Strategy

The Collaborative Commerce Imperative

Kristin Schepici
Kristin Schepici March 31, 2021
The Collaborative Commerce Imperative

Thinking Beyond Traditional Digital Commerce

When we’re faced with complex business challenges, it’s only human nature that we turn to familiar approaches. Unfortunately, for ecommerce leaders, the traditional “tried-and-true” methods don’t work as well anymore.

That’s why more companies are turning to an online marketplace model to solve critical business challenges. 

From establishing new revenue streams to defending against competitors – business leaders today are thinking beyond the traditional ecommerce approaches and developing creative new strategies to deliver sustainable success. 

Welcome to the new era of ecommerce!

There’s No Shortage of Business Challenges

Maintaining revenue growth requires new strategies – revenue is flat due to market saturation, a finite number of products and services to sell, and the need to expand to corollary categories. 

Customer loyalty is diminishing across the board as customers place an increasingly high value on convenience – the ability to consolidate purchases in a single location versus buying from many merchants separately.

Expanding product assortment is expensive, risky and takes months to orchestrate due to inventory, logistics, and customer care processes being born by the manufacturer or retailer. 

  • Manufacturers selling direct-to-consumer have concerns about harming existing channel relationships.
  • Fragmented customer experience and buying friction that involves a complex network of channel partners. 
  • Lack of direct relationship with the end customer results in limited market insight and visibility into customer behavior, preferences, and buying patterns. 
  • Consumer and business needs and buying behavior are ever-evolving, requiring organizations to build flexibility into their product offerings and supply chain.

What is a marketplace?

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 the 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.

Why a marketplace?

why a marketplace_VTEX

Marketplaces have built-in business-supporting benefits that we don’t see in traditional commerce models:

  • Quickly expand product assortment without the cost and risk associated with owned inventory, logistics, fulfillment, and customer care.
  • Secure a greater share of wallet by selling complementary products or services that customers would have purchased from a competitor.
  • Gain deep insights into customer behavior, buying trends, pricing, brand awareness, and more for a huge advantage in identifying new business opportunities – especially valuable for manufacturers who lack visibility into their end customers.
  • Respond rapidly to changing markets and customer preferences by adding suppliers and third-party sellers in a matter of hours.
  • Test new strategies, learn from experiences and adapt quickly with less business risk.
  • Manage channel complexity by adding supplier portals and building dealer or distributor networks that make it easy for customers to find what they want and buy from their local dealer – all in one seamless experience.
  • Enhance the brand, increase customer lifetime value, and deliver more benefits to customers by offering a broader range of products and services.
  • Drive revenue through alternative business models:
    – Commission on items sold from third-party sellers
    – Cross-sell opportunities that increase basket size
    – Lead generation revenue
    – Ad space & promotional opportunities for marketplace sellers
    – Data and insight monetization
    – Ad spending by brand manufacturers

Customers prefer to buy on marketplaces

Customers prefer to buy on marketplaces_VTEX

Buyers have made it very clear that they prefer to shop on marketplaces because they offer obvious benefits:

  • Convenience because marketplaces are one-stop shops for a large number of products that complement one another or are frequently purchased together
  • Lower prices because shoppers can explore similar products from competing sellers
  • Time savings since customers don’t have to visit other web stores for complimentary products – they can find everything they need within the marketplace

Marketplace ROI outperforms the traditional ecommerce model 

The annual revenue growth of businesses that operate their own marketplace and sell third-party products and services alongside their own outpaces the growth of businesses selling only their own offerings.

Marketplaces drive incremental revenue for businesses through a network effect that creates a virtuous cycle producing exponential revenue growth. Once a marketplace reaches a critical inflection point, the network effects kick in and growth follows an exponential, rather than linear, trajectory.

Range extensions 

A marketplace lets businesses introduce complementary products and entirely new product categories from third-party sellers without the burden of owned inventory, supply chain, and fulfillment costs. Businesses can add products to extend their range and capture sales without losing control of the customer relationship and experience.

However, holding stock comes with physical and financial limitations. When inventory, logistics, and fulfillment are the responsibility of a third-party seller, businesses can grow revenue incrementally and expand without limitations.

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 place more controls on the marketplace experience through a closed 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.

Both models are very different and unique business cases that might not be viable with all marketplace software platforms.

Standalone marketplace platforms, which require a large investment in license fees, custom integration with existing commerce platforms, and integration with order management and fulfillment systems, may not justify the business case associated with a curated marketplace approach. To drive enough incremental revenue to justify the investment, standalone marketplace platforms require organizations to go “all-in” with an open marketplace model and don’t support less aggressive or the “test and learn” marketplace approach.

In contrast, a commerce platform that includes native marketplace capabilities does not require complex and lengthy integrations and can support a wide range of marketplace business models. Additionally, this approach allows organizations to employ the marketplace more gradually by first launching direct-to-consumer commerce operations and adding marketplace sellers at a later time. or testing and adapting their marketplace strategy as they go.

Channel management 

By building a marketplace that includes a network of suppliers, dealers, or distributors, businesses can eliminate channel conflict and create seamless buyer journeys. A marketplace network of dealers or distributors makes it easy for customers to find and buy products.

Rather than starting on a corporate site to learn about products only to be redirected to a separate dealer or distributor website, customers can get everything they need in one place. They can research products, find local dealers or distributors, and make purchases for pickup at their local facility or choose delivery all in a single, seamless experience.

With a marketplace, organizations maintain complete control of the customer experience and gain valuable insights about end-customers, (such as buying behaviors and product preferences), maintain pricing visibility, and gain clarity of inventory across all sales channels. A marketplace enables manufacturers to orchestrate channels in a way that benefits themselves as well as channel partners and most importantly the end customer.

A marketplace gives manufacturers:

  • Inventory visibility and price transparency across their network of dealers and distributors.
  • Visibility to end customer behavior, preferences, and buying patterns.
  • Control of the brand and customer experience and the ability to deliver seamless buyer journeys.
  • A solution for solving mission-critical operational issues associated with inventory, warehouses, logistics, and fulfillment across complex networks of suppliers, dealers, and distributors.
  • A way to easily manage suppliers by enabling them to self-service through a portal experience.

Advantages of an integrated commerce-marketplace-OMS platform

Since a marketplace is an extension of ecommerce, many businesses find significant value, speed, and flexibility in leveraging an ecommerce platform that has marketplace and order management capabilities built-in.

Advantages of an integrated commerce-marketplace-OMS platform_VTEX

Use case flexibility

With ecommerce and marketplace native to a single platform, that platform can easily support marketplace use cases as well as business challenges that may not be associated with a traditional marketplace.

Total cost of ownership

Integrating and maintaining separate platforms for ecommerce, marketplace, and OMS is resource-intensive and expensive. A single, fully integrated solution offers the lowest TCO for ecommerce and marketplace operations.

Faster time-to-revenue

A fully-integrated solution enables businesses to launch commerce and marketplace experiences much faster than with separate systems that require complex and expensive integrations that can take up to a year.

Low-risk deployment

With ecommerce and marketplace capabilities in a single, fully integrated platform, businesses can explore marketplace models at their own pace while testing, learning, and adapting as they go. Contrast that with standalone commerce and marketplace platforms that require businesses to employ a far riskier, mega-marketplace approach to meet corporate hurdle rates for investment and for the business case to work.

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