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What are the pros and cons of starting your business with an e-marketplace

“Online marketplaces are the new department stores without the queues and the noise but all of the convenience and product range”, says DPO PayGate.

There is something almost magical about walking into a well-stocked department store. The shelves packed full of every product imaginable, every turn and corner revealing yet another amazing solution or device that gleams with promise. The department store has always been the one place where customers can find almost everything they need in a single space. It is easy and convenient.

This one-stop-shop concept is what has made the e-marketplace so popular. Customers can simply open a website or an app and purchase the items they need without having to even leave their homes. Most e-marketplaces don’t own the inventory, they merely showcase a smorgasbord of products and solutions in a central space and provide customers with an app or a website to facilitate transactions. This is, of course, very useful for the customer and the entrepreneur alike.

The convenience and usefulness of the e-marketplace cannot be understated. It not only showcases a bouquet of products for the customer, it also handles payments, online security and product delivery, wrapping all operational infrastructure into a neat, customer-friendly bow. This convenience and ease of use has seen e-marketplace popularity explode internationally. Big name brands like Amazon, Takealot and Zando are so popular that everyone recognises their names, and new ideas and brands are appearing all the time. For the vegan and health enthusiast there is Faithful to Nature, for the technology junkie there is Raru, and for the instant gratification shopper there are Superbalist and Loot.

These marketplaces provide an excellent opportunity for the entrepreneur to get their foot in the online shopping door as they cater for different needs, markets and demographics. However, like most business models, they have their advantages and disadvantages. What works for one market or entrepreneur, may not work for another and you need to understand the pros and the cons before you start so you can make an informed choice.

The pros of the e-marketplace

There are some significant advantages to working with an established e-marketplace and you can use these to really enhance your offering and boost your presence in the market. Some of the most relevant are:

  • You gain access to a variety of extra channels that allow you to reach customers in the far corners of the internet. You can use them to access huge markets, generate round-the-clock sales, and build brand awareness.
  • You need far fewer resources and most established e-marketplaces provide best practice marketing and service support as well as delivery logistics. Many of these marketplaces make huge investments into their own brand building and operational infrastructure so you can piggyback on this investment to get your products in front of the right people.
  • There is a built-in level of trust that comes with most established e-marketplaces thanks to their brand-building investment. Shoppers are more inclined to work with these brands so you gain the advantage of increased sales and brand awareness.
  • Some e-marketplaces encourage user reviews and these can have a marked impact on sales if your products make an impression.
  • You may lose some of your margin, but the e-marketplace offers you both visibility and volume that’s hard to beat when you’re first starting out.

Whether or not you want to take your business into an e-marketplace will depend on whether you are looking to build a brand or simply sell products, or both! An e-marketplace will give you great traffic and virtual footfall through your virtual office, but lower margins and less branding opportunity. There is no right or wrong, just which option is best suited to your strategic business plans.

Depending on what you’re selling, you can use an e-marketplace to test demand for a new product and assess its uptake before setting up your own store. Of course, what you are selling will dictate how you engage with the market and the e-marketplace and it is worth noting that most of these marketplaces have acceptance criteria. It isn’t that easy to get in and you may have to meet specific standards before you start selling.

The cons of the e-marketplace

The e-marketplace has some impressive plusses in the pro column, but it comes with its own fair share of challenges. You need to understand what these are from the outset to ensure that this is the right move for you, your business and your services.

  • Many e-marketplaces charge a commission which can be tacked onto every product sold. Ensure that you have a clear view of the pricing structure so you can determine your margins and financial gains (or losses) from the outset.
  • You may be restricted in how you communicate with your customers. Read the terms and conditions and ensure you fully understand how they could impact your business.
  • You may be limited in your own brand development – some marketplaces closely monitor the amount of branding you’re allowed online.

As an entrepreneur there are three things you need to be really cognisant of before you move into any e-marketplace: know the rules, recognise the limitations, accept the financial costs. While you get brand building and customer trust, you also get complex entry regulations and brand management controls.

Your success within these restrictions will depend entirely on your strategy and your target market. Just remember, an e-marketplace gives you exceptional visibility and volumes but you may run into growth challenges over time. These could be you experiencing less agility than with your own store, less control over your content and branding, no say on the payment service provider, and lower margins. How you address these or feel about them will indicate how well suited your business is for an e-marketplace offering.

Conclusion

The reality is that customers want a convenient and reliable place to shop online and this is precisely what an e-marketplace provides. For any entrepreneur looking to generate income quickly, this type of market is very beneficial. However, look to the future and your long-term strategy before you start. Ensure that your brand, your business and your assets are put ahead of the e-marketplace with a clearly defined growth strategy and understanding of the marketplace’s limitations.

The type of product, the customer, the growth arc, the branding – these factors should all be considered before you make the leap. And remember, even if you don’t succeed within this type of market, there are plenty of other options out there for you to try.

DPO PayGate is a proud Partner of the NSBC.