There are lots of platforms to set up your own online shop, Shopify, WooCommerce, Magento, and the likes. They make a pretty pointing click, and you could have a functioning store up and accepting orders in a couple of minutes. You control the branding, how the emails look, but best of all, you're collecting sweet, sweet first-party data. The one thing you'll lack are eyeballs. You've got to do your own legwork to get buyers to find your site.
The other approach is to set up shop on a third-party marketplace like Amazon or eBay. That's relatively fast to do as well and comes with a built-in massive audience of people searching for and buying products, and yes, you can do both, but should you?
Will selling products on an online store and a third-party marketplace at the same time cannibalize your sales and hurt you in the long term?
For the answer, we turn once again to science. Erik Maier is the professor of marketing and retail at the HHL Leipzig Graduate School of Management. He and a colleague completed a study last year called “The Effect of Marketplace Sales on Sales in a Retailer's Own Channels.”
He recently spoke with our podcast host.
Does it Help or Hurt?
Tod: Let's start with the top line result. Does selling on a marketplace and on a brand's own online store hurt or help?
Erik: Overall, we find that selling on a marketplace is rather complementary than cannibalizing your own sales. That is selling on the marketplace will get you more visitors in sales on your own website than vice versa.
Tod: What are the exceptions to that?
Erik: Essentially, it depends on what type of products and at which price you are selling. When we're discussing complementarity versus cannibalization, it depends a lot on whether you're likely to repurchase. Essentially, you can only buy the same shirt twice, you could say. That is if you repurchase, the question is whether there is something to repurchase and whether you have the financial resources to do that. We're talking about inventory affects you.
Tod: Scarcity, is that what we're talking about really?
Erik: It's not about scarcity. At the end, customers are conducting regular purchases for a certain product category and they can conduct this either on the marketplace or they can conduct on any retailer's website. Usually, you have a need to buy something that is [unintelligible 00:02:35]. You might need a shirt for your work or whatever you need. You purchased it once, that might happen either on the marketplace or on your retailers' website. The question is then can an initial purchase on the marketplace lead to repurchase on the retailer's website? This is the complementarity retailers would be hoping for if they're setting up shop on the marketplace.
Reaching blank-slate consumers
Tod: How do you get a customer if they've bought it on Amazon? Because Amazon does not provide a ton of customer data. In fact, you get almost no information about the actual end-user customer as a retailer. How does a brand try to get that customer once they've bought on a marketplace store over to buy future products on their own store?
Erik: There's multiple cases where this might happen. On the one hand, usually, you're present on the marketplace under your brand name that is a user would see your brand name, they would see it on the bill. Then the users might use something, what you could call marketplace metacognition, that is they might know that the marketplace charges fees, and thus they might check out the website where the product originally comes from hoping they might get a better deal. Or they might be looking at the website of the retailer, that is the home website, in order to find a larger product assortment, and that you might then specify in the product description or whatever the marketplace allows you to do that.
You are absolutely right, however, that targeting your customers after they've made the purchase will not be legally possible for you as a retailer in most cases as terms and conditions prohibit this. For instance, on Amazon, you cannot get into customer data, you're not allowed to put flyers in, et cetera. You can only hope that they will change.
The Effect of Bricks and Mortar Stores
Tod: There is a third approach, I suppose, which is that being whether bricks and mortar sales hurt online sales. I know that wasn't the focus of your study, but surely there must have been studies galore on that.
Erik: Sure. Usually, we're talking about omnichanneling here. That is the channels work together, and this is common consensus in research that channels have different capabilities, and thus they're supporting each other. The brick and mortar store, for instance, is more for this angle of experience for touching products, for testing versus online might be more convenient in a transactional sense. Both will work together.
This can also happen with the marketplace for you as a retailer, the marketplace might provide you an opportunity to get many eyeballs, to get visibility. Even if you have a very small shop, you only need to ensure that people get to you afterwards. That will not happen with everybody. Most people will find buying on the marketplace convenient. This is why they're there where they have a prior membership, et cetera, et cetera. Some might migrate. This is what we find, that people will migrate. The share is not excessively large but benefit from it.
