Key Differences Between Selling In An Online Marketplace vs Being A Direct Supplier

Amazon has become the king of marketplace selling.  Walmart.com, Overstock, and eBay are just a few of the other players in the game.  But, what is a Marketplace?

In the traditional sense, a marketplace may refer to an open space or square in a town where people buy and sell things.  https://marketbusinessnews.com/financial-glossary/marketplace/Think Farmers Markets and Flea Markets. The Online Marketplace allows many 3rd party suppliers access to sell their products on another company’s platform i.e. Amazon.

So, how does this differ from the Direct Supplier Relationship? A direct supplier is defined as purchasing a good straight from the manufacturer or supplier i.e. Wayfair.

When a customer purchases a product on the Amazon marketplace they are dealing directly with the manufacturer or supplier of that product.  In contrast, when a customer makes a purchase on Wayfair all interactions the customer has is with Wayfair directly. The manufacturer only supplies the product via drop shipping the item to the customer. This is just the beginning of the differences involved in selling marketplace vs direct.  

Pricing: In the Marketplace brands set the retail.  A direct supplier sets the wholesale price and the internet retailer sets the retail price.  

Freight:  A direct supplier does not need to worry about the cost of freight. It is covered by the internet retailer.  The opposite is true in a marketplace. The brand must decide whether or not to include the cost of shipping into the retail price.  The other option is to have a lower retail resulting in the end consumer paying the shipping costs. Most brands choose to build shipping into the retail price in the marketplace model.

Customer Service: Internet Retailers such as Wayfair handle all customer service related pieces of the customer experience.  They will answer questions, provide lead time clarification, and a myriad of other details that improve the customer experience.  Marketplace sellers must manage all of the customer service issues directly with the customer. Brands must be prepared to respond quickly to all customer service needs. 

When a brand decides to enter either the Marketplace arena or the Direct Supplier space it is important to keep pricing models, shipping, and customer service in mind.  Marketplace sellers own the customer experience from cradle to grave. While Direct Sellers operate in the more traditional retailer sense. Brands who successfully navigate both marketplace and direct are truly able to maximize their eCommerce Sales Channel.