Should Merchants Launch Their Own Marketplaces?

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This article was provided by Practical eCom.

For manufacturers, distributors, and enterprise retailers, owning a marketplace could be a competitive advantage and a key to business growth.

“​​Marketplaces have been hot for a long time. A prime example is Amazon, which is one of the largest ecommerce sites in the world — with 56% of its unit sales coming from marketplace sellers,” said Mike Shapaker, the chief marketing officer at ChannelAdvisor, a software firm that provides marketplace integrations.

“Globally, there are many pure-play marketplaces, such as eBay. Even established retailers, like Walmart and Target, have added marketplaces, so this trend shows no signs of slowing down,” Shapaker said.

Marketplaces are not limited to consumer ecommerce.

“Online marketplaces are an area we’ve seen growth over the last couple of years,” said Paul do Forno, managing director of content and commerce at Deloitte, the international consulting firm. “We see a huge amount of B2B marketplaces. Clients are growing with adjacent products. They’re adding marketplaces where they want to own the customer relationship.”

Marketplace Experience

Marketplaces are popular with retailers and B2B sellers because they may benefit all of the parties involved.

Shoppers, for example, have many reasons to like online marketplaces.

“Marketplaces provide a shopping experience with brands consumers know, making it easier to find products — easier in the sense that marketplaces with massive catalogs have virtually everything. On the flip side, niche marketplaces specialize in certain categories and can bring expertise. With marketplaces like Amazon, the turnaround time is fast so that consumers can have their purchases within a few days or even the same day. Most have guarantees around transactions, which bring a level of safety and comfort to consumers,” said ChannelAdvisor’s Shapaker.

Sellers like them too.

For a manufacturer, distributor, or retailer, a marketplace strategy may lead to more profit, deeper relationships with customers — as Deloitte’s do Forno noted — and a way to separate the business from its competitors.

More Profit

“A marketplace impacts many functions within a company. It allows the [chief financial officier] to look at the gross margin differently because you don’t just make margin reselling products you make or buy. You make margin on being an intermediary,” said Adrien Nussenbaum, co-founder and CEO of Mirakl, which provides a leading marketplace software platform.

“It requires people in supply chain fulfillment to think about what they really need to have in their warehouses. Marketing people need to think about the ability they now have to drive traffic and extend customer experiences,” continued Nussenbaum.

Home page of MadewellHome page of Madewell

Madewell uses Mirakl’s marketplace platform and is an example of a retailer using marketplaces.

Customer Relationships

A marketplace may also help a business deepen customer relationships.

First, there is the obvious ability to offer more products or more options to customers. An omnichannel retailer may offer a few items within a given product category, but a marketplace is likely to have a much larger selection.

Second, related products sold in a marketplace might make it easier for customers to use a business’s core products. Nussenbaum noted that Airbus Helicopters, a division of the France-based airplane manufacturer, had created a private marketplace for its customers to purchase parts, fluids, and supplies needed to maintain a helicopter.

This marketplace was convenient for Airbus customers, and it allowed the company to encourage maintenance and safety and deepen its relationships with businesses that supply those adjacent products.

Home page of Airbus HelicoptersHome page of Airbus Helicopters

Airbus Helicopter’s marketplace helps the company deepen its customer relationships and engage businesses that supply helicopter maintenance items.

Third, marketplaces make it possible to adapt to changing customer needs.

An online clothing store, for example, could offer second-hand items via its marketplace, responding to the demand for more environmentally sustainable offerings.

Competition

If it is true that a good marketplace strategy can lead to relatively more profit and closer customer relationships, it follows that a marketplace could afford a manufacturer, distributor, or enterprise retailer a competitive advantage.

“Marketplaces are a natural extension of commerce — B2C and B2B,” said Nussenbaum. “And marketplaces are a key factor in the future survival of businesses.”

Or, as Deloitte’s do Forno put it, “If you don’t build a marketplace and make it easier for your customer and solve their problem, there is going to be a new place or pure-play that is going to pop up and take your business, your vertical.”

But owning a marketplace, as do Forno and Nussenbaum suggest, does not guarantee success. It can instead add a new level of competition, including competing for sellers.

Adding a marketplace to an existing commerce business requires a company to treat sellers on the marketplace like customers too. After all, they are paying fees. Those fees must be competitive, and the value the marketplace brings to sellers in terms of demand outweighs the distance, if you will, it creates between that seller and the ultimate customers.

As an example, think about the love-hate relationship some marketplace sellers have with Amazon. On the one hand, those sellers use the marketplace to drive sales. But at the same time, they complain about losing touch with customers, relatively lower margins, and the fear that Amazon might use its marketplace data to identify a popular product and copy it.

Thus, successful marketplace owners will need to compete for sellers too.

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