Online marketplaces: E-commerce opportunities and risks

Online marketplaces are a convenient affair: Various suppliers can be found quickly for any product. Everything is presented uniformly and clearly, and prices can be compared directly. In short, consumers love marketplaces. And retailers? In the context of various social media channels, this relationship would probably have the status: "It's complicated." Why is that? In fact, many features that are so valued by online shoppers present certain barriers for merchants. At the same time, however, there's no denying that businesses are beneficiaries of the reach of marketplaces and benefit from their popularity.

So, because dealing with e-commerce platforms is a double-edged sword, let's take a look at the opportunities and risks of online marketplaces in this article.

What is an online marketplace?

An online marketplace is an e-commerce platform through which different traders can sell their goods. This means that buyers have a wide range of products, services and traders to choose from.

To stand out from this crowd, it is advisable to build your own brand so that potential buyers can identify with your products and brand message.

Overview of online marketplaces in Germany: These are the most popular ones

#1 Amazon

Amazon is probably the best known and at the same time the most popular marketplace - both in Germany and in other countries. With around 448 million monthly accesses to the platform, Amazon is rightly in first place in this listing. It should be noted that these 448 million refer only to the Amazon.de site. A Statista survey from 2021 shows that Amazon has the largest trade volume in Germany with just under 46 billion euros. In addition, Amazon has created a customer loyalty option with its Prime membership, with which customers benefit from advantages such as free shipping or Prime video. After all, 17 million Germans take advantage of this.

At Amazon you can offer goods of any kind or category and thus have the opportunity to present a very wide range of products. You may have a lot of competition here, but on the other hand you can benefit from the large reach and popularity with customers.

Connection: Amazon can be easily connected to your Shopify shop by adding Amazon as another sales channel in your Shopify admin.

#2 eBay

With around 150 million monthly accesses and an annual trading volume of 10.5 billion euros (as of 2021), eBay lands in second place among our most popular marketplaces in Germany. Back then still an auction house - today one of the largest marketplaces. eBay now also has a counterpart to Amazon Prime: eBay Plus.

The broad categories that can be found on eBay also allow you to present a wide range of products. As a trader, you can also benefit from eBay's broad reach and high profile.

Connection: eBay can also be conveniently integrated into Shopify as a further sales channel.

#3 Otto

With around 53 million hits per month and a trading volume of just under 7 billion euros in 2021, Otto ranks third among the most popular online marketplaces. Compared to other platforms, Otto has stricter criteria to be approved as a seller. You must meet these requirements:

• You must have a German legal form as well as a VAT ID

• You only sell B2C (business-to-consumer) products

• You ship from a German warehouse

• You have a German-speaking customer service

• You sell products with standard VAT (19%)

If you meet all these criteria, you can also benefit from a wide reach by placing your goods with Otto.de. Otto also offers you the possibility to offer goods in different categories.

Connection: An interface is required to connect Otto to Shopify.

#4 Etsy

Etsy became known as a platform for handmade goods. Today, with around 96 million monthly hits, Etsy rightly ranks among the most popular marketplaces. Even though many goods are now offered on Etsy, the main focus is still on handicrafts. Therefore, you should consider whether your products match the target group before placing them.

Connection: Etsy can only be connected to your Shopify shop via an interface.

#5 Kaufland

Kaufland.de has gained popularity with around 32 million monthly users. To be a merchant at Kaufland, you must meet the following criteria:

• Pursue a trade

• German customer service

• Official EAN for all products

• No articles from prohibited categories (e.g. products with contractual obligations; products that are not suitable for sale, such as samples; pharmacy-required medicines, etc.).

Apart from the prohibited categories, goods from a wide range of areas can be sold at Kaufland.

Connection: To connect Kaufland with your shop, an interface is necessary.

#6 Zalando

Zalando is probably one of the most popular retailers when it comes to fashion and is known to every German. With around 30 million monthly hits, it is also possible to profit wonderfully from the reach and popularity of the platform.

To run your merchandise on Zalando, you should match the target group. In addition, you must have your own website and offer free shipping and returns.

Connection: To link Zalando with your Shopify shop, it needs an API.

E-commerce opportunities and risks at a glance

First, we provide you with an overview of all the opportunities and risks that a marketplace placement entails. In the further course we will go into them in more detail.

Opportunities from online marketplaces

Without any doubt, marketplace operators are the big players in e-commerce. Not only do customers get a convenient shopping option, but the groups also offer retailers great opportunities for success in online retailing. We'll show you which ones they are here.

1: More reach

The first notable advantage of online marketplaces is obvious. Because the platforms already have a lot of traffic, they offer the chance to achieve a considerable increase in reach. Unlike your own online store, whose visibility has to be built up over a long period of time with the help of SEO, with Amazon and the like you can focus fully on your offer and let your products speak for themselves. Articles with good conditions are usually taken into account by the algorithm and end up in the search results.

2: More brand awareness

Marketplaces are often a potential customer's first touch point with their product. Without them, many contacts might not even come about. Marketplaces can therefore also be used to raise awareness and establish your brand. The trick is to lure customers away from the marketplace and onto your own online store. To ensure that you succeed, it pays to create incentives and reward customers for their swing to the online store. This can take the form of discounts, exclusive sales, or a loyalty points program.

3: Product niches also find buyers

Especially if you are selling a very specialized product for which there is only a small number of potential buyers, selling on online marketplaces can be an opportunity. The reason for this is the reach of the platforms mentioned in point #1. Etsy in particular scores with a target group that covers a wide variety of niches such as fan art, handmade items, or creative products. However, Etsy is only the most prominent example: On the international market in particular, many niches already have their own marketplace.

4: An ideal test environment

Launching a new marketplace environment is much faster than building your own online store. This is one of the reasons why marketplaces are particularly well suited for testing new products. In addition, the sample size is considerably larger due to the traffic. On a marketplace, you quickly get a feel for whether the launch of a new item is worthwhile or not.

5: Your business can be expanded very easily.

There is no such thing as a single Amazon Marketplace. With .de, .uk, .fr, .com and others, the e-commerce leader operates several platforms depending on the target market, and eBay is also represented in various countries. Taking into account the legal framework, it is very easy for a company to expand with online marketplaces.

Risk of marketplaces

Even though the advantages of marketplaces should outweigh the disadvantages, especially for e-commerce beginners, we do not want to hide the fact that they also entail certain risks. We have listed some of them below.

1: Less design freedom

The fact that online marketplaces enforce their design concept so consistently makes it particularly easy for consumers to find their way around and, given the large number of different items, makes perfect sense. At the same time, however, it also inhibits retailers from presenting their product in an appealing way and offering an individual shopping experience. Marketplaces also don't offer enough space for successful storytelling. So you always run the risk that your brand message will not be conveyed as intended.

2: High competitive pressure

The fact that the barriers to entry into e-commerce are nowhere as low as in marketplaces also has its drawbacks. New companies are entering the market every day, and you are competing with them. They, too, want to be listed high in the search results of potential buyers or - as in the case of Amazon's BuyBox, for example - preselected directly for purchase. Since terms and conditions are the main deciding factor for the marketplace algorithm, this can create a price battle that's poison for your margins. Things like free shipping or 24-hour delivery are also increasingly becoming hygiene factors that demanding customers require.

3: Fees

It goes without saying that online marketplaces charge for the use of their platform. This exponentially increases the more services you use. Example: If you use Amazon's fulfilment service (FBA), in addition to the monthly fees for your Amazon account (39 EUR/month, as of August 2022) and the sales fees (0.99 EUR/item, as of August 2022), there may be additional costs, for example: storage costs, shipping costs, brokerage fees, refund and return fees, if applicable. If you calculate through all these items, you will find that your margin shrinks significantly. This is also the reason why many online retailers often sell cheaper in their own online store than on Amazon & Co. - they have to pass on far fewer fees to the customers.

4: Cannibalisation effects

Taking a closer look at the previous point, where would you rather sell, in your own online store or via a marketplace? Provided the selling prices are the same, the answer should be quite clear. However, because of the familiarity of online marketplaces, there is a risk of cannibalisation effects. If that's the case, customers will buy from Amazon out of convenience, for example, instead of your own online store, even if they know it. The power of habit can therefore also cost you part of your profits.

5: Lack of transparency

The algorithms behind product selection on online marketplaces are a well-kept secret. You can advertise your products as attractively presented and described in detail as possible on Amazon & Co. but whether the effort is of any use to you is something you will know afterwards at best. It is similarly intransparent with various services such as the already mentioned FBA. That the operator stores and picks your products for you is all well and good, but do you know how the items are handled during these processes? The fact that you can't see into the processes of a marketplace is in the nature of things, but it can become a problem for you.

How to implement an online marketplace in Shopify

Sennheiser is a good example to show how to integrate an online marketplace into your Shopify shop. Sennheiser works with various marketplaces, such as Amazon, eBay, Otto or even Kaufland. However, in the course of internationalisation, they also use marketplaces from other countries, such as Best Buy or Walmart.

The connection of the marketplaces in Shopify runs via an interface. Currently, Sennheiser uses the Channel Advisor solution integrated in Shopify and uses this as a service. In the future, however, it plans to develop its own interface in cooperation with Latori. This should make it possible to display marketplaces in various countries and select them according to the interests of the users. Once the interface has been set up, it will automatically send products and product data to the marketplace. In addition, orders from the marketplace will also be automatically transferred to the webshop.

As a Shopify merchant, you generally have 2 options for connecting online marketplaces to your e-commerce shop:

• Either you can find a Public App for the desired marketplace in the Shopify App Store,

• or you need a Custom (Private) App to connect Marketplace and Shopify Shop and provide access to the specific areas. You create the custom app in Shopify management under Settings > Apps and Sales Channels > App Development.

Online stores and marketplaces are not mutually exclusive: Use multichannel!

By now you have an idea of the opportunities and risks that online marketplaces offer. As a company, you are now faced with the decision of whether to use the advantages of online marketplaces or to do without them because of the risks. The good news is: there is a third option besides these two, because selling on marketplaces and having your own online store are by no means mutually exclusive. In fact, more and more companies are opting for a mix of different sales channels, which means they are pursuing a so-called multichannel strategy. This allows you to test out for yourself the extent to which you benefit from the advantages of online marketplaces. If it turns out that the risks of marketplace selling are too great, you can still focus fully on your own store.

Latori: Your expert for Shopify Plus

As the first Shopify Plus agency in Germany, Latori has already migrated many national and international stores to the system, set them up from scratch, or enabled companies to make the leap into e-commerce in the first place. We would be happy to support you in implementing your multichannel strategy.

Feel free to contact us!