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Assessing the Tradeoffs Between Marketplaces and Direct Channels

By Kyle Rees | February 09, 2021 | 0 Comments

Customer ExperienceDigital CommerceMarketing Strategy and Innovation

In 2021 CMOs are expected to support a growing list of digital business initiatives to achieve their goals. Included on this list are plans to prioritize digital experience alongside new sales and service channels. Business model changes are also on the docket. Importantly, many of these priorities mirror the interest marketing leaders tell Gartner they have about learning how they can sell on marketplaces and establish direct commerce channels. 

A horizontal bar chart shows how CMOs reported digital business initiatives will be prioritized to support 2021 goals These include_ new digital experiences (51%), new sales or service channels (48%), technology upgrades (47%), product or service changes (45%), major business model change (44%), new go-to-market strategy (43%), optimization of existing digital channels (39%), and new analytics capabilities (34%)/
In 2021, CMOs will prioritize digital business initiatives to drive growth and meet organizational goals.

 

This sentiment is indicative of COVID-19’s long-term impact on the CMO’s vision for the future.  In 2020, many brands began experimenting with new channels due to channel partner disruption, distribution challenges and new shopping behaviors. Some started selling on marketplaces, while others built out their own direct channels. Ultimately Gartner believes that these two channels can complement each other. However, for this to happen, marketplaces and direct channels must first be assessed for their relative strengths and weaknesses.

Preliminary Considerations

One of the more common types of challenge we hear about from CMOs is one of vision articulation. Getting buy-in and building consensus for change, especially for potentially big shifts in go-to-market strategy, is never a walk in the park. By helping your business know when and why to pursue marketplaces and direct channels, you increase the chance of success. Here are few considerations to help you move the conversation forward.

Product Placement

  • Consider using marketplaces for edge or niche products that increase brand exposure. Marketplaces may work well when you only want to market and sell a small portion of your entire catalog online. Used or refurbished collectibles, electronics and media are great candidates for marketplace channels. Finally, marketplaces may be the right approach if you need to accelerate entry into a new market.
  • Consider using direct channels when you need to market and sell your entire product catalog online. Direct channels are ideal for branded “hero” products, new releases and limited editions that drive traffic to a brand-owned digital commerce website. The ability to deploy personalized product configurations and service experiences increase their appeal to both B2C and B2B companies.

Pricing and Promotions

  • Consider using marketplaces to sell commodity products. For example, a Gartner report on Amazon best-seller pricing data across several B2B categories (e.g. Industrial and Scientific) found that approximately 60% of products retail at under $20. Furthermore, marketplaces can help you capture traffic and boost brand visibility around major online promotional days, like Singles Day or Prime Day.
  • Consider using direct channels when you want to capture price premiums.  For example, after a two-year trial run on the Amazon marketplace, Nike leadership made the decision to terminate its direct sales relationship with the marketplace giant. Chief among the reasons why was the issue of brand dilution. Selling products on a marketplace also increases the risk of exposing valuable product data to marketplace owners. This in turn can lead to the emergence of new private label brands capable of stealing marketshare. To that point, direct channels are appealing for businesses that seek to achieve deeper customer loyalty management and better control of proprietary data.

Customer Experience

Are you comfortable ceding brand control of customer experience to a third party? For businesses where digital commerce is a nascent capability, the answer may be yes. However, marketplaces rarely provide options for enhanced or personalized selling techniques, like branded-product selection tools or assisted selling (i.e., live chat with an expert). Organizations should have a long-term strategy to offer superior customer experience through their direct channels, where they own the customer relationship and have more flexibility in experience design and technology selection.

Just a Start

As you help your organization weigh the tradeoffs between marketplaces and direct channels, use these considerations to jumpstart the conversation. For more ideas and insights, schedule time with one of our industry experts, analysts or advisors. Are you a Gartner client? Read more in our newly published research:

A flat lay image shows an array of multi-colored lightbulbs.
Light up the conversation. Photo by Dstudio Bcn on Unsplash.

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