When we’re faced with complex business challenges, it’s only human nature that we turn to familiar approaches. Unfortunately for e-commerce leaders, the traditional, “tried-and-true” methods don’t work like they used to. That’s why more and more businesses are turning to online marketplace models.
For those of you who may be new to the marketplace business model, here’s a brief overview…
Simply put, a marketplace is an ecommerce site where products and services are offered by multiple third-party sellers. Unlike traditional ecommerce, in which the site owner is the only seller, through a marketplace a business can sell its own products and services, along with products from third parties or create a platform where buyers and sellers find one another.
With a marketplace, the operator facilitates purchases on the sellers’ behalf, and sellers fulfill the orders. The operator still owns the customer relationship, but is not encumbered by the operational burdens associated with delivery, warehousing, logistics, returns, as well as the cost and risk of owned inventory. These are the responsibilities of the sellers.
The marketplace approach gives businesses flexibility to take their ecommerce business in different directions and scale beyond the limitations of their own operations and infrastructure – to generate incremental revenue with little investment and business exposure.
Marketplaces Help Businesses Address A Range of Challenges
The beauty of the marketplace model is that businesses can employ a marketplace to address several challenges. Some of the top challenges we see businesses address with marketplaces are:
Flat or declining revenue, due to market saturation or a limited number of products to sell.
Fading customer loyalty, as customers prefer consolidating purchases in a single location rather than buying from several merchants separately.
Difficulties expanding product assortment, which is expensive, risky, and can take months to orchestrate.
On the B2B side, manufacturers are deploying marketplaces to achieve long-desired visibility to end customers, and to manage channel complexity and improve the buying experience.
A Growing Number of Shoppers Prefer to Buy on Marketplaces
Possibly the most compelling reason businesses are adopting marketplaces is because buyers have made it increasingly clear that they prefer to shop on marketplaces; and here are a few of the reasons why:
Convenience, because marketplaces are one-stop shops for a large number of products – particularly products that are frequently purchased together.
Lower prices, because shoppers can explore similar products from competing sellers.
Time savings, since customers don’t have to visit multiple sites for complementary products.
Consider these stats from Digital Commerce 360:
- 50% of online retail purchases globally are through marketplaces.
- Marketplace sales grew 22% in 2019.
- $2 trillion was spent in the top 100 marketplaces in 2019.
Using a Marketplace for Range Extension
One of the more popular marketplace use cases is range extension. Businesses can add products to offer entirely new product categories and products from third-party sellers without the burden of owned inventory, supply chain and fulfillment costs, or losing control of the customer relationship.
Expanding product assortment through a marketplace can be executed in different forms. Some businesses build an open marketplace where any number of suppliers can add their products or services. This creates a marketplace experience for buyers/shoppers in which identical products may be offered by multiple sellers, enabling buyers to compare price, availability, suppliers and delivery options.
Other businesses wish to have more control of the marketplace experience, through a closed or curated marketplace that allows only select third-party sellers. Through this model, it may be less obvious to the shopper that some products are offered by a third-party seller, creating a highly-curated and controlled marketplace experience.
Integrated Commerce: Marketplace-OMS Platform
Since a marketplace is an extension of ecommerce, many businesses find value, speed and flexibility in leveraging an ecommerce platform that has marketplace and order management capabilities built-in. The integrated platform approach delivers several benefits, including:
- Use case flexibility, because it can easily support marketplace use cases as well as business challenges not associated with a marketplace.
- Lower total cost of ownership, since there is no cost for integrating and maintaining separate platforms for ecommerce, marketplace and OMS.
- Faster time-to-revenue, because businesses can launch much faster than with separate systems that require integrations.
This article just skims the surface into marketplaces and how they help businesses solve today’s business challenges. For a detailed look at the marketplace business model, we invite you to read Marketplaces: The mega trend everyone is betting on.
