Selling on marketplaces is a powerful way for brands to reach new customers, increase visibility, and drive revenue. However, profitability remains a challenge due to fees, competition, and pricing dynamics.
As a brand, you need to balance competitive pricing with margin protection to ensure sustainable success. Understanding the key reasons why many brands and retailers turn to marketplaces can help shed light on how you can optimize your approach for long-term success.
Why brands sell on marketplaces
As a brand, you can enter marketplaces for various strategic reasons, all of which can be categorized into three core pillars:
1. Enhancing visibility and brand control
Establishing a presence on marketplaces enables you to take control of your product content, ensuring accurate descriptions, images, and pricing. This enhances brand recognition and trust among consumers. Additionally, it allows brands to ensure product availability, preventing stockouts and missed sales opportunities. By leveraging marketplaces with high traffic, you can significantly expand your customer reach and boost awareness without heavy marketing investments.
2. Maximizing profit and competitive pricing
Selling on marketplaces provides real-time access to competitor pricing, further enabling you to adjust your pricing strategies dynamically and remain competitive. Additionally, the ability to directly manage margins ensures that you can optimize profitability while mitigating the risks of price wars. By leveraging marketplace insights, you can also prevent channel conflicts, strategically allocate inventory, and plan pricing promotions to maximize returns.
3. Driving sales volume and market expansion
Online marketplaces offer a scalable way to increase turnover by tapping into new customer segments and experimenting with different markets and platforms. You can test new markets with minimal risk, using marketplaces as a launchpad for international expansion. Additionally, selling excess or seasonal inventory on marketplaces can enable you to reduce waste, clear out dead stock, and improve cash flow without relying on heavy discounts in traditional retail channels.
Understanding marketplace profitability
Profitability on marketplaces depends on the selling model chosen. You can either act as a 3rd-party seller (Amazon Seller) or a 1st-party vendor (Amazon Vendor), each with different cost structures and profit potentials. Here's how they compare:
3rd-party seller (Amazon Seller):
This model allows brands to sell directly to customers on marketplaces like Amazon. It provides higher revenue potential since you can set your prices and control your margins. However, in this case, you are also responsible for fulfillment, customer service, and marketplace fees, which can impact profitability. With effective pricing strategies and cost management, sellers can achieve strong profit margins while maintaining competitive pricing.
1st-party vendor (Amazon Vendor):
In this model, you sell your products in bulk to Amazon, and the marketplace then resells your products to customers. While this approach offers stability and removes some operational burdens, it also has lower revenue potential because as a brand, you will have less control over pricing. The profit margins are typically lower, but the advantage is reduced selling expenses and operational complexity.
To learn more about managing vendor relationships effectively, head to ChannelEngine's Vendor Hub.
Turning unprofitable products into cash cows
One of the most effective ways to improve profitability is through product bundling. Instead of selling low-margin products individually, bundling allows brands to increase per-order value while reducing fulfillment costs.
For example, selling a single low-priced item may not leave much room for profit after deducting commission fees, packaging, and shipping expenses. However, when similar items are bundled together and sold as a multipack, brands can increase their overall margin per transaction. This strategy reduces per-unit costs and improves profitability by making each sale more valuable.
By bundling products, you can significantly increase profit margins per sale while lowering per-unit costs, making you more competitive on marketplaces.
The role of smart repricing in marketplace success
Pricing is a critical factor in winning the Buy Box and maintaining profitability. By leveraging repricing strategies and automation, brands can dynamically adjust pricing to remain competitive without sacrificing margins.
New: Our price management solution
Maximizing profitability on marketplaces requires a data-driven pricing approach. ChannelEngine’s new Price Management solution provides intelligent tools to automate pricing decisions, ensuring you never sell at a loss.
- Ideal price point: Find and maintain the optimal price for each product, balancing competitiveness and profitability.
- Price boundaries: Set minimum, normal, and maximum price limits to ensure pricing covers costs while maximizing revenue.
- Minimum price calculation: Automatically define a minimum price that factors in all expenses and protects margins.
- Marketplace fees: Seamlessly incorporate marketplace fees, VAT, and shipping costs into pricing strategies to guarantee profitability.
- Profitability reporting: Gain detailed insights into profit margins for every product and order, helping brands optimize their pricing strategies effectively.
By leveraging our marketplace integration platform, you can automate cost calculations, prevent losses, refine your pricing models, and do much more smartly to drive long-term marketplace success.
How we helped EQOM achieve profitable growth on marketplaces
The EQOM Group aimed to enhance profitability and expand their product portfolio by refining their marketplace strategy. With ChannelEngine as their marketplace integration partner, they were able to achieve this through strategic repricing and intelligent cost management, ultimately transforming their approach to marketplace selling.
Marketplace Specialist, EQOM Group
- BuyBox success: Optimized repricing strategies helped secure the BuyBox without sacrificing profitability.
- Higher margins: A 4.3% increase in bottom-line margins within just two months.
- Expanded portfolio: A 72% reduction in overpriced products, enabling hundreds of new listings and increased GMV.
By leveraging our price management solution, the EQOM Group successfully achieved a balance between competitiveness and profitability, ensuring sustainable growth on marketplaces.
Concluding thoughts
Achieving success on marketplaces goes beyond simply increasing sales volume, it requires a strategic approach that balances competitiveness with profitability. Brands that leverage advanced repricing tools, implement smart bundling strategies, and choose the right marketplace model will position themselves for long-term sustainability and growth. Ensuring continuous adaptation to pricing trends and market dynamics is key to maintaining an edge in this fast-evolving landscape.
