How important is brand building when you are selling on marketplaces?
In the era of eCommerce it is easy for almost any company to sell online. One can set up one’s own eCommerce store, but that takes some effort to set up and also thereafter to keep bringing quality traffic onto that website. It is much easier however to set up your store on any of the marketplaces such as Amazon, Flipkart and others. And in doing so, you are able to get set and started selling your products online, in double quick time.
So what are the advantages or disadvantages of selling through a marketplace online? First, let’s look at the advantages. Most of these renowned marketplaces have a very large amount of shopper consumer traffic coming on their websites already, which means that you’ve a good chance of attracting a potential target audience, who can come and see your product and perhaps buy your product. It is like setting up a store in the middle of a very busy market which already has a lot of footfalls, and due to the nature of the footfalls and the interested buyers coming there you are bound to get visibility and you are bound to get certain number of customers coming into your store as well. Also, due to immense amount of data that most of these marketplaces have and which they mine, they are able to recommend your product category as a related category when somebody is buying something related to your product. For example, if somebody is buying new clothes, there’s a chance that some accessories or a related fashion item, etc, might be recommended to them as an add-on.And in that manner, not only are you getting direct business for people who are specifically searching for your particular category, but also those who aren’t looking for your direct category, but are looking for something related. So in many ways it is quite an advantage to be on this kind of marketplace as it will connect you to right kind of customer prospect once you are set up there.
Talking about the disadvantages of being on a marketplace, there are two fundamental ones, to begin with.One is that because these marketplaces have now got so big, there is every chance that your product is placed in a category which has got too many competitors who sell similar kind of stuff. So when somebody searches for a category like yours, you are clubbed with everybody in that space whoever is selling same through the marketplace and unless there is something unique or differentiating about your product as compared to your competitors, it would be generally boil down to the cheapest seller getting the business. So it is a free market but also an extremely competitive market and you’re forced to keep a price which is very sharply competitive. And which basically means that you’re always going to struggle to get good margins.
The other disadvantage is that, there is again no chance that somebody may be able to discover you despitethe large amount of the traffic coming to the marketplace. For example somebody comes to Amazon.in and searches for office bags, that person is shown around thousands different bag options or even more.Your products could well be on the 20th page of the search results, for office bags, on Amazon. Does that customer have that kind of patience to keep looking into the variety until they reach your product on the 20th page? It is quite unlikely. So then if you are the seller, how do you get your products seen? How do manage to get that visibility? How do you get the customer shopping for that particular category to find your product, and end up buying your product?
The way out is to advertise on the marketplace and get visibility right on the top of the search results when your category is searched for. Which means that you skip the line and get ahead of the competition, and get placed right on top as an advertised matchor a sponsored product. So in a way advertising is fruitful as the customer sees you right upfront when searching for the category.
But here is the twist in the tale. All the players belonging to the same category would have the same concerns of getting visibility in front of the customer, and which means that like you, every other player also wants to advertise and grab that premium spot. Over and above that, there are very limited advertising spots available on marketplaces like Amazon or Flipkart, as those marketplaces would be more focused on sales and not just on the Ad. That being the case, there is a competition for those limited ad spots which are available. As soon as multiple players want to be in that advertising position, it leads to a bidding war and the highest paying advertiser manages to bag the spot.
Now have a close look at both these phenomena: on the one hand because you’re selling in the marketplace with many other competitors , you are forced to pull the price down to be competitive, and parallelly since you are forced to advertise in a competitive advertising market to be visible on the first page of the search results on the marketplace, you have to pay a large amount of money to be seen and be visible, and what that does is to increase your costs and further reduces your margin. Putting these together you are constantly running on thin margins and in time, it only gets worse!
In such cases the only exceptions to this rule are the brands that get directly searched by their name.For example, if a customer is specifically looking for Nike shoes or Allen Solly shirts, and searches for these, the customer is then not clicking on the cheapest product, nor an advertised competitor, as much as looking to find the specific brand. The brand is then, not forced to sell at a low margin, nor does it have to keep spending expensive advertising money, and gets seen by the customer, who is specifically looking for that particular brand. So that’s the only way that you would beat the price war and the advertising bidding war.
So what is that secret sauce to be searched by your own name? it is nothing but a very strong and a fundamental brand building which has happened and which has led the customer to search by your brand name and locate your products and purchase the same. The customer isn’t comparing you with others nor does the customer expect to discover you because you have advertised and found to be at the top of a search result.
As it is clear from this argument,if you do not invest in building out a strong brand, then overtime the pressures of low margin and high advertising costs to stay on top of search results, will badly hurt your business fundamentals. The essential essence of this is that brand building is the solution, brand building is something will let you be visible when searched by your brand name without needing to advertise on the platforms and it also will allow you to charge a premium to your product and not expect you to be the cheapest all the time.
It is clear that, even while selling on popular marketplaces, it is very vital to invest some resources into brand building for long-term business benefits.
About the author:
Sanjay Mehta is Joint CEO, Mirum India. He is responsible for driving a strategic focus to growth for Mirum India, which involves identifying key areas of opportunity, and enabling business development and planning to achieve the goals.