Whether it’s because of inventory management, the scalability of an online store or the way shops propose and promote their best deals, preparing and running a marketplace is no easy task. Moreover, in light of recent times, many ecommerces have started experimenting with different tools and approaches to tackle those challenges and the annual online holiday shopping olympics. Some of these strategies include selling and building marketplace models to increase profit.
In a recent roundtable discussion, top-tier retail executives joined VTEX to discuss the drastic jump in online purchasing as a reaction to COVID and how the marketplace model can be an ally.
Marketplace model challenges and tips
There were some main topics of discussion that involved the difficulties faced by businesses when venturing into or building a marketplace model. Big players from the market shared some of what they face on a daily basis, a few of the strategies they use and also some tips on how to improve a marketplace operation. As sellers themselves, they also shared how it has been beneficial to their ecommerce businesses.
The marketplace model
The marketplace business model is when an online store allows multiple sellers to sell their goods and services through its platform, connecting them to possible buyers. Whether it’s a B2C or B2B operation, with a marketplace operation, retailers are able to really expand their sales channels, increase their assortments and grow the revenue with a lot less risk.
By connecting sellers through a marketplace platform, business owners can get a quicker return on their initial investment. And, beyond expanding their range of products, marketplace businesses don’t have to worry about all the hassle of storage management and order fulfillment — these are all up to the third-party sellers.
It really is a win-win situation for retailers, sellers and buyers.
Total Cost of Ownership
Even though it might look easy on paper, becoming a marketplace comes with its own set of particularities. Inside the marketplace model there are different ways a marketplace can operate depending on what it can offer. For instance, a 1P marketplace — when the marketplace fulfills from its own warehouse — is a bit less profitable than not having to pay for shipping costs. That is why calculating a total cost of ownership before setting it up is mandatory, not only in other ecommerce operations but also in a marketplace one.
One of the participants of the roundtable identified that their operation wasn’t as profitable because inside their 1P model there were products that weren’t making up for the investment. That is why they now have a more rigorous selection process for what kind of products are being sold and advertised on their platform.
Another thing participants brought up is that even though some costs are severely reduced, others are still there. Building a relevant social media presence, attracting and onboarding sellers with a solid business offer and overcoming the challenge of creating your own brand on top of your marketplace are worth adding to the TCO as long-term investments.
Margin is important
While on the topic of calculating costs, it is important to highlight that either ecommerce stores looking to become sellers or those looking to build a marketplace need to have a good margin over products as it is significant for decision-making processes.
The logistics industry is in its worst crisis in decades. The supply chain challenges are knocking on retailers’ doors, so making good use of high margins can be kind of difficult at the moment. One of the roundtable guests talked about their businesses’ new venture now that his margins have increased.
“Rather than looking at a quarter, we’re looking at six to nine months in advance in terms of making sure that our supply chains are good. So investing in the marketplace has actually been helpful to us this year”, they said.
One of the main reasons for making that investment is because they see the marketplace model as an advertising channel. “There are things that people will buy from Amazon time and time again, because it’s just easy. There are other, I guess, more involved purchases, where they might want to have a relationship with the brand.”
The seller’s perspective
It isn’t unusual for stores that already have a big ecommerce presence to sell their products to customers also via marketplaces, especially with big players such as Amazon and eBay having a variety of products and benefiting clients with different options to choose from.
One of the strategies mentioned in the roundtable revolves around building authority inside marketplaces in hopes of using it as a step on the ladder of brand presence. The goal is to have either customers buying more from the company on those marketplaces or going straight to the ecommerce website. This brings in more traffic and eventually it leads to product discovery, therefore generating conversion.
But this isn’t just a wait and see strategy. There must be a way to keep your customers closer with marketing strategies, especially the ones search-related. Your customer has searched for your product and found it through a marketplace. That doesn’t mean they can’t find your website, as well.
Content-driven strategies
Ecommerce owners and the online retail industry have heard it a million times: a good content-driven campaign can go a long way when it comes to bringing customers to your website. This also makes up for a good user experience when online shopping.
Ranking high on Google with content is a tough job, but there are a lot of tools and materials on managing SEO tactics. “It’s important to have a good content strategy, as you want to become a marketplace. Don’t copy and paste from somebody else, Google is not going to send that content to your customer. You’re gonna have to enhance whatever you’re doing digitally today, for your marketplace, specifically”, one of the participants added.
The future of the marketplace model
During the roundtable discussion, these executive retailers also discussed strategies and possible predictions for the future of online marketplaces.
Last mile delivery
Today, marketplaces really don’t have a system for last mile delivery and most of the platforms out there aren’t equipped to handle big appliances or heavy furniture, leaving it to the seller for fulfillment. So when they offer overnight or 2-day free shipping, they make selling on these platforms not accessible for many companies.
One of the roundtable guests thinks that, at some point, someone will come up with a kind of service that offers that solution to marketplace platforms: Connecting sellers and the marketplace to overcome logistic challenges that comes with selling various products through this business model.
Convenience vs lower pricing
When people think of marketplaces, most of them think of Amazon. It is also one of the big business pitches from the company: “Sell with us because people come to us looking for products.” Amazon offers a convenient experience for its customers: be Prime for free shipping, overnight delivery and quick and fast returns. Even though it is not the cheapest marketplace out there, it can, indeed, be the most convenient.
From the roundtable’s perspective, there is going to be a shift where people are going to start giving up the two-day shipping for the lower pricing. And this should hopefully help combat and offset some of the difference in costs and make the marketplace market a little more competitive.
Core themes to be highlighted from the roundtable discussion are the importance of respecting and calculating a good margin, balance and control over your marketplace and ecommerce operation, building a solid relationship with the customers and being able to test it and see if it can work. So, is the marketplace the right model for your business?
For more on marketplace strategies and launching your own, check out our Ultimate Guide to Launching Your Own Marketplace.
