It is common for customers to purchase from online marketplaces like Amazon or Flipkart rather than brands’ own webstores despite the brand’s popularity. For example, a customer would likely buy a Samsung mobile or an IFB washing machine from Amazon rather than from Samsung’s or IFB’s webstores. Several well-known brands, therefore, use third-party online marketplaces as an alternate channel to their own webstores. It is, however, unclear whether third-party marketplaces complement or cannibalise a brand’s sales. To investigate this issue, a study that utilises data from a leading online marketplace examines the pros and cons of using third-party online marketplaces.
According to the study, one of the most significant advantages of using third-party online marketplaces for brands is acquiring new customers efficiently. The hope is that most customers on the marketplace would discover the brand’s products and move to the brand’s webstore. This cost of acquisition is estimated at 24% of revenue, whereas the cost of customer acquisition through traditional sources is 30%.
Another advantage for a brand is the ease of building an e-commerce brand through the online marketplace. The study found that the brand’s direct sales increased by 0.014% for every 1% of marketplace sales—such complementarity in sales results from a brand’s more excellent purchase task-specific capabilities. Customers migrate to the brand’s webstore from the marketplace because of a more extensive product selection, ease of searching for products, or lower prices.
Assortment range affects complementarity because shoppers have limited need for the same product. For example, if a brand sells only three options for televisions on its webstore, a shopper might prefer to buy a television from the marketplace. However, if the brand sells a dozen types of televisions, the additional choice can entice a shopper to buy from the brand.
However, the study also found the possibility of cannibalisation of sales by the marketplace. Most shoppers are already registered on marketplaces, and thus, they find shopping there more convenient. The marketplace often offers lower prices on similar products due to competing brands’ presence on the platform. Finally, reviews are available on the marketplace to help a shopper make an informed decision.
An associated phenomenon is that of customers using the webstores of brands for obtaining information before, ultimately, purchasing the product from the marketplace. In a phenomenon similar to showrooming or webrooming, this causes losses for the brand. For example, Dyson provides live demos of its products to potential customers. Many shoppers may utilise the services of a Dyson employee for the live demo and then buy Dyson products from Amazon or other online marketplaces.
The study has significant implications for brands with their webstores. They need to be aware that they can best leverage their presence in the marketplace through a broader assortment of products. Further, customer acquisition through the marketplace is most useful for relatively unknown brands. For example, a brand like Vahdam, which sells specialised teas, can make rapid gains in customer acquisition and brand building by selling on third-party marketplaces. For major brands like HP, a greater focus on online marketplaces would end up cannibalising their direct sales in the long run.