Which platform for the Ecommerce Express?

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Which platform for the Ecommerce Express?

By: Jeff James

Listed Under: Top Story

Published: Thursday, July 28, 2011

Benjamin Dyer, CEO of Actinic Software, an ecommerce specialist, looks at the pros and cons of marketplaces versus your own ecommerce store

An important decision in the early days of your web channel is what platform to sell from. There are several choices: packaged software solutions versus bespoke, or desktop versus online.

Here I will focus on the online marketplace versus your own domain.

OPTION A: THE MARKETPLACE
During the last few years online marketplaces such as eBay, Amazon and Buy have helped tens of thousands of people to start ecommerce businesses.

PROS
• The great advantage of marketplaces is that they require no technical knowledge to get selling. Even more importantly, they deliver visitors to your store from day one.

• Marketplaces use a feedback score, which many consider a blessing as well as a curse. However, positive feedback equates to more sales, so for potential customers the system provides a completely transparent trading history.

• Most marketplaces use their own payment process - eBay uses PayPal, whereas Amazon requires all merchants to use its standard checkout. The plus is the positive customer perception, ie small merchants’ reputations are boosted by this Big Brother approach. Customers also have an easy appeals process if anything goes wrong. For example, PayPal protects its users on all transactions, whatever the amount.

• Another advantage of marketplaces is that if you have the right product at the right price you get traffic - lots of it.

CONS
• On the downside, the listing and transaction fees cut into your profit margin. Taking the sportswear category on Amazon, for example, a 15 per cent ‘tax’ on each sale is fairly typical. These fees need to be considered against the advantage of the traffic; sometimes less sales equals more profit.

• All marketplaces have a number of strict service level agreements and policies to protect their brand and revenue. I know of several high flying businesses that have been switched off for what seemed pretty trivial offences. This can be fatal to an established business.

• Due to the low barriers of entry, there is a constant stream of new competitors - and more competitors generally means price pressure. Amazon provides a slick pricing comparison process, alerting you if you are the lowest provider of a specific product. While this is highly useful, it does encourage pricing wars between providers, which puts pressure on margins for everyone.

Most of these new competitors do not last long; many exhaust their savings or stock selling at a loss. Unfortunately there are always new ones to take their place.

• Depending on the marketplace, there are limits to the amount of branding you can give your own storefront. Amazon permits virtually none, while eBay is better but still limited. What’s worse is that the marketplace ‘owns’ the customer, and all communication has to go through the system. This limits additional marketing opportunities and the chance to turn a one-off customer into a repeat buyer.

OPTION B: OWNING YOUR OWN STORE
The alternative to starting up with a marketplace is to register a domain name and build your own online store.

PROS
• If you are going to do this it’s sensible to choose one of the established ecommerce providers. Again, that pretty much eliminates the need for technical knowledge. A search for ‘ecommerce software’ will give you a list of the top providers and asking in a forum will generate lots of suggestions.

• Owning your own site means you can create a design that’s unique and doesn’t have to fit marketplace templates. And while you have to do everything yourself, you can make more profit as well since you’re not giving away a big commission on every sale. You can also obtain merchant status from a bank and accept card payments without going through PayPal -it’s much cheaper.

• Investing in your own online store doesn’t stop you from also selling via a marketplace. The key is to have a clear strategy. Offering the same product at different price points depending on the channel is a fast way to alienate your customers. However, many retailers use marketplaces to get rid of excess or old stock, or to test new product lines.

• You can consider telephone ordering. This is more critical for certain demographics and products where fit is key, something is technically complex or costs a lot and so customers want to be sure they are ordering the correct item. Telephone ordering won’t work through marketplaces.

CONS
• There is more work to do than simply listing product and waiting for the orders. You have to attract traffic yourself.

• If you opt for your own store you’ll need to familiarise yourself - and your staff - with how to use the ecommerce platform and this takes time.

Choosing a platform isn’t easy, there are many pros and cons of each. My advice is a blended approach - make the marketplace advantages work for you while mitigating the risk as you grow your own store.