How Oligapoly Marketplaces Became the Loansharks of the Ecommerce Neighborhood

Like pawning grandpa’s antique watch for a quick influx of a bank roll of cash, brands are running to ecommerce marketplaces and falling for the trap of this quick win.  Third party marketplaces like Amazon, Zalora and the China powerhouse Alibaba group, come with serious juice (and full buffet breakfast included).  With massive amounts of built-in traffic, complete ecommerce infrastructure, and the ability to use the massive economies of scale for leveraging super efficient order processing, distribution, and shipping, brands are quick to jump into bed.  However, like the drunken one night stand that appears to be a great idea at the time, brands are seriously second guessing the relationship once reality sets in.

Big Man on the Ecommerce Campus

 Just how large are the oligopoly marketplaces that have seemed to develop into the first and only stop of online shopping for consumers globally?

In the US, Amazon has clearly won the popularity contest, with almost $80 Billion in sales last year, even the wanna-be jock Walmart at $13.5 billion in second place, can’t compete.  As Wired recently stated on the matter, “That’s not a gap; it’s a chasm.”

With over 500 million active users and a worth of almost $50 billion (US), Alibaba’s T-mall in China now represents over 14,500 brands online.  As China’s online retailing market is expected to grow to $1.7 trillion by 2020, compared with $750 billion last year (according to the newest report from Goldman Sachs) there is plenty of opportunity still to be had.  

Why Marketplaces are a no brainer for brands

  1. No Infrastructure Required

Investing big bucks to not only build out technical platforms and ecommerce infrastructure, but the ongoing commitment to continuing to manage this high-resource business is too expensive of a pill to swallow for even larger global brands.  This is especially true when brand want to expand into smaller country markets, where the return is questionable, and the long game is required to even begin to see the fruits of the labor.

  1. Marketplaces are Like a Quicky vs. a Two Year Courtship

Going live for many marketplaces is a matter of agreeing to a rev share commission that will make most loansharks blush, and simply loading products onto the platform.  Building out brand.com owned ecommerce sites takes years and significant buy-in from finance teams and investors.  Many brands are also relying on partners such as Amazon for their distribution, reinforcing these giants as one stop shops that control the transaction and manage the business from online search to cart to home.  If the business doesn’t work out for the brand, pull out is quick and easy with virtually no loss financially.

  1. Go Where the Crowd Is

Traffic driving to owned ecommerce website is complicated and requires ecommerce performance marketing knowledge base, significant budget to play with and often, experienced agency partners (with the high fees included) to truly gain a positive ROI for consumer acquisition.  With Paid Search, Affiliate Marketing, Media Display, Social Commerce and other channels overwhelmed by big brands competing for position, most small to medium brands can’t even get their pretty new shoes in front of the eyes of their target group.  With 300 million active users on Amazon, and Tmall now boasting over 400 million on their platform, the concert is already rocking and the audience are super fans waiting to sing and dance for the next act on stage.

The Tequila Hangover Will Set In

Like having the night of your life that demands payment in a level of regret, brands are finding it’s a bit too late to easily move back the decisions that were made.  Without a thoughtful strategy and plan around the role that marketplaces will play with consumers and for the business as a whole, jumping into the relationship can come with detrimental consequences.

IMG_5137

Why Marketplaces, though flocked to in droves by consumers, are NOT the Kim Kardashian of Ecommerce

  1. There are Rules, Boys and Girls

Just like the controlling boyfriend that first appeared to be just so enamored with being associated with you, marketplaces soon take an ‘our way or the highway’ attitude, sometimes to the point of bullying.   Tmall requires brands to offer a high level of promotional discount in order to get in front of the eyes of visitors to the site (the rev share model highly incentivizes this behavior, not to mention the motivation behind establishing themselves as THE place consumers will go for the best price).  Amazon will quickly cut the cord if orders are not processed on a tight schedule, or communication with consumer are not to their 24 hours or less standards.  Brands will more than often see margins drop and functions like consumer services overwhelmed with a model that doesn’t play well with established internal processes.

  1. Brands are Blind and Giving it All Away

Consumer data is arguably one of the most valuable pieces of information for ANY brand today. Data, analyzed correctly, informs on total brand health.  It can clearly show what consumer demographic is purchasing which products, whether top of the funnel new consumers are being driven to the brand and how consumers are searching in order to discover products and categories represented by the brand.

Marketplaces own the data for our consumers – ALL the data.  They most often share nothing, outside of transactional data, and even this is transmitted only out of necessity, if the brand is processing consumer orders (outside of the option for marketplace direct distribution).

  1. Best Friend from Hell – Using your Secrets Against You

As ecommerce marketplaces dominate the industry through platform and fulfillment, they are quickly finding ways to expand into the unlimited business opportunities online – literally adding tens of billions of dollars of revenue to the top line, while taking away those same opportunities from the brands.  Like the Zuckerberg Winkelvoss ‘collaboration’, this is not going to end as well for one side.

Great Business Opportunities are Highlighted by the Brands Consumers, but NOT for  the Brand

By being the ultimate knowledgebase for who, when, what and how consumers purchase, they hold the key to all the secrets, my friends.  Brands are essentially providing the business case data for how the oligopolies should invest in manufacturing their own labels.  What categories and products are trending in which markets, and by which consumers, is now their proprietary information.  As The Wall Street Journal recently reported, in just a matter of weeks, Amazon will debut its expansion into its own private label – from Food to Vitamins, to baby items such as Diapers.

4. Who is Bouncing and Why?

Furthermore, they have essentially taken the key data away from the brands themselves, who now are finding that they are losing touch with who their core consumers are online and how they are engaging with the brand.  In addition, sometimes data around visitors who are not actually purchasing (commonly data discovered through analytics platforms through the analyzation of sourcing referral and bounce rates, and which is not released to brands from marketplaces) is more important than who is purchasing.

5. The Death of Brand DNA

With 30-40% (or more in Asia) of orders involving a discounted pricing and/or promotional offer on the online marketplace model, brand equity is quickly eroded.  Competition is fierce, but not fierce like your sister’s hot best friend.   If brands don’t quickly conform to the lowest price option, consumers have no reason to consider purchasing from the brand.  Users are already on the platform, logged into their account, other items in the cart, with all purchasing options right in front of them, the lowest price is going to get the action.  If brands are going to play in this space, succumbing to the model is a necessity to be one of the popular kids in school.

Loss of Branding – Product Stories Become Pics on a Gridwall

Landing pages, inspirational product imagery and descriptive text telling consumers why the latest technology makes them run faster, jump higher or just look and feel like a new man, doesn’t have a home in multi-brand ecommerce outlets.  It is about finding the product, the cheapest price, and the ease of checkout (1 click purchase beats a 5 page checkout process on a brand site any day of the week for busy working moms).

IMG_5555Getting Grandpa’s Watch out of Hock

If pulling out becomes the right choice for a brand, taking back control of the online experience is not an easy feat.  It means investing in a brand.com ecommerce enabled business and building it for years to come.  Depending how long a brand has been playing in the marketplace sandbox, It means potentially not meeting year over year comps (weekly leadership business updates are going to suck for a while).

It’s also a gamble to invest in an owned.com brand ecommerce enabled website, and if it pays off, brands can expect to give consumers on brand messaging, control of  the complete consumer journey, higher profit margins, full access to consumer data, and a payoff of visitors that want to truly experience the brand, from the brand directly.

Ultimately, before saying yes to the marketplace marriage, brands must ask themselves if that is what they stand for, why they chose to exist in the first place, and whether this is the premium experience they intend to give their consumers.

More importantly, if they are no longer telling the story, giving inspiration for the products, and enhancing the brand experience for their fans who purchase their products, what will the brand mean to consumers in the years to come?

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