Will Price Wars Be the New Normal on Otto.de?

Otto.de currently operates a ‘closed’ marketplace system, where a product is sold only by one supplier at a time. Rumours have it that this may soon change – will price wars become the new norm for your brand?

Otto Group’s Successful Transition from Bricks to Clicks

Otto Group is one of the few examples of retailers based in Germany that managed a successful transition into the digital age. Its digital marketplace otto.de it is one of the largest in Europe in many product categories and has excellent consumer reach. Otto Group is involved with AboutYou, arguably one of the fastest growing and technologically most advanced digital marketplace solutions out there. With its multiple marketplaces covering different consumer segments and buying occasions (e.g. mytoys Group, Schwab, SportScheck, etc.), Otto Group offers a very broad access to Germany, but also to consumers in other key central European markets.

The by far largest share of the Group’s online business comes from www.otto.de. Recently, otto.de also extended its presence to provide a dedicated space for more premium brands, which underscores its ambition to offer broad consumer reach and provide an appropriate environment for brands of various price and fashion segments.

Open or Closed Marketplace: Does It Matter?

In a recent podcast on Online Marketing Rockstars (OMR) and also in a recent interview with Germany’s Textilwirtschaft Magazine, Otto’s newly appointed Chief Digital Officer Sebastian Klauke shared some insights into the future of the company’s digital marketplace business model.

Focusing just on otto.de, around 400 external partners are part of the partner programme today. Partners connect directly with the digital marketplace and sell their goods at retail price minus a sales commission for Otto. Currently, Otto wants to improve the usability of this service and is investing heavily in Otto Brand Connect, their version of a partner portal as offered by Amazon (Seller Central) or Zalando (Partner Portal). Partners can easily connect their entire assortment to the marketplace and gain access to the supporting service that the marketplace offer, such as marketing, logistics or analytics.

Currently, the marketplace business model that Otto follows, like Zalando and AboutYou, is a so-called ‘closed’ marketplace. This means that each product – more specifically each EAN code – is sold by one supplier only. On the other end of the spectrum are marketplaces like Amazon or Ebay, who in contrast offer an ‘open’ marketplace, where anyone is free to sell the same items, should they wish to do so.

digital distribution strategy

(Source: www.otto.de, accessed March 10, 2019)

In my daily work with brands looking to sell on marketplaces across Europe, one question has recently begun to pop up again and again: “Is it true that otto.de will become an open marketplace?’ Now, I don’t know whether this rumour is true or not, but let’s have a look at why this is a relevant question, and what you, as a custodian of your brand’s image and distribution footprint might want to consider.

The key angst behind this question is that once a marketplace becomes an open one, price will become the only differentiating factor in order to sell your products on that marketplace.

Why? Because your product will not only be sold by yourself but potentially also by your current wholesale partners who may be connected to that same marketplace. And what do retailers typically do when faced with a lot of competition? More often than not, cutting prices is the answer. And if we take a hard look at what’s happening over on Amazon, I would argue that this is a very valid concern.

One of the key factors that differentiate otto.de from its largest competitor Amazon is that otto.de provides a safer environment for brands precisely by being a closed marketplace and not allowing other sellers to sell the same product. The exception is a process called ‘whitelisting’, whereby another retailer may fulfil a customer order if the brand itself is currently out of stock.

Is it in Otto’s own best interest to give that advantage away? Perhaps. Otto may be on the path to making otto.de the key vehicle within the group to position itself against online giants like Amazon or Alibaba. They may use some of the group’s other online brands (like AboutYou) for specific product segments where a closed marketplace environment makes more sense. But let’s keep in mind that the rumours may just as well not be true, or only partially so.

digital distribution strategy

(Source: BVOH)

Your Digital Distribution Strategy

No matter whether otto.de turns itself into an open marketplace going forward or not, here are a few things that I think you should consider to successfully steer your brand through the world of online and offline distribution channels:

  • How happy am I with my current portfolio of wholesale customers? Are they adequate custodians for my brand?
  • What digital marketplaces do I want to be on, and for what reasons (e.g. brand building vs. stock clearance)?
  • How do I segment my product offer between online and offline worlds?
  • How do I segment my product offer across different marketplaces?

If you are wondering what digital marketplaces are the right ones for your brand in Europe or want to discuss your digital distribution strategy in a broader context, feel free to reach out to me via email or LinkedIn, or by leaving a comment below.

 


About the Author:

Christoph Berendes has a passion for building brands and helps businesses grow their digital distribution. Before turning into a truly digital manager, he built his expertise as a consultant and brand manager in the brick and mortar world. Reach out to him via email or read more of his work here.

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