Ecommerce Stores Vs Marketplaces: Decoding The Optimal D2C Strategy For Growth In 2023

If you are a D2C brand founder in 2023, the battle for consumer mindshare and market share may feel like an attempt to summit Everest—uphill, high stakes, fraught with the danger of missteps and demanding superhuman business stamina. 

As of 2022, India has more than 5,000 active ecommerce startups all vying for the $400 Bn projected opportunity by 2030. Even as the D2C ecosystem continues to mature with better backend solutions for order fulfilment, payments, inventory and delivery, the distribution conundrum (should startups sell via branded ecommerce stores or marketplaces) remains more muddling than ever. 

Naturally, the desire to maximise profitability and minimise risk is at the heart of this dilemma. The truth is, there isn’t one answer or formula. Existing D2C success stories like Mamaearth, Sugar Cosmetics, Lenskart and boAt didn’t follow a singular path, yet each is an enviable growth phenomenon. ‘It depends’ is probably the most honest summation of the decision-making journey D2C founders are faced with.  

Commodity Brands Needs Reach

For starters, your category and the stage of your brand and business journey should be crucial considerations. If your product is a commodity with only slight product innovation like packaged snacks, it pays to be everywhere a consumer is because absence means they will quickly opt for a competing brand resulting in a reduced customer lifetime value and repeat customer ratio. 

Not only is your brand competing with other D2C brands in your category, but it is also competing with established legacy brands that have built trust over generations, can afford deep discounting and also have an immense offline presence. Here is where Amazon’s 20% commission and unavailability of buyer data may be palatable. 

However, as a new brand, it may be better to partner with more niche marketplaces where the broad customer base can be tapped into but the options are also fewer and so your brand gets more time in the spotlight boosting brand awareness and trust, which is fundamental in the early stages of a brand. Not to mention, your company can keep a smaller inventory, which is not an option on mainstream marketplaces. 

It’s Not A Zero Sum Game

This isn’t an either-or equation. New brands still require an owned ecommerce platform because it serves as a marketing channel rather than a retail avenue in the beginning, providing a central landing point for your overall brand-building and CRM efforts.  While your brand may be discovered on a niche marketplace or social media, consumers will want the assurance of your own ecommerce presence and may eventually buy directly from there. Also, if you are priced at a premium than most options in your category, it will drive buyers to your own store is better to avoid price comparisons that are common on marketplaces. 

Brand-Led Growth

What happens if you innovate significantly from a product standpoint or build a brand-led business like boAt and Sugar Cosmetics? Here is where a high-quality, seamless, content-led, and exclusive ecommerce presence is a smart business strategy in the early stages. This is because you can completely control the brand messaging and gain invaluable customer feedback, allowing startups to iterate quickly and refine product market fit. 

If you are a brand, the increased storytelling, influencer marketing, public relations, and aggressive retargeting campaigns, as well as the narrow customer segmentation, create a subculture that drives customers to your store directly to maintain the sense of exclusivity. This can be a recipe for rapid customer acquisition, allowing you to gain enough traction to progress to the next stage of funding and growth, as well as the eventual tradeoff of brand equity in exchange for greater reach. 

Early Stage Vs Scaling

If scaling is the issue, the strategy changes dramatically because far-reaching marketplaces and even fintech marketplaces can now do the heavy lifting for you, allowing you to build immense reach while reducing the load of order fulfilment. Since trust is high in these marketplaces, even if your customer has never heard of you, they may use Amazon’s return policy to give you a try. 

You can now afford some discounting to appear high on search results on marketplaces and can compete with other brands because some amount of brand equity has already been earned. In fact, at this stage, a marketplace-specific strategy can be useful because each one has its own constraints and capabilities. 

Lastly, it is important to remember that the D2C landscape is far more fragmented than it was five years ago with even legacy giants like Marico and HUL creating new D2C brands. This means that what may have worked for Sleepy Owl or boAt in 2018 may no longer be possible in 2023. Differentiation is increasingly difficult and harder-to-perfect aspects like flawless customer experience may be larger factors in growth today than store vs marketplace.

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