By Jessica Iandiorio, SVP Marketing at Mirakl.
Let’s start at the beginning.
In the late 14th century the concept of a “marketplace” was an open area within a town where a market was held to foster the exchange of goods in economic trade. You could buy everything from eggs to coal to meats to linen from a variety of vendors. The marketplace itself was the heart of any town.
Fast forward to today, and our world of digital e-commerce and omnichannel retail has redefined this marketplace concept.
Marketplaces today represent a digital opportunity for businesses to give customers the products they’re looking for, at the best price, and with high-quality service.
Similar to their 14th century rendition, today’s marketplaces aggregate the goods of third-party vendors. Instead of a town square, transactions occur on a centralized e-commerce platform.
This, in turn, presents an opportunity to provide consumers with more choices, increase site traffic, improve the customer experience and drive incremental revenue with an efficient cost structure. Forrester found that Marketplace sales are generally twice as profitable than direct sales. In fact, Forrester recently conducted a case study on a Mirakl customer, Darty, who saw a 2-3X boost in profit margin over sales for their owned inventory.
Let’s explore some of the reasons building a marketplace can be a major source of growth for your organization:
- Expand your product assortment. Adding a marketplace provides retailers the chance to quickly extend their product assortment and available pool of inventory. This applies to both pureplay online retailers as well as multichannel retailers who also sell via brick and mortar. Just look at the growth of Amazon’s Marketplace. Third-party sales on this platform account for 40% (or 40 billion) of Amazon’s annual sales (as of 2015.)
- Reduce your inventory risk. Inventory expansion in the the traditional retail model comes with additional risk and expense. You have to plan, buy, store, and ship products – without knowing if customers truly desire them. This often results in wasted dollars and time. But a marketplace allows you increase your product assortment without taking on the perils of merchandising, buying, warehousing, and shipping; it’s risk-free product expansion. And you get to let your customers tell you what they like and don’t, and use that information before investing in in-store product expansion.
- Monetize new traffic. The rapid addition of new sellers and products helps Retailers increase their brand footprint online. All of these new product pages are indexed in Google, increasing the discoverability of your site & product offers. More products = more Google love = more traffic = net new customer acquisition! You’re also able to present existing customers with a more comprehensive product offering, increasing retention and share of wallet. Darty saw a 20% increase in site traffic directly coming from marketplace products.
- Improve your customer experience. Retail customers want choice, competitive prices, and above all, an outstanding buying experience. A strong marketplace can deliver this in a truly omnichannel relationship between a department store (for example), and its brands both offline and online. This can provide a reliable, positive journey for shoppers, all while increasing their loyalty and their potential to become future advocates.
- Drive profitable growth. Financial analysts estimate the margins related to Amazon’s aforementioned marketplace activities to be about 90%, compared to a 5% margin on direct sales. The reason for this comes down to the marketplace model – Retailers do not have any cost of goods sold in this new world. The overhead is minimal, and marketplace platforms like Mirakl make it easy to onboard new third party sellers & products. Product expansion at scale becomes easy & cost efficient, driving increased traffic, sales, and 2-3X more profitable dollars on those sales than traditional owned products.
Creating an online marketplace is an opportunity to enhance and in some cases disrupt an existing business model – for the better. Whether you’ve started to create your own marketplace, or are trying to understand the value of doing so, consider the marketplace as a way to create sustainable & profitable growth, differentiate your business, improve your customer experience, and accelerate your e-commerce to new heights.