eIQ Insights: Marketplace. Friend or Foe?

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There’s no escaping Amazon. The online retail giant is everywhere, making headlines every week to announce either a Whole Foods takeover, a Prime Wardrobe program or a discount Prime membership for those in welfare.

All in a month’s work for Amazon.

The e-tailer is responsible for 43% of online sales in the US, and 11% of total retail sales in the country – it’s no wonder brands are wondering whether they should be joining Amazon’s army or facing ecommerce head on.

One brand that has jumped ship is the mighty Nike, who recently confirmed its partnership with Amazon through a pilot program to ‘test the waters’. However, an ex-Amazon employee expressed that this may not be the best move for the shoe brand.

Quote: Elaine Kwon, founder of Kwontified

“Most brands don’t think about it this way, but when you are directly wholesale, you forfeit any and all pricing control, and it becomes problematic because of the way Amazon matches prices — not just across the site, but from across the web,” says Elaine Kwon, former Amazon employee.

However, it’s important to note that Kwon is referring to a series of luxury, designer brands such as Gucci and Versace, fashion houses that spent years building their brands, but were affected by Amazon’s price markdowns.   

According to Kwon, Amazon’s wholesale arm actually leaves many companies bleeding because of its pricing strategy. Scott Galloway, founder of business intelligence firm L2 has called Amazon an “evil empire”. This is partly due to the fashion industry’s perception of Amazon, it’s like a dirty little secret in the fashion industry, high end brands do sell on Amazon, but only small selections, as they don’t want to be seen as selling out on a platform that promotes cutting prices.

So why would Nike still want to work with Amazon?

For one, the brand will be exposed to Amazon’s 80 million US Prime members, potentially rolled into the Prime Wardrobe offering (adidas is) and be able to maintain a level of control over the gray market for sneakers on the online marketplace.

But truthfully, brand.com sites are struggling to combat Amazon’s web traffic.

It’s a gamble either way and a decision that many companies face as e-tailing rises in popularity, even in developing markets like Southeast Asia aren’t exempt.

Marketplace strategy in Southeast Asia

Lazada, one of the region’s most popular marketplaces, is undoubtedly similar to Amazon. The site in Thailand clocks in around 40 million visits per month and has $2 billion in backing from China’s own ecommerce behemoth, Alibaba.

With Lazada moving closer towards a Tmall model, in which brands can design their own store on the marketplace and optimize the various features that Lazada provides, the marketplace is becoming even more attractive for brands.

Lazada Thailand-Unilever shop-in-shop

Despite the marketplace partner perks, brands should care about fully owning their online presence, and that means consumer data, design and marketing initiatives. A marketplace presence can be viewed as a short term strategy, something like a testing ground or accompanying channel alongside launching a direct-to-consumer website.

Granted, this is the ideal case for global brands with deep pockets.

US eyewear startup Warby Parker’s direct to consumer model, selling directly to your shoppers has long-tail benefits.

So who wins? Sometimes the brand but one thing’s for sure, the marketplace always wins.