Do you struggle finding growth avenues for your brand? Here’s the most important how-tos to help your brand succeed on marketplaces!
The budgets are being finalised as we speak. For those in sales, this means the bar for your 2022 revenue targets is being set now. In times like these, hitting sales targets has become increasingly difficult – especially if you have relied a little too heavily on your traditional distribution channels, i.e. brick and mortar retailers. So what to do to drive sales and keep control of your brand without losing time?
Due to their wide reach, making use of online marketplaces has been a priority for many successful brands over the past couple of years. But what if you don’t know much about this channel, or the tools to get there, the skills required in your team, and the nuts and bolts of its day-to-day operation? Well, here’s a brief overview of how to successfully sell your brand via online marketplaces.
How to Decide Whether Marketplaces Are the Right Strategic Choice for Your Brand
To me, it’s a question of how to do marketplaces right, rather than whether or not to join them at all.
From a pure consumer-reach perspective, there is no way past online behemoths like Amazon, Zalando or Otto. And all the big brands have long made them part of their distribution strategy as well as an element of their push for D2C access. They take the stance that being closer to their consumers is a good thing. Fears of cannibalising or putting off wholesale clients never materialised, mainly because the brands would have lost those consumers otherwise, and/or because the wholesale clients were already selling on the same online marketplaces themselves.
Like with any other new business, there are commercial elements to consider that affect your success and profitability. Two key factors in selling on online marketplaces are price points and return rates.
Sending individual parcels across the country, or even internationally, is going to cost you. And with consumers expecting free delivery and returns, you need to factor in approximately €6-8 for shipping and returns on an average order. This can eat into your margin very quickly. Return rates vary greatly depending on product subcategory. While footwear is on the high end with return rates of 60% and more, selling socks or health & beauty products show much lower return rates of 5-15%.
If you are selling low-price products with a high return rate, you will struggle selling profitably on online marketplaces as this usually only works with an average price point higher than €35 (single items or bundles). If this is the case for you, marketplaces may only be a strategic option for your close-out business at the end of the season, where the focus is not so much on profitability.
How to Select the Right Marketplace for Your Brand
Given the plethora of online marketplaces – recent numbers suggest that there are at least 400 major marketplaces in Europe alone – it’s increasingly difficult to decide which marketplaces to select for your brand.
Just like any decision about appropriate distribution channels, it is one to be taken on a product category level. While Amazon may be huge in consumer electronics, it might not be the best option for fashion brands.
Your specific consumer target group matters too. For example, while a streetwear fashion brand might gravitate towards Zalando, numbers from brands selling on Otto.de are surprisingly strong. Why? Likely because the number of brands competing for each streetwear customer on Otto.de is much smaller than on Zalando.
Also, don’t be fooled by the overall reach metrics marketplaces try to wow you with. If you think that the reach of Otto.de overall, also applies also to its jewellery section, think again. Despite the theoretically limitless online world, human and commercial attention to drive a specific product category and its reach will vary significantly and most marketplaces have a clear sweet spot. The strategic battle between department stores and category killers that stationary retail witnessed during the 1990s may repeat itself when it comes to online marketplaces.
How to Decide How Much to Outsource (vs. Do Yourself)
The ever-pressing ‘make or buy’ decision also poses itself at the beginning of your marketplace journey. Perhaps you don’t yet know how to sell on marketplaces and neither do your sales, marketing, product, IT, logistics and finance teams. And maybe you already run a successful online shop and have been handling D2C shipping, returns and customer support for years.
Entering a new channel of distribution can be lengthy and painful. While some argue that you need to learn it all yourself to understand, others would argue that while doing so, you are losing too much valuable time, revenue and profit.
Access to marketplaces is an industry still in the making. And while the vendors are not yet comprehensively assessed and compared by market surveyors like Gartner peer insights or OMR Reviews, there are essentially two options: milddleware or aggregation. The right choice for you will largely depend on your B2C readiness as an organisation.
Middleware like Channelengine or Channeladvisor will be the best option if you are already very certain about how to manage all aspects of a successful marketplace business. If not, so-called aggregators like heyconnect or onQuality will be a better choice. They offer a larger portfolio of integrated services alongside the purely technical data feed management.
In theory, there is also a the third option, to build your own interfaces. But the current market reality is that most online marketplaces will not allow you to build your own interface to them.
How to Execute the Operational Basics Flawlessly
But what dimensions do you need to master to be successful on marketplaces? It boils down to knowing the specifics and managing the complexities of marketplaces across all your main business processes, affecting all the departments that you need to manage your daily business.
It’s like running a new mini business inside your company. You need specific knowledge across all functions. While some of them have to do with managing back-end processes like finance & accounting, many of them directly affect your consumer experience and are therefore closely monitored by the marketplaces. If you fail to perform here, you are at risk of being cut-off.
The following are processes and KPIs you will need to master on a continuous basis to stay live on online marketplaces:
- Article rejection rates during initial upload ( <50%) – impact on product data management
- Order cancellations <1% – requires excellent management of stock
- Order with carrier within 24 hrs/ Returns booked within 24hrs of receipt – requires fast D2C logistics processes
- Marketplace specific shipping regulations – affects packaging, shipping documents, SLAs
- Quality of customer service – # of customer calls/ customer contact rate
- Speed of reimbursement after product returns – impact on finance department
Parallel to all these areas of operational excellence, there is also the element of marketplace marketing. A topic that is becoming increasingly expensive for brands (and at the same time more profitable for marketplaces). Again, each marketplace has its own advertising formats, tools to manage campaigns and vastly different cost structures. Finding the most effective ones for your brand will, again, take time and effort.
While I have provided four rather than the habitual seven how-tos today, I do hope that they help you decide on your strategy for online marketplaces. Feel free to add your questions in the comments!
About the Author:
Christoph Berendes is a consultant in strategy development and process optimisation for fashion brands and retailers. He has more than 15 years of experience as a consultant, line manager in the sportswear industry and in e-commerce marketplace distribution. Read more of his work here or connect with him on LinkedIn.