By a “Third Party eRetailer” or an “Online Pure Player”, we mean a provider that operates their business (generally) entirely online. Typically, these providers have a very clear focus on particular product categories, which means that when manufacturers and other providers list their products with such retailers, they are promised access to a highly relevant target group. According to estimations, there are around 616,000 online shops in Germany alone. The reason for this high number is that the market entry barriers for starting an online shop are very low. However, if we look at the distribution of generated sales, we see – in contrast to the fragmented picture that exists in relation to the number of shops – that there is a very strong market concentration around just a few large players. As can be seen from Figure 1, around 0.1% of online shops generate 86% of the total profits.

Figure  1: Distribution of sales amongst third party e-retailers in Germany

 

With all this in mind, a dedicated Third Party eRetailer Strategy must be used to determine precisely for whom onboarding and the associated connection costs are truly worth it. As shown in Figure 2, such a strategy typically consists of three core elements:

Figure 2: Core elements of a Third Party eRetailer Strategy

 

The first five steps of a Third Party eRetailer Strategy are incorporated into a business plan to which further details are to be added over the course of the project. It takes into account all relevant costs and benefits of distribution via selected online marketplaces.

In the first step, potential Third Party eRetailers are selected and analyzed on the basis of specific criteria. The next step involves defining a pricing strategy – one that includes a performance-oriented model of conditions and works in harmony with existing channels. Further to this, the initial Third Party eRetailer analysis is supplemented by means of price monitoring, which involves reviewing the extent to which providers pursue a low-price strategy and thus contribute to brand-damaging price erosion. Based on all this, providers must draw up a short list of Third Party eRetailers who will contribute to sustained brand development and do not seek to win customers solely via a low-price strategy.

In the third step, a potential analysis is carried out for the Third Party eRetailer channel on the basis of the shortlist defined in the previous step. As well as considering the top line, providers must then – also as input for the business case – establish an experienced key account management (KAM) team with digital expertise and specify the details of their cooperative online marketing activities. Later, the KAM team will monitor cooperative online marketing campaigns – that is, the marketing activities that are coordinated and synchronised by all providers for the purpose of enhancing a brand’s digital visibility.

Sustainable success can only be achieved if these strategic core elements are worked through in a systematic fashion. Our many years of experience have shown that the approach has a decisive influence on the level of success. In particular, the systematic selection of Third Party eRetailers and the subsequent management of these have an influence on the successful and sustainable development of this particular E-Commerce channel.

 

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Markus Fost, MBA, is an expert in e-commerce, online business models and digital transformation, with broad experience in the fields of strategy, organisation, corporate finance and operational restructuring.

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Markus Fost

Managing Partner
Markus Fost, MBA, is an expert in e-commerce, online business models and digital transformation, with broad experience in the fields of strategy, organisation, corporate finance and operational restructuring.

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