Why are marketplaces bad for your business?

Updated: May 3, 2021

Are marketplaces bad for your business? Yes, they definitely are. Why are we saying so? Read the article to understand our observation.

When starting a small business, it is very tough to find initial customers. Due to limited resources and budget it is very difficult for businesses to spend heavily on their website, its SEO, advertisement, PR, and digital marketing.

At such a time, marketplaces play a saviour for small business by giving them initial customers and visibility on their platforms. While marketplaces might be good when starting a small business, they tend to become business killers once the business starts growing.

Then are marketplaces bad for all business? No. Just like one shoe doesn't fits all, the above statement is not true for all business. Marketplaces benefit some businesses but harm most businesses in the long run.

Top Marketplaces in India:

  1. Amazon

  2. Flipkart

  3. Paytm Mall

  4. IndiaMart

  5. Trade India

  6. Just Dial

  7. Zomato / Swiggy for Food

A lot of B2C marketplaces in India, United States, and other countries have been accused of favouring certain retailers owned by their parents companies and launching top selling products under their own generic brands which largely impact small sellers and kill their business. There are numerous articles and court-cases on this matter highlighting how small and medium businesses are disadvantaged by these marketplaces.

In B2B marketplaces, the platforms charge less or no on-boarding fees initially but their fees sky-rockets if you want more business from their platforms. For free or less fees, your business will be listed last in the search results on their platform. In order to get better rank, you don't need to improve your product, marketing, or business strategy, but you must pay a high fees in lieu of which your business will get better ranked in the search results on their platform.

However, these high fees do not guarantee higher sales. Since same product is being sold by several other companies on their marketplace, the leads you get usually go to 3-10 other businesses which increases competition, decreases margin, and highly impacts conversion rate. The only company benefiting in this situation is the marketplace.

I am selling my products on marketplaces. What should I do to grow my business without them?

Its no rocket-science. In fact it's as easy as 1 2 3. First, start with a small website of your business. Do not pay these marketplaces to give you a homepage, instead get your own business on your business domain. This website may not give you business since day one but like real-estate it is an investment to get good business in near future.

Nobody will come to your website if you do not promote it. Start spending some money on Search Engine Optimisation (SEO) to make your website rank better on Google for your product / service keywords. Its okay if you cannot spend a lot, but do not stop, start SEO with small investments. Every step counts towards growing your business.

Then also establish a good social media presence. Start spending upon digital marketing, advertisements, PR, and offline marketing. You don't need a big budget to do all this.

If you continue doing it regularly, in a few months there are high chances that you will start getting more business through your website and social-media channels than these marketplaces.

If your business is only on marketplaces then your potential customer is seeing 10 more products and business doing the same thing, and the lead goes to all 10 of them. The chances of lead conversion is this case is hardly 10-30%. But if your business ranks high on Google, chances are that your potential customer sees only you or one-two more businesses doing the same thing. This leads mostly comes only to your business. Thus, chances of lead conversion in this case is as high as 60-90%.

So what will you choose? Spending heavily on fees of these marketplaces or investing in your website and business growth to earn more over the long term?

The choice is easy, but taking the first step is hard. A little courage and smart-move can make your business grow even 100x faster than it is now.