The Lowdown on Brands and Marketplaces
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In episode 107 of the Jason and Scot Show, the hosts provide an interesting answer to a question we often hear. Here's an excerpt from the podcast, liberally edited to fit this format.
First the questions
- Should brands have their branded website in addition to selling on marketplaces, or can they get by with just having a presence on marketplaces?
- Have you heard of any brands seeing true success building a direct to consumer (D2C) eCommerce business through their own website?
- Should a new brand that doesn't yet have an eCommerce site start only on eBay, Amazon, Alibaba and/or other marketplaces?
- Should manufacturers be selling on their own eCommerce sites or simply through retailers?
And the answer
My strong advice to anyone who is trying to build a long term sustainable company would be to encourage you to have your own website in addition to any efforts make sense for your brand and products on marketplaces.
In most cases, you're not going to see the kind of volume you see on marketplaces on your own site. For new brands, initial efforts are likely to be most rewarding by selling through marketplaces and it may not be particularly appealing to invest a lot in your own eCommerce website.
However it is important to be reminded that we're all essentially "digital sharecroppers" on those marketplace platforms. For instance, they can change their terms and conditions at any the time, they can be horribly unfavourable to us, we could intentionally or unintentionally run afoul of any of their policies or just be perceived to run afoul of them and get expelled out of those marketplaces.
Ultimately, there are all kinds of bad things that can happen and it's just really risky to have 100% of your brand presence on a site that you don't own and don't control. Your landlord can essentially raise your lease and change your terms or even evict you at in any time. It absolutely makes sense to have your own destination on the web - a place that you own and you control.
To the extent that your brand can drive organic traffic and that you can build your own following, having your own eCommerce site makes a lot of sense: customers who buy directly from you instead of doing so through a marketplace are more profitable, and in most cases, you can still fulfill your order through you know whatever fulfillment vehicle you're already using on the marketplace.
As you get to know your customers, you can start shifting some of them to purchase directly on your own site and avoid the total disintermediation inherent to marketplaces. Even if you can shift only a small percentage of your customer base, having a direct relationship with them is important for a number of reason, including getting feedback, to understand what kind of content is drive sales or not, and to be able to run A/B tests. For all of those reasons I would say you absolutely have to invest in your own website with the caveat that it may not be the first investment you make or the biggest investment you make.
Go build on this, it is important to differentiate "legacy" brands from new brands. Starting a direct to consumer business is hard, and for new brands marketplaces can act as eCommerce training wheels: customer are already on there, effectively taking the balance out of the equation leaving you with only having to pedal and steer. The next step in the lifecycle of a new brand may be to expand to multi-marketplaces and eventually (the sooner, the better) create their own presence on the Internet where they can control everything about their brand experience.
Brands can further incentivize their customers to engage directly on their branded website by doing simple things such as offering something special and exclusive. While it could special pricing it is best to avoid this strategy as it could creates conflicts with other high performing channels. A cool alternative would be to use it for special products.
For example, one of the clever strategy utilized by Under Armour is to launch new products exclusively on their site, which attract brand enthusiasts. From there, there's a waterfall effect: the new products are only available on their own site for a month, and then it goes to retail and ultimately gets to marketplaces.
Let's not forget the digitally native brands who start with a website and then often realize that they can only get so far with that approach and to consider other channels such as marketplaces and retail partners.
In the end, we know that diversification the best strategy from a risk and opportunity perspective: leverage a portfolio of channels in that includes having a website.