Marketplaces vs. Your Own Online Store: Which is better?

By Urvi Shah | | Tagged Starting an Online Business

Marketplaces vs. Your Own Online Store: Which is better?

Surely this is one question that has popped into the minds of absolutely everyone who has decided to pursue a business in Ecommerce. Whether to open your own online store or to offer your products in a marketplace such as Flipkart, eBay or many others.

So, which is it? Which one will bring you high traffic, create lots of sales, bring repeat business, and create brand awareness as well as brand loyalty? We wish there was an easy answer to that question, but there isn’t. There are pros and cons to both options, and we will explore them here.

Brand Value: Well-known vs. New

This is perhaps the most important consideration in choosing the right channel to showcase your products. Is your brand already relatively well known in the real world and will you have ready customers when you set up an online presence? Or are you new to the world of retailing and creating your brand from scratch?

If you already have loyal customers, then the obvious thing to do would be to create an online store of your own. The added benefit of being able to shop online will be a nice convenience for your existing customer base, who will bring in sales in the first few months while you market your online store to new customers. On the other hand, if your brand is new or relatively unknown, a marketplace can help bring exposure as well as sales in the initial period while you establish your brand.

Type of Products: Common vs. Niche

Consider what type of products you are offering when choosing the right online sales channel. If you are in the business of selling widely available products like electronics, appliances, etc., you may benefit from your presence on the marketplaces, because it enables comparison shopping.  Customers like to be able to compare prices and offers from different sellers before they make a purchase.

On the other hand, if you sell niche products such as custom-designed clothing or accessories, then comparison shopping does not apply to you and you are better off setting up your own store.

Importance of Brand Building: High vs. Low

How important is it that your customers recognise your brand? Does your line of products inspire repeat business? If you sell your products in a marketplace, as a small business owner you are only a back-end supplier responsible for fulfilment. Your name comes up late in the buying process as one of many suppliers offering the product at a particular price. You won't be forgotten because you will never be noticed.

There is very little opportunity for brand building in a marketplace, where most often the only criteria for sale is the lowest price offering. If you wish to create brand awareness and loyalty, it becomes necessary for you to set up your own online store.

Marketing Budget: Low vs. High

For both scenarios, in most cases you will have to spend some money on marketing your products. The question is, what does it get you?

In a marketplace, the best you can do in terms of marketing your brand is to pay money to get featured, i.e. noticed by shoppers. In a highly competitive product category, where prices from different buyers are at par with each other, it is often necessary to spend money to catch the eye of the buyer.  This requires some marketing budget, even if it is relatively low.  Plus you have to offer the lowest possible prices to be able to make a sale, which results in a very low profit margin for you. Only if you are selling products that have low competition from other sellers, then you will not have to spend at all on marketing.

If you’re willing and able to set aside money for a decent marketing budget, it’s best to put it toward online advertising (ie Google ads), social media marketing, email campaigns, etc. for your own online store. Then your marketing spend goes toward creating brand awareness, top-of-the-mind brand recall, as well as brand loyalty And once you’ve developed brand awareness and brand loyalty, then refer back to point #1 – you’ll be better off with your own online store.

Priority: Short Term Sales vs. Long Term Brand Building

If your priority is to get as many sales as possible in a short period of time at a low profit margin, then a marketplace is the right place for you. On the other hand, if you are interested in long-term brand building, then setting up an online store is the way to go. The most important reason for this is that when you have your own independent online store, you can build a customer database, track the product categories they have browsed, make note of their purchases, demographics and interests. You have the opportunity to get to know your customer well, so that you can address his or her needs, build a relationship, and earn return visits and repeat business.

With an online marketplace, the marketplace itself owns all that customer data, not you. You only know who bought your products, not what else they browsed for while looking to buy. When you’re simply a supplier in someone else’s marketplace, they’re getting the benefit of brand building, not you.

What about both?

It is also important to remember that you don't have to choose one or the other option exclusively. You could very well start off in an online marketplace with the view to promote your new online store. For instance, you could easily fit in branding and promotional material, discount coupons, etc. for your own online store inside the package when you ship orders to your marketplace customers.

That way, you not only get the opportunity to sell on a marketplace, but also a chance to attract your new customers to your own online store, so that you can also reap long-term advantages of brand building.  It could be a great way to get your business off the ground by doing both, at least in the beginning.

Conclusion: Choose what’s right for your business

If you are someone who has just entered the Ecommerce space and are willing to enter price wars inherent in comparison-shopping, while selling generic products at low profit margins to recover your initial investment, then perhaps an online marketplace is the right place to start off with.

But, on the other hand, if you have an existing business or are building a new one in a niche product category, and you are interested in not just short-term sales but a long-term brand-building venture, then the best place to start is your own online store.

And finally, if you are worried about the investment required to set up your own online store, rest assured. Aside from external expenses like cost of inventory and marketing budget, the cost of setting up one’s own online store can often work out to be cheaper than participating in an online marketplace. Check out PowerStores’ pricing plans -- an online store builder made in India, for India -- and see for yourself.