My life’s philosophy is “There is no perfect.”  Everything in life is a tradeoff, and this holds especially true in ecommerce sales.  There is a lot of discussion on which is the more effective sales model, direct-to-etailer or Marketplace.  The answer is … well, there is no exact answer.  Each has its advantages and disadvantages.  

Direct-to-Etailer

In this model, the vendor works through a buyer, or merchant employed by the etailer.  Direct-to-etailer is the traditional vendor-to-retailer model.  This model gives a great deal of control to the etailer.  The fate of the product depends very heavily on the merchant’s ability and desire to make it succeed.  Below is a short list of the responsibilities of each party.  Each line item here is actually quite complex, and worthy of it’s own blog.  

Buyer’s Responsibilities:

  • The buyer accepts the line of products.  
  • Set up initial purchase agreement.  
  • Order the products.  
  • Merchandise the products. 
  • Issue purchase orders.  
  • Establish and manage retail prices. 
  • Promote the products. 
  • Manage inventory levels and sell through rates.  
  • In this model, the inventory generally lives in the etailer’s warehouse. 

Vendor Responsibilities:

  • Accept terms of purchase, including payment and shipping terms
  • Set up line of credit. 
  • Supply creative assets to the etailer. 
  • Collect and manage payments. 
  • Ship expeditiously upon receipt of purchase orders. 
  • Manage inventory levels based on sell through and sales projections. 
  • Provide support direct to the end user. 

Marketplace Sales

Imagine going to the local swap meet, or mall.  The seller rents a space from the mall owner.  The seller sets up a store, hangs out a shingle, and sells their products directly to the end user.  The seller sometimes pays a percentage of their sales to the mall owner, in addition to a basic rent.  The mall has no stake or control in the sales process.  That is exactly what Marketplace sales are through ecommerce.  The seller places their products on the etailer’s website, and manages the entire process themselves.  The etailer takes a percentage of each sale.  There are models where the etailer will also inventory and ship for the seller, at an additional charge.  For the most part, these sales are what we call drop ships.  That is where the seller ships directly from their warehouse to the purchaser. In this model, the seller has complete control of the entire sales process, including:

  • Retail and promotional pricing.
    • When Amazon has control of the price, erosion can take place.* 
  • The shipping process. 
  • Content format. 
  • Payments from the end user. 
  • Access to the end user, including contact information.
  • Number of products presented.  
  • Time it takes to load up new products.  

*Amazon Retail will state that it will honor a brand owner’s MAP policies. And yet, that is almost never true. Because Amazon Retail gives itself the “out” that it can match any other seller’s price (sellers on Amazon.com or other sales channels), it takes only one MAP violator anywhere for Amazon Retail to lower its prices and break MAP. Learn more here: https://www.webretailer.com/b/vendor-central-or-seller-central/

Key Advantages of Direct-to-Etailer

  • Billing and shipping in wholesale quantities to the etailer.* 
  • One payment from the etailer. 
  • Status as being a “direct and preferred” vendor. 

*Amazon Retail operates similar to large big box stores and is a lot like adding Amazon as a retail trading partner. Suppliers negotiate wholesale prices for their items, which Amazon then purchases, merchandises and resells on the Amazon.com website. In this case, the seller is focused on keeping one customer happy – Amazon. The margins are set, the product is sold directly to Amazon, the order is sent to their fulfillment center and the transaction is done – there’s no need to worry about the end-user beyond providing a quality product. Returns are sent back to Amazon, not to the supplier. Typically, Amazon Retail products do not compete for the buy box. Amazon Retail is great for high performing products for shipping in bulk.

The Basic Difference

Marketplace sales are much more labor intensive but offers the seller much more control.  It is a much faster and easier way to get products online.  Etailer merchants are very busy, and don’t have time to manage all products directly.  Quite often, a company must start out on Marketplace, and prove themselves before being moved to a direct status.  It’s a great way for an upstart company to break into the market. 

Direct-to-etailer is an easier process to manage, as the etailer does most of the heavy lifting.  It also tends to have a certain status, as the products are deemed more worthy of direct status.  This can open doors to other high profile and volume etailers.  But control of the process is almost entirely in the hands of the merchant. 

Ecommerce has caused a revolutionary disruption of the traditional retail sales model.  In the days of brick-and-mortar sales, shelf space was limited and finite.  That made it difficult to introduce new products and companies. 

The digital age has made ecommerce possible.  In the ecommerce model, there is unlimited space, as products live virtually on a server, rather than physically on a shelf. And that has brought about the great democratization of retail selling.  

In some cases, the vendor gets to choose their sales model.  In some cases, the vendor is dictated the terms of purchase.  But the opportunity to reach the buying public has expanded through ecommerce.

Perry Goldstein
Perry Goldstein

Perry Goldstein is an electronics industry veteran, with over 40 years of experience in manufacturer sales and marketing in both the consumer electronics and Pro A/V spaces. He has managed sales in both B2B and B2C markets.