Marketplace Websites – Legal and commercial considerations

21 Oct 2013

Marketplace websites such as eBay and Amazon are becoming increasingly popular, with millions of people now using them to buy and sell a vast range of different products. Marketplace websites allow third parties to advertise and sell goods on their site. Often the company operating the site also offers goods for sale itself, like Amazon for example. Both individuals selling used or unwanted items on an ad hoc basis and more ambitious individuals and companies looking to sell in bulk use these sites. However, for businesses contemplating using marketplace sites there are some important legal and commercial considerations to bear in mind.

Legal considerations

Although a marketplace website may facilitate a sale, there is a binding contract between the seller and purchaser of the item. The seller has a legal obligation to provide the relevant item to the buyer in accordance with the terms agreed. Where the seller has posted a description of an item there is a legal obligation that the item will fit this description.

In addition the seller may be subject to terms and conditions set out by the website operator and these will often include return policies which are geared towards the customer rather than the seller. For the website operator this has the advantage of generating goodwill and repeat custom. However, customer friendly return policies can be frustrating for sellers and can result in customers trying to abuse the system. In addition, the terms and conditions are likely to contain information about customer contact and fees. These terms and conditions will vary depending on the website used and it is therefore vital for businesses considering using these sites to read the terms and conditions carefully and seek advice where necessary.

Advantages of using marketplace websites as a sales channel

The obvious advantage of using websites such as Amazon to sell goods is the huge amount of traffic they generate and the large number of customers who regularly use these sites. This amount of traffic would otherwise be difficult to generate and using marketplace websites is likely to reduce marketing costs for this reason. In addition, using such a website to establish your business or to add an e-commerce offering can seem much easier than starting up your own company website and advertising it.

Disadvantages of using marketplace websites

Although it may appear easier to use an established marketplace site for your online business there are some considerable disadvantages to adopting this approach. The websites often require sellers to use a particular template to advertise their goods and, as discussed above, the seller is generally bound by the terms and conditions set out by the operator. The seller therefore lacks control not only of the way they market and brand their product but also of the terms and conditions of sale.

Marketplace websites often place restrictions on the seller's ability to contact the customer and it is difficult to build a brand and lasting relationship with customers when subject to these restrictions. Generally customers will remember only that they purchased a product from the website and not the specific seller and, as a result, the website operator, rather than the selling company, will enjoy the benefit of any goodwill generated by good service. This can present further problems in the future should you wish to sell your business as it may not have the advantage of existing goodwill and an established online identity, which could be attractive to potential buyers.

A further consideration is the fee for using a marketplace website as often websites will take a percentage of the sale price of items sold. This can be considerable depending on the value of the item and should be factored in when calculating potential profit margins. Marketplace websites which also sell their own goods may benefit from the access they have to your sales information and can tap into market trends you have identified to start selling sought after items themselves. This can lead to increased competition on pricing which could affect potential profit. In addition, established brands may want to monitor sales of their product on these sites by other suppliers at a reduced price and take steps to minimise this where possible.

Finally, it is advisable to consider whether marketplace websites are the right forum for your ecommerce business. Luxury goods brands have largely been reluctant thus far to supply these websites, preferring to remain the exclusive stockist of their branded goods. For companies hoping to develop an online business and establish a brand it may be advisable to set up a separate website despite the extra effort and funding this may require. If you require advice on what legal considerations you should bear in mind when seeking to launch a website please do get in touch with the team.

By Ragavan Arunachalam, Senior Associate and Alexandra Blenkinsop, Trainee

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