Marketplaces and e-commerce websites both respectively have pros and cons

As a merchant, choosing online marketplaces as your first stop to sell products is an intuitive decision. The easy-to-use and well-organised functions, such as payment systems and logistics delivery, make marketplaces appealing and irresistible to most entrepreneurs.

While marketplaces seem to be providing tremendous convenience and possessing a huge customer base, little do many figure out is that starting at marketplaces is not an one-size-fit-all approach. They might not be the best place to start depending on your long-term goal.

Many talked about the advantages of choosing marketplaces. We, thereby, decided to disclose critical and serious issues that entrepreneurs may not beware of and why you should avoid adopting marketplaces, if possible.

1. Price competition

What makes marketplaces stand out from e-commerce websites can make your online business collapse instantly. A customer-friendly interface may not be friendly to sellers.

General marketplaces rely on product categorisation to help potential customers quickly discover what they are looking for. This mechanism, however, makes seller’s products experience price comparison with similar substitutes in every item search.

Unless the products you are selling are one of the kind and remain unique in marketplaces, listing products on marketplaces indisputably brings you into a fiercer battlefield of price wars, which is inevitable in most cases and make the product margin ever lower.

Worse still, the battlefield never shows a sign of stopping as more Chinese manufacturers jumping into the bandwagon. It is almost impossible to compete with China-manufactured products in terms of price. Their huge scale of productivity can easily beat any micro or small sellers down with lower price but the same, perhaps better, quality.

Also read: Treat your marketplace community like family, not like an ATM

“Chinese factories are a nightmarish competitor — it is never a fair competition,” stressed a Tagtoo business development manager who is experienced in analysing e-commerce development in depth.

Think twice about the features of your products and avoid direct conflict with any of them especially if your products are not amazingly outstanding.

Common online marketplaces in Indonesia. Photo credit: halosis.asia

2. Data collection

The importance of utilising data for company growth is widely recognised. With that said, adopting marketplaces may force you to yield the ownership of user data and give up the right to discover more customer insight.

It happens in most general marketplaces. As opposed to e-commerce websites, limited amount of data regarding user behaviours on individual online shops is publicly available to sellers.

Common reporting metrics, such as bounce rate and average page duration, on Google Analytics and other digital tracking tools, are not provided in most general marketplaces, which makes entrepreneurs easily get lost on the track of company growth and make a wrong judgment call.

Furthermore, sellers can not help but evaluate the online shop’s development based on transaction counts and other irrelevant data that don’t reflect the current circumstance and overall market status.

The consequence of this concerning issue would become increasingly enormous and significant as the business possesses a bigger and bigger customer base. The problem of lacking data undoubtedly would make sellers blind and never be able to identify real problems, if there’s any.

3. Scalability

launching online shops on marketplaces is suited to beginners or for testing purpose prior to soft launch. When it comes to company growth, however, the aforementioned two would deter the seller’s business from progressing, in terms of scale, and bring about the invisible ceiling that is almost impossible to overcome.

In spite of experiencing rapid growth at the beginning, most newly-launched online shops of marketplaces would find that the trajectory of growth rate slumps in an ever faster speed as the company size become bigger.

This is an undeniable and inherent flaw of marketplaces. The stagnant stage is what every online shop would encounter, which outlines reasons why most successful players on marketplaces chose to pivot to running their own e-commerce websites.

“According to our survey, your customers are likely to only remember the name of the marketplace but not the name of your online shop,” the Tagtoo business development manager pointed out in the interview.

Actually, this phenomenon is decidedly observed in many countries, the US, Japan, and Taiwan, for example, where e-commerce development is mature.

Growth rate is one of the key indicators of a business’ potential. The limited scalability lying on marketplaces, nevertheless, is exactly what entrepreneurs are seldom conscious of in the early stage of launching and may incur undesirable dilemma of whether to stay or leave later on.

Also read: Our 4 takeaways on Echelon Asia Summit 2018, from the team at Tagtoo

Conclusion

Marketplaces and e-commerce websites both respectively have pros and cons. Under no circumstance should sellers embrace marketplaces because of the glowing testimonials among other online sellers. Not to mention the consistent endorsements is unverifiable and suspicious.

Starting e-commerce websites may be harder than launching online shops on marketplaces. You should hold a strong belief that the time and effort invested will become the bumper harvest in the long run and the best decision you have ever made.

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