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Why do retailers need to learn a marketplace model?

Nowadays having your own marketplace has become more like hype rather than being reasonable.

Andrii Pavlenko, CEO of Scallium, is sure it’s not for everyone and tries to expand this idea. However, most traditional retailers should learn this business model deeply. And next, he will try to explain the reasons.

Marketplaces advance further than Amazon

For starters, we believe that marketplaces go beyond Amazon. There are various other business models for marketplaces. During the Corona-virus epidemic, we all witnessed that Amazon wasn’t the most effective model. I would turn to smaller companies rather than to giants.

It’s obvious that major retailers are going to grow and strengthen during a crisis. And moreover, it’s hard for smaller players to maintain growth in this competitive crisis market. But when competition is considered, why do we always focus on outdated strategies and turn to already established parts of the market? Let’s analyse the market’s potential. Let’s try to look ahead. Imagine that you are going to compete not with Amazon but with a not fully formed niche. Does it appear more profitable?

If you have doubts, that there is potential, then take a look at the results in “THE FUTURE SHOPPER REPORT 2021”. Scholars asked customers to define what motivates them to choose another e-commerce player instead of their usual marketplace. 46% of users named the lower price list as the main reason and 20% chose a more convenient delivery option, and another 19% said it is a better or more specialized product range. However, among users’ answers were also the existence of physical stores (16%) and a more desirable loyalty system (23%).

An online marketplace is not pure e-commerce

The true marketplace is not pure e-commerce. The distinction of the marketplace model lies in restructuring the company for omnichannel capabilities. At least, this is Scallium’s mission. I know marketplaces that collapse because of their inability to offer in-store pickup for third-party sellers’ goods. Also, customers could not return those products to retailers’ stores. But the “Buy online and pick up in-store” format is about 50% of online sales according to our statistics. In my opinion, the problem with logistics for sellers’ goods shows not the disadvantage of the marketplaces overall but more gaps in certain business processes. I can tell from our experience with DIY retailers like Leroy Merlin, they managed pick-up logistics themselves.

Looking at the marketplace from an “Amazon perspective” hides its strong sides. Marketplace is a platform for interactions between customers suppliers and retailer which creates new opportunities, demands, and rules for interacting in the e-commerce processes. That is how we see the key value of the marketplace phenomenon.

The benefits of the marketplace model

We keep asking ourselves, why do retailers need a marketplace? To make customer’s choice better? Yes. To extend the product range? Definitely. To break through the website traffic ceiling? Sure. And we have more answers depending on our customer’s basic needs they want to resolve and satisfy.

We have a client – a furniture marketplace. They launched this business model with a specific goal: to increase conversions by diversifying the number of products. By letting third-party vendors enter their showcase, they give the customer range of choices. So that they get more orders. And even if this is an order of someone else’s product, the buyer remains a marketplace client. They get into the marketing funnel and will return to the marketplace for something different next time.

The marketplace model for retail works like a flywheel: the more sellers you have, the more products you offer, and the more website traffic you get. And storefront traffic influences sales increase dynamics. In addition to this scaling up, the business optimizes operational costs and has an opportunity to invest operational costs savings in further development. Thereby retailers attract even more assortment and even more customers. This is how the flywheel work.

One more benefit of the marketplace lies in its ability to make business flexible, adaptive thus real and able to survive in rushing globalization. This is a perfect tool that allows such a big system to embrace manoeuvre and be able to turn. The lockdowns made a perfect demonstration of how important this ability becomes. Look at the winners of the crisis 2020, they could reform. Fashion-retailer started to sell basic foodstuffs, Discounter focused on sports goods for home fitness. In this way, we clearly see that the marketplace is a highly flexible model designed to be able to adapt quickly to rapid market changes.

Marketplaces become ecosystems

Let’s remember the way of e-commerce development. They started from Yellow Pages, then minimal applications appeared, basic retailers verification, finally mobile applications were found. Marketplaces travelled inside the value chains, meeting more and more needs of every member of the trading process. Now some marketplaces in some countries can assist merchants through business registration necessary for legal obligations in their marketplaces. And this is only the beginning of increasing added value and services to the marketplaces’ merchants and customers. This is a sphere e-commerce companies can grow in.

Looking ahead, I see the marketplace is becoming a unique ecosystem and a home for a significant contributor to a business’s profit. I would dare to say that the marketplace is the main characteristic of today’s e-commerce 3.0.

Andrii Pavlenko, CEO of the Scallium platform for launching marketplaces