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Which is better when expanding abroad: existing marketplaces or creating your own store?

With cross-border ecommerce growing steadily, estimated to hit 1 trillion dollars by 2020, it’s about time for online retailers to start thinking about different ways to expand beyond the current markets if they have not done so already! In the Czech Republic itself, 24% of online retailers are already selling to multiple countries and another 69% are about to, according to ADMEZ. And this from a country with little historical interest in exploring abroad! In case you’re still hovering around the idea of reaching new customers (or even when already expanding), here are a couple of factors to help you choose the right channels. First: is it going to be a marketplace, your own localized online store, or both?

When to build your own (online) store

As a business, you might have various reasons for wanting to expand on your own terms:

  • You have considerable traffic and orders from a certain market
  • You have enough data about customer behaviour on your website
  • You have a strong branding and marketing strategy (your brand is already resonating there!)
  • Maintaining full control over your sales and marketing is crucial to you
  • You want shipping partners in the new country or a pan-European shipping partner
  • You have a sales and customer support team ready.

There is a lot to tackle at this point, but if you’ve nodded your head at least a couple of times, you just might be ready to set up an online store (or a real store for that matter) in a shipping country. ASOS in the UK and Notino or Kytary.cz in the Czech Republic have done similarly. “ASOS receives 57% of its orders from abroad, providing international buyers with a fully localized, end-to-end shopping experience,” Webinterpret’s Product Marketing Manager Fitch Richardson explains. “In order to provide a fully localized experience, you need to consider a whole array of topics – ranging from language and currency at one end; then on to tax, import duty, and legal issues; then finally all the way through to marketing, customer service, payments, shipping, and so much more. The mistake, however, is to think that you have to localize all these components from day one.”

In other words, start lean and adjust as you go, instead of spending 2 years preparing everything without making a single sale!

 

So, what should you start with?

  • Calculate current demand vs. expansion costs. When you are already seeing organic demand (website traffic, direct inquiries) from a particular country, consider whether this demand justifies expansion effort.
  • Understand the country. Use Google Trends, WordTracker, Answer The Public and other data gathering tools to put together a decent (yet not crazy detailed) amount of relevant information about what customers in the targeted country buy and how.
  • Pay a quick visit. Apart from market research, consider visiting the country and connecting with the ecommerce community to get a feel for how things operate.
  • Plan your market entry. Putting aside entering a new market via an existing marketplace, you have a couple of options to strategize your big entrance: you can optimize your current website or set up a whole new local website.

 

Case study: Kytary.cz – selling guitars to 10 European countries

Purely Czech and Slovak half a decade ago, this online store is surely making its way among European leaders in selling musical instruments. “Cross-border sales make more than 20% of our revenue. Of course, every new country is an investment, but counting costs and profits from all ten countries together, it starts to add up!” Tomáš Kus of Kytary.cz explains. In the last couple of months, they’ve begun to operate in Italy and France.

 

“Expansion does get easier after the first two countries. With experience and templates, preparation time can get cut down to only a couple of months.” – Tomáš Kus of Kytary.cz

 

What does every new market entrance require in Kytary’s case?

  • Pre-entry preparations: “Translations must be ready 3 months prior to expansion. Then we look for native speakers so we can appear local. If we see potential in a certain market, we build free phone lines.”
  • Marketing mix: “With local advertising agencies, we usually start with PPC and continue with price-comparison shopping sites in case they make investment sense in a certain country. Third is organic.”
  • Brick and mortar shops? “Not yet an appealing strategy for us, although we see its value. We are, however, trying to make a name as a pan-European company by gathering good feedback and brand building online.”
  • Taxation: “We hire local companies and register to the local VAT if we find it cost effective.”

 

Marketplace: Low-cost entry, but not necessarily easier

There is a widespread perception that marketplaces give you good reach at a much lower cost. And while they allow you to test the demand for your products without having to commit to creating new websites, they are not necessarily the most foolproof option – or the cheapest either. “It would be naive to assume that you can just list products on Amazon and your sales would skyrocket,” marketplace consultant David Cikánek of EXPANDO warns. “With over a million new sellers in 2018 – that is 2,700+ new competitors daily – every new member of this giant marketplace must invest in product branding and advertising for at least 6 months before seeing major results.”

One of the biggest advantages of selling on marketplaces is their good reputation, especially in Amazon’s case, as the ecommerce giant has a very strong pro-customer policy and therefore almost guarantees trust and returning traffic. “We did find it useful when expanding through Amazon to be seen as trustworthy without needing to invest in branding, etc., especially in countries like Germany,” Tomáš Kus evaluates. “Also, not having to set up a paywall and having everything ready was handy for us.”

Shipping. Paying the fees for using Amazon’s own logistics and storage service, FBA (Fullfillment by Amazon), is recommended, as Amazon favours sellers using FBA in fulltext searches. What you need to know, however, before opting for FBA, is that VAT registration is necessary in every country where Amazon stores your inventory (depending on where you ship to and from). Inventory turnover is another important factor. In FBA’s case, the longer your inventory is stored (6-12 months and longer), the higher the storage fees. The last thing to keep in mind is that your particular storage fee depends on the product’s size and weight. Again – the more the merrier (in this case not you, but Amazon). On the plus side, shipping is taken care of, your product is delivered fast, and you most probably end up selling more due to Amazon’s favour of FBA.

From translations to taxes, Amazon’s interface has a template

To handle taxation, you’ll have to partner with third-party companies to get accurate product descriptions, establish regulations, and work on currency conversions, Business News Daily adds. “Amazon has its own payment system and sellers are provided with monthly reports and monthly payments of net profits, already cleared out of Amazon’s fees and margins,” Cikánek explains. “Currency exchange is also automated and sellers need to pay little attention. The only thing I strongly recommend in this regard is having your bank account set up in the same currency as the Amazon marketplace you sell on (there are five in Europe: Germany, the United Kingdom, France, Italy, and Spain), otherwise you’ll be losing money on bank fees.”

Translations are much easier on Amazon (or marketplaces in general). Amazon has a tremendous amount of data about products – think of it as the world’s biggest catalogue. New sellers often do not need to add descriptions, as Amazon pairs their products with already existing products on the platform. “It is, however, advised to tailor your own description to enhance sales,” marketplace specialist David Cikanek of EXPANDO points out, “especially in the case of a unique product (not yet being sold on Amazon). For many sellers, there are full-time employees designated with the task of creating and adjusting wording, descriptions, and other branding tools.” In terms of data translations, Amazon is a much easier option than having your own online store, as feeds are unified and there is no need to translate your product’s data.

The last bit is about control. When you decide you’d rather sell your products on marketplaces, you give away part of the control you would have had over the look and feel of the web page, which you could retain by using your own online store. On Amazon, things do get easier (which is not necessarily the main reason sellers go there, but the amount of traffic and potential buyers definitely is!), but at the expense of accepting the rules of the game – from big things such as Amazon’s algorithm to smaller ones such as not having access to all customer traffic data.

 

Having your cake and eating it too: When to opt for both!

Though it may be overwhelming to do everything at once, know that when it comes to choosing, you can have both at some point. Your business strategy and market research, as well as conversations with third party agencies specializing in expansion, or peer advice from fellow founders, will tell you what to start with. It could be that you start with a marketplace where there’s already existing traffic and a considerable chance of selling successfully in 6 months, then opening a second channel via a fully localized online store where it might take 12-18 months to see results. Or honestly, the other way around could be more fitting for you, depending on where you’re at in your business. The basic rule here is this: with a quality product that is in demand, and a considerable amount of work, opt for both choices.

Marketplaces, for example, don’t have to be a distribution channel only – they can be a valuable communication channel, too, allowing you to approach certain traffic that is not possible (or harder) to address with an online store alone. With the growing significance of marketplaces as search engines, the need for sellers with their own online stores to be on Amazon too, is growing – one has to be there to be seen (and searchable). When searching for products, half of both US and German consumers search first on Amazon.

Best-selling products on Amazon are also often different from those you sell successfully on your website. Tomáš Kus sums up his experience like this: “It especially makes sense for companies with a considerably large amount of products, preferably thousands, to be on Amazon. We did not have a product sample large enough to allow us to reach the profits we wanted, what with logistics, taxes, and accounting expenses – or perhaps we just preferred our own way. For a certain time, though, we did use both channels and gained a lot of valuable information,”

Further thoughts:

It would be easy to state that when expanding abroad through Amazon or other marketplaces, a lot of hard work has been done for you and you can simply upload your products, test the waters, see what happens, and adjust accordingly.

It would be just as easy and equally untrue to tell you that setting up a localized online store in a new country is the only way you can control and use your brand to its maximum potential.

As with everything in life, business growth is far from black and white. There are major factors playing their roles (from segment to your goal as well as the market you’re about to enter) as well as subtle nuances (anything from keywords when marketing your product to pricing strategies) to sift through. For further clarity, consult your in-company experts, as well as specialized expansion agencies.

To continue this discussion or share your experience, leave us a comment!


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