Selling on Amazon boosts your direct sales too

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📝 Context

Topics: Ecommerce | Website/App
For: B2C
Research date: May 2020
Universities: HHL Leipzig Graduate School of Management, University of Groningen

You’re building a small, relatively new brand and exploring ways to drive sales.

Your long-term goal is clear: build a strong brand and own the customer relationship. You don’t want to rely on marketplaces like Amazon or Taobao, where visibility depends on algorithms and each sale takes a hefty commission. So, you decide to avoid listing there altogether.

Not so fast. Compare the cost of acquiring customers directly (ads, content, SEO) with marketplace commissions, and those fees start to look like a bargain.

Still, you worry it clashes with your long-term goal of building your own direct customer relationships.

Science says, your fears are probably overblown. And peeling away customers who discover you in marketplaces may be an excellent strategy.

P.S.: When you’re selling online, remember that Amazon is the benchmark you’ll be judged against in terms of support, delivery times, and your returns and exchange policy.

📈 Recommendation

If you’re a small or new brand, selling on online marketplaces (e.g. Amazon, Taobao) is an effective way to drive sales and a cost effective acquisition channel to eventually drive customers to your own website.

Give reasons to repeated customers to switch to your website and buy directly from you (while being careful to stay within the rules of the marketplace), for example:

• List only a limited product and option assortment on the marketplace (e.g. most color options are only on your website)

• Give extra benefits (e.g. register on the website for an extended warranty)

• Run special discounts (e.g. welcome discounts to first-time website buyers)

You will drive new customers to your site at significantly lower acquisition costs than directly trying to get customers to buy from your website.

🎓 Findings

• Selling on online marketplaces drives low-cost direct website sales for new or small brands.

• As part of an analysis of electronics sales from January 2017 to October 2018, scientists found that:

  • Every 71 sales on an online marketplace generated one customer who switched to buying directly from the company website

  • Barely any customers switched from buying through the company website to buying from an online marketplace

• Acquisition costs for new customers were lower on online marketplaces:

  • Brands spent 24% of revenue, including commissions on customer acquisition through marketplaces

  • Customer acquisition costs were 30% of revenue for mature brands, and up to 100% for newer brands for their own websites

• The effect is stronger for categories:

  • With low prices (e.g. stationery items)

  • With a large variety of options (e.g. t-shirts)

🧠 Why it works

• Online marketplaces have larger, more diverse audiences than a store’s own website.

• Exposure to this wider audience can increase the chances of a potential customer discovering a brand for the first time.

• After encountering a new brand on a marketplace, some customers switch to buying directly from the website, in hopes of more variety, lower prices or other benefits.

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✋ Limitations

• The research is based on data for a retailer offering products in 16 categories including used media (e.g. books, DVDs) and refurbished electronics (e.g. phones, cameras, tablets). The effect may work differently for other types of products.

• The study did not look at, or factor in whether retailers proactively tried pushing customers from marketplaces to their websites (e.g. by asking them to register, offering lower prices or offering a larger variety on their website).

👀 Real-life example

Cosmetics brand Typology highlights on their website how their products are available only on their website and one physical store in Paris.

❌ Issue: By not listing their products on marketplaces like Amazon or Zalando, they’re likely missing out on a key channel to attract new customers. Non-customers shopping online for cosmetics on a marketplace won’t be able to discover the brand while browsing through the marketplace.

✅ Solution: Selling on a marketplace will give Typology access to a larger pool of potential customers. They can then nudge these new buyers to order again directly from their website, for example:

• Offer best-selling items (e.g. Tinted Lip Oil), on Amazon, while advertising product bundles for a full routine (e.g. Tint and Hydrate product package) as available only on their website. They can also increase sales for these bundles by reframing them - instead of offering the Tint and Hydrate bundle, offer the Tinted Lip Oil as a gift with the purchase of the Repairing Lip Mask.

• Use an Amazon or Zalando product page to mention the Diagnostic Test available on their website.

• Offer a small free gift (or a voucher for a gift) to first-time buyers. Giving a small gift (or voucher for the gift) to customers on their first website order also helps increase word of mouth.

• Flash sales or special promotions only on website inventory. These work best if tied to a special day (e.g. Mother’s Day), even if it’s made up by the brand (e.g. Lipcare Day), and when they’re short (e.g. a less than 24-hour sale).

🔍 Study type

Market observation (analysis of sales of an international retailer on their website and a large online marketplace).

📖 Research

Acquiring Customers through Online Marketplaces? The Effect of Marketplace Sales on Sales in a Retailer’s Own Channels. International Journal of Research in Marketing (May 2020).

🏫 Researchers

• Erik Maier. HHL Leipzig Graduate School of Management 

• Jaap Wieringa. University of Groningen.

Remember: This is a scientific discovery. In the future it will probably be better understood and could even be proven wrong (that’s how science works). It may also not be generalizable to your situation. If it’s a risky change, always test it on a small scale before rolling it out widely.

🎁 Bonus mini-insight

An extract from our Case Study: Optimal email marketing frequency. Case studies are exclusive questions from our paid member community, to which we give science-based answers.

🎓 Insight: How often should you email potential buyers?

📈 Recommendation: The number of emails to send to customers depends on whether you feel they’re already primed to buy or not, and is counterintuitive. Send fewer emails (~5-7 emails per month) to customers who seem ready to buy and more emails (~12-14 per month) to those not yet ready to buy. 

✋ Careful: Sending too many emails to customers primed to buy can be costly. Customers who had a strong relationship with a brand had a 47% likelihood of being willing to buy when sent no emails, but this likelihood almost halved (reduced to 26%) when they received 10 emails per month.

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