoppers, strongly prefer the marketplace experience. According to industry publication Practical Ecommerce, two-thirds of cross-border shopping now happens on marketplaces. Marketplaces provide support that smaller sellers can’t provide on their own, such as currency exchange, local payment acceptance, shipping and duties, and product information and seller policy translation. These services can help small and medium sellers compete with major retailers for cross-border customers.

Marketplaces provide payment protections and transaction security

Walmart, Amazon, and eBay’s marketplaces provide seller with secure tools for accepting and processing payments securely, eliminating the need for in-house or third-party fraud protection tools.

The cons of marketplace selling

Those are the major upsides of marketplace selling, but they’re not the only issues online retailers need to consider. Here are some of the downsides of participating in a marketplace:

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Marketplace sellers often compete on price

Marketplaces are designed to let shoppers find the lowest price for the items they want, and many marketplace shoppers are loyal to price rather than to brand or seller. Sellers who compete on service or quality rather than price may never be seen by shoppers whose primary concern is finding bargains. In addition to competing on price, sellers must also factor in marketplace seller fees and still earn a profit.

Marketplace selling can create inventory management challenges

Selling on both a marketplace and a separate online store can create inventory-tracking and customer-service headaches for online retailers, especially during peak sales seasons. One solution is to outsource all fulfillment to a third-party provider, if the cost is manageable.

Marketplace payment and security tools are one-size-fits all

Marketplace tools are generalized to support a broad range of sellers. That means although they are reasonably effective, they aren’t customized to each seller’s segment or market for the best possible results. For example, designer handbag sellers have a very different risk profile from mass-market clothing sellers.

Marketplace product listings can add data-entry time and costs

Each marketplace has its own format for product listings and requires its own data-entry process. Sellers should carefully consider the time and money involved in creating and maintaining product listings on multiple platforms before adding marketplace sales to their channels.

Overall, marketplaces can help smaller sellers reach customers and serve multiple markets in ways that only major retailers could previously afford. In order to make the most of a marketplace presence, though, SMB sellers need to plan to manage the extra work, costs, and price competition. With careful planning, sellers can create marketplace accounts that complement their independent online stores and grow their business.

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ClearSale provides online retailers with fraud-prevention technology and services designed to protect against chargebacks.