Thanks to the pandemic, online shopping and the DTC marketplace surged in Q2 2020 and has continued to experience massive growth through 2021. In Q3 of 2021, nearly $1 of every $6 spent by Americans was spent online. However, now that many consumers are settling into new shopping habits, online penetration of US retail sales is slowing.
This means that many brands are looking for new ways to expand their footprint and break into untapped markets quickly. For brands searching for opportunities to reach new customers, particularly in international markets, marketplaces are eager and ready to fill in the gap. Online marketplaces such as Amazon, Walmart or China’s Tmall and Curated Crowd generate billions of dollars in revenue. In fact, $4 out of every $10 spent online was spent at Amazon in 2021.
Marketplaces offer a low barrier to entry and the opportunity to reach millions of shoppers with a simple search. But, marketplaces also come with some serious strings attached. Here’s what brands need to know about weighing the DTC vs. marketplace decision and how to ensure they get the best possible deal.
Tapping into the Online Marketplace
Marketplaces allow brands and vendors to put up a storefront and sell their products alongside a variety of brands, including in-house brands. Since the process is seamless for customers, many buyers may not even know that they are purchasing a product from a different vendor. This offers a simplified experience for customers and allows brands to get in front of millions of potential customers.
What Marketplaces Offer DTC Brands
Marketplaces like Amazon and Walmart get access to customers through a platform that customers are familiar with and trust. And, in the case of Amazon, merchants even have the option to ship products to Amazon’s warehouses where Amazon employees fulfill orders, making the purchasing and shipping process simple — for a price, of course.
Amazon’s sheer size and reach entices brands from across the globe. Millions of customers search the retail giant’s site daily, and brands need to meet their customers where they are. With compelling product pages and keyword optimization, brands can generate a lot of revenue quickly with Amazon. Marketplaces also offer attractive advertising options, making it relatively inexpensive to get in front of customers while they are shopping for other items. And finally, testing new products is as simple as creating a marketplace listing and measuring the performance.
Ultimately, marketplaces offer customers the same experience every time they visit. It is easy to comparison shop, and brands make sales without having to do the heavy lifting of maintaining a shop.
The Drawbacks of a Marketplace Expansion
With all of the benefits a marketplace offers, it comes with some significant drawbacks, most notably, the lack of control. The marketplace platform controls vendors, products, search ranking, customer data and much more. And, while marketplaces have a vested interest in keeping vendors on their platform, their massive size makes them hard to bargain with. For instance, Amazon has been known to identify top-selling items sold on their marketplace and generate their own sales by lifting in-house branded products to the top of the search ranking, and pushing other retailers to the bottom.
Marketplace offerings are often confusing. Walmart’s expanded marketplace offers items from different vendors so customers expect that if they need to return an item they bought on walmart.com, they can return it to their local Walmart store. This option is not available for marketplace purchases, but often the listings are not clear, or the customer simply does not understand that a marketplace purchase is coming from someplace other than a Walmart warehouse. This confusion is increasing as spam or fraudulent listings flood the marketplace.
In a nutshell, search algorithms are subject to change, and terms and conditions can become less favorable for brands. These changes can spell disaster for a vendor’s revenue and growth.
Building a Noteworthy DTC Channel
A brand’s own eCommerce channel is where vendors can exert the most influence and control. Everything is customizable, from the messaging, look and feel, user experience and retargeting and advertising. While DTC eCommerce websites may not draw the same numbers as a marketplace, loyal customers know where to find them.
Changing Consumer Behavior Elevates DTC Brands
While marketplaces are not going away anytime soon, it seems that their influence may be waning. Younger consumers are looking for a shopping experience that feels more personalized, transparent and authentic. The marketplaces’ formulaic aesthetics and opaqueness of who you are buying from is a turnoff Millennial and Gen Z shoppers.
And, if DTC brands offer the same benefits as a marketplace, customers will often choose the DTC option first. For instance, brands that optimize the browsing experience and provide flexible payment options can capture more sales. In recent research, 76% of respondents said they would prefer to shop on a branded site. And 85% said they are more likely to shop directly with brands. This trend is particularly true for Millennial and Gen Z customers who are buying more from DTC brands than ever.
The Takeaway for Brands
The choice facing vendors evaluating DTC vs. marketplace expansion is whether to sacrifice control in exchange for exposure or invest in building an eCommerce channel. For many brands, the answer boils down to finding the right mix.
But, for DTC brands willing to leverage rich customer insights, nail their brand values and promise and build an exceptional customer experience, an eCommerce solution that checks all of these boxes will find its loyal following.