Amazon sales will grow your website sales too

If your brand is small, marketplaces (e.g. Amazon, Taobao) are a cheap and effective way to grow your sales. Some marketplace customers will switch to buying directly from you.

Selling your products on Amazon or TaoBao is an easy way to increase your sales, but does it grow or cannibalize sales on your own website?

New around here? Subscribe below at no cost.


Previous tip: Altruistic referrals are 86% more effective (All tips here)

Marketplaces are an effective way to grow your early sales

Impacted metrics: Customer acquisition
Channels: Ecommerce sales | Marketplaces | Cross-channel effects

Recommendation

If your brand is not widely known, selling on marketplaces (e.g. Amazon, Alibaba’s Taobao) is a cheap and effective way to grow your sales, some of which will spill over to your own website. 

The effects are stronger for low-price product categories where you offer plenty of choice (e.g. you offer many models of toasters). They are weaker for high-priced products or categories in which you don’t offer much choice.

Create reasons for customers to switch to your website instead of (re)buying on the marketplace (e.g. only offer a limited product assortment on the marketplace, give a great product search experience and offer lower prices on your own website).

Once your brand is widely known, the strategic risks of not controlling your customer data and relations may be too high compared to the opportunity for growth on marketplaces.

Effects

  • Acquisition costs of new customers are lower on marketplaces, at 24% of revenue on average, including commissions. That’s compared to 30% on average on brand-owned channels for mature brands. For new brands, that can reach 100% in the first year. 

  • Every 71 sales in the marketplace generate a new customer on the brand-owned website. This effect is stronger in low-price product categories in which you provide a large choice.

  • There is some migration of customers from the brand-owned website to the marketplace but it's negligible. And it would likely still happen without being on the marketplace (with sales going to competitors instead).

Why it works

  • Some customers (1 out of 71 on average) will switch from the marketplace to your own website because they want to search for and/or buy other products you offer. They may also expect lower prices since they know that marketplaces charge commissions.

  • A few customers (a negligible amount according to this study) will switch to the marketplace to take advantage of an existing account or subscription (e.g. Amazon Prime), look for lower prices, or check reviews.

Limitations

  • The study was on data from one retailer that offers products in 16 categories of media (e.g. books, DVDs, CDs) and electronics (e.g. mobile phones, cameras, tablet computers). While the researchers performed some additional tests to check whether the learnings can be extended beyond this specific case, it’s riskier to broadly generalize this analysis (e.g. to different products) compared to other Ariyh tips.

  • The researchers did not have access to information that could have an influence on the cross-channel effects (e.g. price differences, number of product reviews).

Companies using this

  • The ten currently most active global sellers on Amazon all operate their own online stores.

  • In a sample analysis of 11 retailers each in a different category (e.g. fashion), the researchers found that on average they only offer 45% of their products on the marketplace (median = 20%).

Steps to implement

  • If your brand is new or has a small market share, try selling some of your products on a marketplace (e.g. Amazon)

  • Look for ways to drive customers that bought on the marketplace to repurchase directly from you (e.g. keep some products only on your own website, offer more competitive prices if they buy direct, communicate your own website clearly on your product packaging)

Study type

Market observation and analysis (sales of an undisclosed international retailer on their own website and on an undisclosed large global marketplace - very likely to be Amazon) 

Source

Maier, E., & Wieringa, J. (September 2020). Acquiring Customers through Online Marketplaces? The Effect of Marketplace Sales on Sales in a Retailer’s own Channels. International Journal of Research in Marketing.

[Link to paper]

Affiliations

HHL Leipzig Graduate School of Management and University of Groningen

Remember: Because of the groundbreaking nature of this paper, it could be disproven in the future (although this is rare). It also may not be generalizable to your situation. If it’s a risky change, always test it on a small scale before rolling it out widely.


Want to share feedback or ask a question? -> Reply to the email or write to thomas@ariyh.com

Did you enjoy it? -> Please forward this or share it on Slack, it really does make a difference. Thank you!

Was this forwarded to you? -> Subscribe below or read previous marketing tips here