Online Marketplace Seller vs Direct Supplier, Part 2

Marketplaces are not a new concept.  For years eBay was arguably the best in the business. However, I think we can all agree that Amazon has taken the title. Amazon is the giant marketplace that brands big and small are trying to figure out.

Marketplaces do not operate in the traditional retailer format.  Some of the key differences which we discussed in Part One of this series is Pricing.  Brands set the Retail Price on all marketplaces. Other eCommerce retailers such as Wayfair work with Brands from the wholesale pricing model.  Wayfair sets the retail not the brand. Another differentiator is Shipping. The cost of shipping/freight is covered by the Brand/Manufacturer in the marketplace model. Unlike the direct supplier model, the internet retailer such as Wayfair will provide Brands with a shipping account number to use for all orders. Customer Service is the other piece we covered in Part 1.  All aspects of Customer Service are handled by the Brand is the marketplace model. The manufacturer is dealing with the end consumer not a middle-man. This can create problems for brands that do not have the internal bandwidth to handle any customer related questions and requests.

In this article we will be discussing 3 additional key differences between Selling in an Online Marketplace and the Direct Supplier Model.  

Promotion: By now most suppliers are aware of the pay per click advertising model used on the Online Marketplaces like Amazon.  While there are other promotional opportunities like Lighting Deal or Coupons, PPC is the most common tool to promote your products on Amazon or similar type marketplaces.  In contrast, the Direct Supplier Model works within an off-invoice model. They do this my having promotional agreements (i.e. PSD) with percentage off wholesale or temporary price cuts (TPC).  These types of promotions are taken off invoice. In other words if your products aren’t selling you are not still paying the cost of the PPC ad.  

Commission: Online Marketplaces charge Brands a commission rate for the privilege of listing their products.  Currently, Amazon charges 15% for each order placed. The Direct Supplier Model does not charge suppliers commision.

Returns: Suppliers who sell on the Online Marketplaces are responsible for all returns.  What does that mean exactly? If a customer returns your product you must process it back into your own warehouse.  The Direct Supplier Model on the other hand gives Brands the option of a returns allowance. The negotiated allowance percentage is taken off invoice.  Many Suppliers jump at this option. It reduces quite a bit of hassle and headache beginning with the customer service aspect all the way to the warehouse.

Before entering into either one of these models Suppliers must identify their companies ability to operate effectively and profitability.  Pricing structures, returns, and customer service vary greatly and can make the difference between success and failure. If Brands understand the rules of the game before entering the competition then they can truly maximize the eCommerce Sales Channel.