Playbook For Speed & Scale
Achieving success in the ecommerce domain is no longer simply about money and the size of your warehouse. It’s about choice, and that is all about the variety of products you can make available to the end customer. Today’s retailers are finding that they can offer more choice and ultimately more value to their customers by working together, also coined as collaborative commerce. And a great example of collaborative commerce is an online marketplace.
Just like its brick-and-mortar counterpart, the mall or department store, an online marketplace consists of many shop owners coming together to sell their products through a shared infrastructure. The only difference is that while malls are housed in physical buildings, online marketplaces conduct their business via a digital storefront. Just like malls, the owners of marketplaces aren’t responsible for storing inventory or fulfilling orders. That’s managed by the sellers themselves. Marketplace owners usually charge a percentage on sales completed via the marketplace.
The business model of an online marketplace is a win-win-win for buyers, sellers, and marketplace owners. Buyers benefit from being able to browse and shop across multiple categories of products as well as a variety of brands. Sellers are able to gain access to more buyers than they would independently. And marketplace owners benefit because they’re able to earn a commission on sales without having to bear the inventory and logistics costs.
As an example, consider Nykaa, a cosmetics marketplace set up in India which sells products manufactured in India as well as internationally. Through its partnerships with 1,500 sellers, Nykaa is able to offer a staggering 300,000 products in its portfolio.
Read more about The Seven Secrets of eCommerce Giants
Here’s everything you need to know about launching your own marketplace.
First, we’ll explore the reasons why online marketplaces are more advantageous than other ecommerce models, and then we’ll look at how to define the business plan for your marketplace.
In 2020, $2.67 trillion was spent globally on the top 100 online marketplaces, and marketplace sales comprised 62 percent of all ecommerce sales.
McKinsey’s Super 25 — which accounted for 90 percent of retail market capitalization gains in the wake of the COVID-19 crisis — included several large online marketplaces such as Amazon, Pinduoduo, Home Depot, Target, Wayfair, Etsy and Zalando.
More and more retailers are seeking to leverage the benefits that marketplaces offer, including limitless scalability, higher profits, and reduced risks. Let’s look at some of these:
Limitless potential to scale: Marketplace owners can just onboard sellers to add to their product portfolio. They don’t need to source inventory or worry about warehousing costs. Without holding physical inventory, marketplace owners aren’t faced with the limits of physical infrastructure and resource needs. This translates into a limitless potential to scale.
Potential to attract a large number of buyers: Marketplaces can attract a large customer base because they have the potential to offer a great variety of products.
Customers prefer to buy from specialized marketplaces as they offer greater choice. For instance, a local hardware store may not carry a specific kind of cordless drill that a customer is looking for. But a large online marketplace like Home Depot, which is focused on the home improvement niche and also brings together products from a number of brands, is almost certainly going to have the product they need in stock.
This ability to have all or most of their needs met quickly and conveniently is what attracts more buyers and repeat visitors to an online marketplace.
And once they’re there, the marketplace is likely to be able to recommend more items that they’d find useful — such as drill bits and other accessories. In this way, marketplaces can boost customer engagement, revenue, and the value delivered to customers with each interaction.
