Brand Distribution via Digital Marketplaces – What Business Model is Right for You?

Brand distribution via digital marketplaces requires new skills and systems. This post argues that you need to be clear about your digital B2C readiness to decide how to best execute.

In my last post, I shared some facts on the importance of marketplaces. This time let me talk about HOW to do your business via digital marketplaces right.

Diagram Marketplaces Digital Brand DistributionChances are you already have your own webshop and have experienced how tricky it can be to generate sales and stay profitable. Now, with professional digital marketplaces it is actually possible to achieve both:  the mix of wholesale and direct to consumer distribution (DTC). You can let the digital marketplace buy and sell your goods (wholesale model) and you also sell direct to the consumer via the digital marketplace (retail model).

The wholesale model still represents the largest share of business done in most marketplaces. Except for eBay, where close to 100% of merchandise is sold via a B2C model. Most other marketplaces use traditional wholesale models, and generate much less than 50% of their revenue via B2C business models. The market today allows both models to reach end-consumers.

Table 1: Evaluation of Wholesale (B2B) vs. Retail Business Model (B2C) – Brand Perspective

 Wholesale Model (B2B)Retail Model (B2C)
Pro's- Pre-orders/ reduced planning risk
- Less cash needed
-Higher revenues and Gross Margin
-More control over brand presentation
- End-consumer data
Con's- Less control over brand (assortment, pricing, visual presentation)- Stock risk
- Additional processes (e.g. product photography, returns management, etc.)

There is no generic answer to what is right or wrong for you. It is more about how you manage both models at the same time in a profitable way for your brand, given your organisations’ priorities and capabilities at any given point in time.

Consumer Expectations and Marketplace Requirements – Are You Ready?

If you deal with digital marketplaces with a purely B2B model, then almost nothing changes to how you have done B2B over the past decades with your bricks-and-mortar clients.

You build a brand, you get some consumer pull with your brand and you sell mainly pre-orders to a marketplace plus send along some of the most basic product information (i.e. price, article number, EAN etc; the rest gets done by the marketplace). Most digital marketplaces will be ok to receive your product data in Excel, as a download from your PLM system.

But what is required, if you want to do B2C business with marketplaces? Excellence in shopping experiences has been one of the key reasons why marketplaces have gained such massive market share over the past few years. The efforts that Amazon, Zalando and the likes have put into creating the best possible user experience are tremendous and so are their requirements for their suppliers. This will relate specifically, but not only to the areas of product presentation and fulfilment.

From your past work with the ‘bricks’ retailers, you know that each retailer has its own specific Visual Merchandising (VM) guidelines. The digital world is no different. The requirements may fill a 100-page document. It will contain for example, guidelines on the number of pictures you need to show per product, whether it’s on a model or free-standing and will go down to the angle at which a product needs to be photographed. So, that is certainly no small task. Multiply this by the factor of 10, if you want to sell across multiple marketplaces (each with their own guidelines) and multiple countries, adding the topic of translation and localisation to the mix and you start to get a feeling for the complexity that needs to be managed by your e-commerce teams ;and we haven’t even started talking about some of the other elements. A brief overview of some of the key differences can be found in the table below.

Table 2: Overview Process Requirements B2B vs B2C Process – Brand Perspective

ProcessRequirements B2B processRequirements B2C process
Data transfer with marketplacePhysical delivery of product and delivery documentsProduct data, customer order data, delivery info
Stock keepingMarketplace owns stock; mainly pre-order, some replenishmentBrand owns stock
Product data transferVery basic product data; no interfaces (Price, Art Nr., EAN Code)Very detailed product data via specific interfaces to each platform
Product enrichment (product pictures/videos, text, etc.)Done mainly by platformDo and deliver depending on specific platform requirements
Logistics (outbound, returns, cross-border)Done by platformDone by brand: strict guidlines from platform with regard to speed
(e.g. 24hr delivery, or usage of platform-specific logistics providers)
Returns managementDone by platform; mainly unsold A grade stock back to brandMore B grade returns from customers; need to reprocess before being able to resell
Customer supportDone by platformDone by brand; potentially multilingual depending on country coverage
Incoicing/ dunningPlatform specific approachPlatform specific approach
Pricing/ markdownsManaged by platformManaged by brand; typically participation in platform specific sales initiatives
MarketingPlatform specific marketing packages can be bookedPlatform specific marketing packages can be booked

So, why bother with a B2C process and take on all the hassle? First of all it still makes sense commercially, but you don’t have to organise it all yourself. A nice way to combine a wholesale and a DTC business model in digital marketplaces is to sell only those units/collections via a retail model that the marketplace hasn’t selected in its own buy. This allows you to get those crucial quantities that you need to reach your supplier minimum production quantities.

Another smart option actively supported by some digital marketplaces, is to allow access to your stock and provide additional depth in case certain sizes are ‘sold out’ from the platform’s original buy. To sum this up, digital market places provide a lot of additional tempting opportunities, but be careful with the complexity.

Marketplace B2C – Make or Buy?

To address the challenge, it may be smart to outsource some of the digital distribution. There is a new breed of digital agencies that take over all of the additional B2C process hassle. Most of the time it is the same 3 things that help you decide whether to outsource:

  • Existing skills and resources in your organisation
  • Costs of start up and operating costs
  • Speed of rollout

Depending on your inhouse skills and strategic priorities, you can decide between three options on how to reach your selected marketplaces.

Option 1: Use existing interfaces from your PIM/online shop (e.g. Magento, Oxid, etc.) to the most open marketplaces like Amazon/eBay. This option will make sense if you have all the necessary skills and both the technical and physical infrastructure already in place to enable a proper B2C process.

Option 2: Use an e-commerce middleware-provider such as Plentymarkets, Tradebyte, shopware etc. Use this option if you think that you have everything to have a functioning and cost-effective B2C fulfilment and returns process in place.

Option 3: If you either don’t have the required skills or scale and you are looking for more efficiency and effectiveness, then you should outsource to a full-service digital distribution agency.

Table 3: Comparison of B2C Process via Middleware vs. Digital Distribution Agency

If you aim to distribute B2C, but already don’t have enough resources for your e-commerce, or you prefer a fast and capital-light approach, than stronger outsourcing via a full-service digital distribution agency (www.onquality.de; www.modotex.com; www.zitra.com) is a good option. Specific advantages here can be:

  1. Faster and cheaper ‘go live’ due to existing contracts and interfaces
  2. Automated content enrichment according to platform VM requirements
  3. Lower logistics cost (through volume aggregation of multiple brands and local hubs)
  4. Automatic translation of product descriptions via the agency’s software
  5. Customer support in local language
  6. Door-opener to marketplaces

Are you Ready for B2C E-Commerce via Marketplaces?

Just like your traditional distribution agencies, digital distribution agencies have established contacts with the core digital marketplaces. They almost can ‘guarantee’ new B2C processes will be smooth. So for you it becomes much easier to convince the digital marketplaces to list your brand. Experience from my work shows that often brands underestimate the complexities of managing ‘digital’ B2C processes. Digital distribution agencies are often called in from marketplaces, to take over the messy process management of a brand.

So be smart from the beginning, and check whether your organisation is ready for the new way of brand distribution. Go and invest in the new ways of brand distribution, but consider searching for help, if you don’t want to spoil your brand’s professional image with poor process management. So, how large is your B2C business and have you untapped your full potential?

 


About the Author:

Christoph Berendes came through the ranks as a consultant and brand manager in the bricks-&-mortar world. His passion and belief in the changes to come turned him into a digital manager. He currently assists in the growth of digital distribution agency onQuality. You can reach Christoph best by email.

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