Marketplace
Digital marketplaces are nothing new
Most of us will have been buying from them for many years, possibly without realising we are. Amazon and eBay are marketplaces of two of the most extensive commerce sites on the planet.
Marketplace
Most of us will have been buying from them for many years, possibly without realising we are. Amazon and eBay are marketplaces of two of the most extensive commerce sites on the planet.
According to Marketplace Pulse, in 2021, Amazon generated $390 billion GMV (Gross Merchandise Volume) through third-party sales, compared to $220 billion selling directly to customers. This is a staggering amount and illustrates the power of a marketplace.
As enterprises look towards their post-pandemic future, they are asking how their businesses should evolve. The commercial landscape they are trading within has also changed. Consumer expectations have expanded. Retailers have witnessed these changes accelerating for several years. Focusing on your own business, products, and customers, offering a marketplace experience could lead to increased market share, superb customer experiences and a platform that can be adapted as your business changes.
Brands selling to other businesses can benefit from building a digital marketplace too. For example, Amazon Business is expected to generate an annual GMV (Gross Merchandise Value) of over $50 billion by the end of 2023. In addition, the way businesses purchase digitally is evolving – arguably faster than retail. Therefore, B2B brands can potentially generate substantial growth through digital marketplaces.
Marketplaces put customer needs at their heart. Customers want a frictionless buying experience. If they can find all the items they need in one place, this is a significant differentiator and will lead to increased levels of loyalty and advocacy. Long-term customer spending can be massively enhanced with a marketplace, but only if the marketplace is constructed on well-defined foundations.
First
A key driver for building a marketplace is to quickly and easily expand the range of products your business sells digitally without the typical cost and effort of sourcing, stocking, and delivering those products.
Consider the example of a bed retailer with both physical stores and a good-sized e-commerce business along with an existing and established supply chain for beds and mattresses.
Several product lines, such as bedroom furniture or home accessories, are naturally complementary to the products they already sell, but the effort and cost involved in sourcing, purchasing, manufacturing, and stocking these products are very high.
They also will be constrained by the size of their stores and, therefore, may be unable to display the additional product lines. However, if that retailer adds marketplace capability into their digital offering, they could sell these products to their customers with a lot less effort, cost, and risk. This approach has many examples of retailers doubling their product range overnight.
Second
Launching a new product line can be an expensive business for a brand and fraught with risk. For many reasons, the brand may not be able to sell the product at an acceptable margin and could be left with inventory that they struggle to sell.
Testing new product lines through a digital marketplace is a way to reduce potential risks. Also, using the marketplace approach can also reduce the investment needed. If the tests are successful, the brand is much more likely to invest in selling that product line directly themselves as they have proven that they can sell at an acceptable margin.
Third
By offering an expanded product range, a retailer will have the opportunity to drive more traffic to both their website and physical stores. For example, suppose a customer visits a retailer's website to purchase a third-party marketplace product. In that case, the retailer has the opportunity to sell additional products to that customer, including those that it sells directly. In addition, one of the great benefits of click and collect is that it often involves the customer visiting a retailer's physical store. So, again, this represents an opportunity for the retailer to sell additional products or services to the customer.
Fourth
Marketplaces are not just about products. There is often an opportunity to sell complementary services to customers, but this may be challenging for a business to do directly. These could be services such as installation, insurance, training, and many others. While the brand may not make as much margin on the service as they would if they provided the service themselves, they could offer the services to customers without the significant investment and risk required to provide the service themselves.
To succeed, the marketplace operator should consider building a dedicated team, including marketplace managers, merchandisers, and seller account managersTo. The development of a digital marketplace can be expensive and will not achieve the potential return on investment if it is not managed effectively.
Over the last year, we have started to see a race toward marketplaces emerge. At KPS, we are engaged in multiple digital marketplace projects.
Many are now investing in marketplaces in areas where it is becoming increasingly challenging for brands to gain market share, improve KPIs such as AOV and conversion rates. In some instances, we have seen the top two retailers in a specific market race to launch a digital marketplace before the other through the fear of being the one left behind.
This potential is illustrated in the recent valuation of marketplace technology leader Mirakl. In September 2021, Mirakl completed a round of funding that valued the company at $3.5 billion (up from $1.5 billion the year before). Mirakl technology supports over 300 marketplaces, many of which are businesses that sell to other companies. This valuation illustrates the vast opportunity within this area.
While building a digital marketplace is not suitable for every brand, there is a significant opportunity for many enterprises to radically evolve their current e-commerce platform. The rewards can be enormous if the implementation and required business change are managed well.
Marketplace
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