When people think about the word ‘ecommerce’, Amazon often follows automatically by mental association and with good reason.
The retail giant enjoys almost half of the entire US ecommerce marketshare and it’s safe to say that the majority of US consumers have probably purchased something from the store at some point in their lives.
Another word that springs to mind whenever the word ‘Amazon’ is mentioned is ‘marketplace’. So much so, in fact, that many incorrectly assume that setting out to start an ecommerce marketplace, and attract sellers to it, would be futile given Amazon’s dominance over both facets of online selling.
In fact, marketplaces are becoming more affordable to set up and operate and the barriers to entry are diminishing such that, increasingly, online storeowners are rolling out their own and enjoying a lot of success in building catalogs and growing revenue.
Done well, they can indeed allow operators to capture revenue from the industry giants and help brands stay relevant in an Amazon-dominated world.
The Amazon Flywheel Effect: Platforms Matter
Anyone who has observed a flywheel in motion knows that it generates its own momentum over time and becomes easier to speed up. Or a Newton once put it: “a body in motion will remain in motion.”
The analogy has often been applied to Amazon to describe how, once active, the marketplace has been observed to perpetuate itself and accelerate, as brand recognition grows and sellers rush to gain pixel space where their competitors are active, whether they are joining the program as Fulfillment by Amazon (FBA) or Fulfillment by Merchant (FBM) associates. This can be demonstrated by the steady growth of third party sellers on Amazon – 58% and climbing, according to this recent letter to shareholders.
As more merchants are drawn to the platform, the selection of products increases as does competitive pricing. This draws in more buyers, creating a virtuous cycle: merchants want to be where consumers are and consumers want to be where price and selection are best.
Amazon doesn’t have a patent on this concept, however. It applies equally to the very concept of marketplace selling as whole. As merchants grow more accustomed to the idea of selling through third party online stores, selling this way becomes the new normal and merchant inertia diminishes.
This kind of disruption isn’t just being seen within ecommerce, however. In the internet era platforms (services which create the infrastructure needed for an ecosystem consisting of buyers and sellers to form) are achieving dominance and have quickly entrenched themselves as the business model of the future – think Uber, AirBnB, and Netflix. By contract, pipelines — in which businesses sell to consumers strictly through their own managed channels without any kind of reciprocal feedback loop — are the remnants of yesterday. It’s about two-way relationships and more widely distributed selling channels. For would-be marketplace operators, this means that getting the ball rolling is easier and more urgent than ever.
Challenges of Marketplace Selling
Starting a marketplace has many advantages, which I will get to later. But let’s take a look at some of the challenges brands can face in starting these.
Marketplaces are brands in their own right, but they also need to have some kind of central ethos and look-and-feel that reflects that of the parent company operating them.
For that reason, curation is particularly important. Marketplace entrants need to pay attention to the merchant signup process, and institute checks and balances to ensure that appropriate merchants sign up to the marketplace. This might require developing sets of merchant qualification criteria, for example, and deploying staff members to assist in the screening process of new signups. Merchants that do not provide proper customer support, or which do not actively maintain an inventory on the marketplace, are likely to damage the reputation of the website.
Onboarding and Administration
Attrition is the bane of marketplace operators and onboarding is the most delicate phase during which careful relationship management with prospective merchants is a must.
Marketplace operators need to invest in a satisfactory customer experience and closely guide merchants during the signup process to ensure that they will not give up when attempting to upload their inventory and establish a presence on their marketplace. Operators must remember that, in the Amazon era, the ease of the onboarding and maintenance processes for their marketplaces will constantly be judged against the high standards set by the leader.
The marketplace needs to have a Customer Experience (CX) that will impress both its customers and merchants selling on the platform. In light of the above, a marketplace that is backed by inadequate customer support and success functions is unlikely to succeed. Paying attention to the functionality and scalability of the platform right from the beginning is important – if your marketplace isn’t easy to use and manage, growing it will be difficult.
Top Considerations for Brands
Marketplace-launchers also need to consider:
Marketplaces differ in how they present the various fulfillment options that they can operate with the merchants participating in the program. The optics of this, from consumers’ perspectives, can have important ramifications. Some typical configurations include:
- A transparent mixture of direct selling and selling from third parties
- “White labeled” third party participation in the marketplace
- “White labeled” fulfillment of own products through third parties
Post-sales service is another critical area which prospective market operators need to pay close consideration to.
Marketplace owners may wish to attempt to enforce Service Level Agreements (SLAs) which supersede those of the merchants listing on the website or alternatively let them set their own ones.
In the latter case, marketplace owners need to be transparent with customers about what reasonable expectations for service and post-sales support are. This is another reason why ensuring the integrity of the sellers taking part in the marketplace, maintaining open channels of communication with them, and having well managed governance standards is of the highest importance.
Selling as “one-to-many” is a very different proposition than selling “many-to-many”. Organizations need to adequately plan for the development, implementation, documentation and governance of the new business processes required to successfully operate a marketplace, and will frequently need outside help to do so.
Poorly Implemented Marketplaces
When it comes to rolling out marketplaces, brands need to adopt a mentality of “do it well, or don’t do it at all.”
Poorly implemented and executed marketplaces can have massively detrimental effects on brand image. In a streamlined marketplace environment, customers are often not even cognizant of the fact that they are buying from a fulfillment partner rather than the marketplace itself (assuming it operates its own distribution channels). Just consider Amazon whose branding is so strong and associated with the marketplace that the two have become synonymous in the eyes of most buyers.
All this means that if a customer has a poor experience as a result of a marketplace seller, they are likely to remember the brand behind the marketplace, rather than the seller who actually supplied them the goods, in an unfavorable light.
Finally, unless support and service SLAs are well delineated and communicated, marketplace operators can easily find themselves stuck down a rabbit hole of responsibility trying to remedy the defects of marketplace partners. If they have not been properly vetted, dealing with these issues could easily monopolize the time and energy of a brand’s in-house support resources, causing a chilling effect on the overall customer experience.
Getting it Right Can Pay Off
On the flip side, operating a successful marketplace presents enormous opportunity for brands to grow their revenue and widen their distribution channels.
In the Amazon era, brands of all sizes need to adapt to life selling across the platform rather than down the pipeline. Setting up a successful marketplace allows brands to:
- Drastically increase the product categories they are able to sell to customers (consider Best Buy’s decision to begin retailing kitchen goods)
- Break into new demographics and target new buyer personas who may have be interested in the brand’s direct inventory
Act With Urgency
Amazon shouldn’t be thought of as having monopolized the marketplace space; rather it has brought out an industry disruption. While many brands can benefit from this rising tide, not all of them will.
Thanks to new technology and partners, rolling out marketplaces is more accessible to enterprises of various sizes than ever before. However, no one can say how long this window, open wider than ever before, will stay that way. While the long tail of marketplaces is growing, brands that don’t become marketplace operators in time will logically be relegated to marketplace sellers soon thereafter.
For more information on how to implement marketplace solutions, reach out to us at [email protected]