Pros, Cons & Pricing Considerations Of Selling On Third Party Marketplaces

Did you know that 49% of daily searches on the web are for information on products or services? Did you know that when searching on Google and other search engines, about 25% (and growing) of listings on the first page turn out to be Third Party Marketplace listings? Did you know that over a quarter (27%) of online retail sales are coming from Third Party Marketplaces? Third Party Marketplaces (like eBay, Amazon, Sears, Walmart, Best Buy, Newegg, OneStopPlus and many more) seem like a panacea for retailers to gain increased exposure for their products, while the Marketplaces gain products without having to increase inventory themselves, but the reality is a bit more complicated. Here are 18 Pros & Cons about joining a Third Party Marketplace, ending with what it means regarding competitive pricing considerations.

Pros Of Working With Third Party Marketplaces

1. Increased Sales. Existing marketplaces already have millions and millions of shoppers which translate into higher sales volumes, just by virtue of their scale & existing presence.

2. Acquire New Customers. First, he variety and all-in-one aspect of the marketplace can draw in lots of customers who prefer that kind of shopping experience. Second, although a customer isn't searching for your store in particular, they may discover you or find that you have something they may have purchased from a competitor. And once you get a customer in the door, you can win repeat business.

3. Cost Effective. Retailers benefit from costs absorbed or taken care of as part of the Third Party Marketplace's basic set-up, like advertising to drive traffic, and many other services (see below).

4. Benefit From Already-Existing Services and Structure, e.g. checkout and fulfillment support; built-in customer services, shipping.

5. "Membership" gives you access to programs like Amazon Prime, which you couldn't possibly establish, compete with, or access on your own.

6. Spread your risk: You Can List With More Than One Third Party Marketplace. If something happens with one of the marketplaces, or if one changes the rules, you have other marketplaces in play.

7. Test your product(s). You can put it out there without too much risk, and see how it goes.

Cons Of Working With Third Party Marketplaces

8. Marketplace Costs & Fees. Most marketplace fees are deducted as a percentage of each sale, and can vary from site to site and even category to category, but there are many related costs of using the Third Party Marketplace "facilities", such as payment services, listings, participating in extra ads, promotions, etc.

9. Lose Your Identity. Marketplaces focus on products, not sellers, and might limit way you can brand your presence, deal with customers, command what items you can and cannot sell, and so on.

10. The Third Party Marketplace can go to school on YOU & compete with you. The third-party seller can identify popular products that you sell, and stock them themselves, or commandeer other ideas related to your unique business to which they will have access.

11. Keeping Inventory in Sync Will Be Difficult. The Marketplace & your business draw down the same inventory, but don’t necessarily sync with one another, making it challenging to understand your stock levels without lots of manual reconciliation.

12. Keeping Your Quantities Up To Date Is Complicated. Between your own site and three or four others, it's more complicated to track stock and stay in stock.

13. Data, Matching, and Conforming Are VERY BIG Challenges. Getting your data (product descriptions) to these marketplaces can be challenging, especially if you sell across many types of products. You have to match up with existing products on the Marketplace site, often not compatible with the way you list your data. And each Marketplace is different, requiring a lot of attention to detail. You have to conform to the Marketplace standards and descriptions. Brand, color, product type, etc. Even pictures and images are different on each site; sellers have to retake pictures to conform. Ditto for data used for search -- title, description, manufacturer part number, and UPC. Retailers have to make sure this information is as accurate and clear as can be.

14. Each Marketplace Has A Very Different Audience And Audience Expectations, which you'll have to choose when you choose which Third Party Marketplaces are best for you.

15. Although Customer Service Infrastructure Is In Place, retailers could get blackballed by the Marketplace or held back from participating in special deals if they don't keep up with orders and other details.

16. Lowest price? Even if you're priced low, someone on a small site with low overhead might sell for less and undercut you.

17. Requirements Change On A Daily Basis; categories change from company to company. You'll need a big, smart, dedicated, responsive staff to coordinate details and stay on top of things.

18. The JOB IS NEVER DONE! Attention to data, description and fulfillment is real time, all the time, 24/7; there are new requirements and changes constantly; and very demanding and time consuming to keep up and do things right.

Bottom Line For Your Bottom Line

Of course there are many more pros and cons than those listed above. Third Party Marketplaces make pricing even more competitive, meaning that it's even more important to use a pricing and assortment intelligence solution such as Upstream Commerce offers. "The good news, when it comes to pricing intelligence solutions, is we track Third Party Marketplaces like we track any other competitor of yours," says Upstream Commerce CEO, Amos Peleg.

Another suggestion: Before even thinking about selling your products on a Third Party Marketplace, be sure of your strategy; make sure you have the time and attention and staffing to devote to this effort; and, most of all, make sure you have a good sense of your margins and a firm understanding of the Marketplaces' fee structures to make sure the numbers add up.

More details on this subject: 

Selling on the Amazon Marketplace: What it Offers, How it Works & More. FIT Small Business.  

Expanding To Third-Party Marketplaces, Retail Touchpoints. 

The Pros and Cons of Selling on Amazon and eBay, Shopify, 2012.  

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Gilon Miller, CMO

About Author

Gilon is a seasoned marketing, sales and business development executive with over 15 years of experience in the software and Internet business. He is the Founder and CEO of GuruShots. Previously, Gilon was the CMO of Upstream Commerce, VP of Marketing at iMDsoft and Director of Global Marketing at SAP. He earned an MBA at the MIT Sloan School of Management and a BS in Electrical Engineering from Tufts University.
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