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According to the University of Cologne’s Institute for Commercial Research (IFH Köln), 2018 saw the value of German e-commerce rise to EUR 53.3 billion. This represents an increase of more than EUR 4.4 billion, or 9.1%, on the previous year. Around half of this growth was driven by Amazon Marketplace alone, which in 2018 succeeded in gaining over 100,000 new retailers and manufacturers in Germany, around 40% of whom were notably from from the People’s Republic of China.
The reasons behind this rapid development are not difficult to identify. On the one hand, consumers are increasingly using the Internet to do their shopping, and often begin their product search directly on Amazon. Until just a few years ago, this role of e-commerce gatekeeper was still reserved for the search engine Google. With Prime, Amazon has also succeeded in establishing an extremely attractive customer loyalty programme. In exchange for a fee, its approximately 100 million members worldwide enjoy free and fast delivery of their purchases, media products like Prime Video and Prime Music, exclusive discount offers (e.g. Prime Day), and special shops (e.g. Amazon Fresh). This has established the platform so firmly within the relevant set of customers that they order twice as often from Amazon on average as non-members. What’s more, these customers are practically no longer attainable to other online shops as a target group for new customer acquisition.
In addition to their extensive reach and exceptionally loyal customer base, digital marketplaces like Amazon and OTTO & Co. offer a further, decisive advantage: their technical and logistical infrastructure can be used by all suppliers without the need for financial outlay on their part. Platform maintenance, transaction processing, and marketing offers like Cyber Monday are all taken care of by the operator, with additional options available that extend the range of services provided to cover all logistics, including warehousing and returns handling, such as Amazon’s FBA fulfillment programme.
Figures published by IFH Köln show that suppliers who sold their products via Amazon in 2017 reported sales increases of more than 20% on the previous year – twice the total growth of e-commerce in the same period. Processing shipping, billing, and warranties via the marketplace is also making it easier for small retailers and manufacturers to gain a foothold in international markets. In this way, familiarity with the global brand promise of Amazon or eBay and the trust placed in them by customers is something that every supplier can use to their own advantage.
In addition to all of the incentives and advantages that the big platforms indubitably offer, however, it’s also important to take into consideration the risks and possible dangers that are posed by developing a marketplace strategy that is too reliant on them.
Manufacturers and retailers with interchangeable products who lack a strong brand identity of their own and do not offer a significant price advantage shouldn’t underestimate the level of competition that marketplaces can have in store for them. Whereas having their own online shop allows retailers and manufacturers to make an exclusive presentation of their full range, on Amazon and similar platforms they’ll find themselves competing with numerous suppliers for customer attention and product visibility. Although a number of effective marketing tools enable them to purchase more desirable placement among the first pages of search results, achieving organic top-placement in the longer term will require significant investments in advertising together with the maintenance and optimisation of their product catalogue, which can quickly eat up a calculated margin.
An additional disadvantage – especially from a customer lifetime value point of view – is that they have little or no opportunity to make direct contact with their customers in order to let them know about special offers or new products and establish a sustainable CRM strategy.
Last but not least, there is the danger of them becoming too dependent on the marketplace and losing control over their own brand. Unforeseeable rises in fees, alterations to the general guidelines and terms and conditions, and the rise of numerous Amazon own-brands such as Basics, Essentials, and Find can render working with marketplaces unprofitable overnight. In the worst case scenario, bad business practices or negative black hat tactics on the part of the competition can lead to the immediate blocking of their own accounts.
For these reasons, retailers and manufacturers would be well advised to make an intensive exploration of additional sales channels in the interest of diversification. In addition to analysing niche marketplaces such as hood.de, yatego.com, avocadostore.de, or selekt.com, they should also consider creating their own online shop. This is especially likely to pay dividends if the shop offers customers something significantly different from the marketplaces in a way that they are readily able to appreciate. This can be achieved by offering a particularly attractive pricing structure, for example, or a distinctive product range or an outstanding user experience. Making use of augmented reality or chatbots in the case of products or services that require a larger amount of explanation can achieve genuine added value, even making it possible to attract target groups away from the large marketplaces to new shopping channels.
Although there is no one-size-fits-all advice for developing and establishing a suitable e-commerce and marketplace strategy, which needs to be done on an individual basis, the following general conclusions can be drawn: Their extensive reach and potential mean that the big marketplaces are almost impossible for manufacturers and retailers to ignore. As their market power means that these platforms tend to dictate relationships on a one-sided basis, however, too much dependency and concentration on a single marketplace should be avoided, and alternative market footholds established.