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Insight

Can Online Marketplaces Maintain Consumer Trust?

There may be changes on the horizon for marketplace sellers, after recent court rulings in Pennsylvania and Tennessee have held online marketplace owners and operators legally responsible for goods sold by third parties on their websites.

Previously, Amazon and other marketplaces had policies that positioned themselves as merely the lister of the items in the transaction between seller and purchaser. While users might view Amazon as the seller, in reality, they are in many cases just the facilitator of the sale on their platform.

In the past, when consumers have sought to sue Amazon for defective or unsafe products, the company argued that it is not the seller. However, the federal Third Circuit Court of Appeals ruled against Amazon in a case in July. It held that the retailer is the seller and therefore can be sued for items sold by a third party on Amazon.com.

This ruling only covered Pennsylvania, and two other cases in the Sixth and Third Circuit Court of Appeals ruled otherwise. When states and circuit courts disagree, it doesn’t necessarily mean that a case is headed for the Supreme Court for a Federal level decision, but it also doesn’t rule that out either. The reality is, the question of whether a marketplace is responsible for what it sells you is largely based on what state you live in.

Regulators have been sounding the alarm for some time about the rise of online marketplaces because they don’t fall into established categories of retailers and manufacturers. The Consumer Product Safety Commission can investigate a brick-and-mortar store if it sells a recalled product, or a company that continues to make a bad product, but an online marketplace falls into neither category.

For consumers, this puts an added layer of uncertainty on shopping at Amazon and other marketplaces. A recent Wall Street Journal investigation found that more than 157 items that Amazon had banned were still for sale by third-party sellers, including sleeping mats that the Food and Drug Administration warned could suffocate children. How that will be addressed by regulators and Amazon remains to be seen.

Meanwhile, this offers hope to brick-and-mortar retailers and direct-to-consumer consumer product goods (CPG) companies who must comply with regulations, and therefore may earn more trust from consumers who may become more wary of online marketplaces.

Retailers would be well-served to reach out to their customers proactively, advising that goods sold by them are regulated and safe. When stories about defective safety equipment coming from third-party marketplaces are filling the news, a retailer’s statement about the safety of their products could go a long way in establishing trust and rapport with customers.

Online marketplaces are a blessing and curse for retailers and CPGs – it’s where the customers are, but when you sell goods there, you are merely moving product, and not acquiring customers. An opportunity to reach out to customers and offer them a safe, dependable, regulated hand could pay off handsomely in the long run. 

Author

Jon Reily

Vice President and Global Commerce Strategy Lead