Marketplaces vs. Online Sellers: A Story of Broken Promises

Marketplaces have not only levelled the ecommerce playing field for SMBs but also provided so much more visibility to these niche brands that are taking the online shopping industry by storm.

So naturally, when an online marketplace, let’s call them ScamTag.com for namesake, approached Saumya Gupta to host her brand, Ten On Ten’s apparel on their marketplace, she was more than stoked. With an online presence, spanning from her own online store to selling on bigger marketplaces like Flipkart, Myntra and ShopClues, this was more than a welcome move.

Saumya Gupta, like so many entrepreneurs today, is the one-woman show behind her very own successful apparel brand, Ten On Ten Clothing. From scooting the bazaars of Mumbai for raw materials to taking customer calls at 2 in the night, she is CEO to customer service executive all rolled into one.

The first couple of months of tying up with ScamTag did brilliantly for Ten On Ten. Saumya was seeing a flurry of orders coming in from ScamTag and was happy about the exposure and the subsequent customer interest Ten On Ten was gathering.

Without complaints, she diligently processed the orders she received, undertook a quality check at her end to keep up with the belief that only the best reach the customer and never came across an unhappy customer. All was hunky dory! Until, the day, she asked the team at ScamTag to pay her for the orders she had processed and the stock they still had at their warehouses, which summed up to a total of Rs. 1.8 lacs! Only to be denied what she had rightfully earned as an entrepreneur, even after having signed an MoU with ScamTag.

So what the hell happened?

ScamTag refused to settle all payments for Ten On Ten citing reasons like repetitive customer complaints, return of goods by the customers and products not meeting their quality checks. All of which, Saumya, was not even once informed about.

Once ScamTag refused payment to Saumya, she had no option but to take a legal recourse. And even then ScamTag.com did not straighten their act. From the company complaining to having never received the signed MoU, to managers acting as CEOs, to even going to the lengths of stalking Saumya on WhatsApp (!), they must have tried every trick in the trade to get to her to withdraw her demand for getting paid!

Finally after haggling between their respective lawyers and much threat, over a period of 3 months, the company returned 1.1 lac in cash out of the 1.8 lacs they owed her. And returned goods worth Rs. 70,000! How is an entrepreneur supposed to react to such a scenario, other than completely giving up faith in online marketplaces?

Should you be wary of all online marketplaces?

To understand the same, a little backdrop into how marketplaces operate is needed. You see, traditional online marketplaces are nothing but a collection of online shops, much like a shopping complex. Each brand maintains its own shop and controls its own inventory. And the best part about it being, other than the low commission of around 10%-12% per sale, is that the store owner knows exactly who the customer is! They can directly interact with the customer, address concerns and redress returns accordingly.

However, in the case of marketplaces like ScamTag, they are a “shopping website that hosts flash sales”. To give you a fairer idea, such marketplaces work on the basis of purchase-order. A customer buys a product on their website and the marketplace raises a purchase order for the same. Once the brand owner, in this case Saumya, receives the purchase order, the order is processed, quality checked and sent back to ScamTag which subsequently sends it to the customer. The downside to such a model being that the store owner is never in touch with the end customer and has to rely completely on the marketplace to act as a mediator, which operates on anything around 30% to 60% commission per sale.

As a word of advice to fellow entrepreneurs, Saumya strongly suggests, reading between the lines before signing MoUs of any kind and better still, always having a lawyer look at the documents you are about to sign. And always choosing wisely about whom to do business with.

Even though ScamTag was a relatively new venture, Saumya saw an opportunity and went for it. But only to be disappointed. Today, she has sworn-off marketplaces that work on the purchase-order or flash sales model completely, standing firmly in favour of inventory-based marketplaces or rather selling via her own online store.

This post is not a discouragement for anyone wanting to sell on online marketplaces. On the contrary, we advice online sellers to sell at online marketplaces too, in order to get that more visibility for their brand and grow their sales. But as a final word of advice, when choosing a marketplace to sell on, make sure you choose wisely and do a thorough background check on the company you’re about to tie-up with. Also, do read all agreements very carefully and better still have a lawyer look into the same.

Have you endured something like that? What is your take on the entire episode? Do drop in and join in the conversation in the comments below! Let this be a word of advice for all fellow entrepreneurs and e-tailers.

About the Author

Tanya is part of Team Zepo, a Mumbai-based start-up which is helping small businesses start their own online stores. She writes about e-commerce trends in India and about resources to help small e-commerce businesses do and sell more. She also writes for the Zepo blog.