An eMarketplace, simply put, is an arrangement by a Retailer to offers its customers an extended range and choice by allowing thrid party merchants to sell through their online channels. The Retailer takes a commission for enabling the sale and hopefully build customer loyalty. The idea at first glance makes a lot of sense – to leverage existing investments in the online channel for further monetisation. Lurking beneath the novelty of the idea are several key matters of principles that must be addressed correctly to get the most out of this model. This complexity and dilema is evident by the fact that amongst the big retailers in the UK only Amazon and ASOS have a marketplace in place and Tesco has announced plans for a marketplace to go live this year.
eBay is the worlds biggest example of a pure marketplace. Let’s leave out eBay for this discussion as the business model is completely built around the marketplace in contrast to a multichannel retialer.
Amazon and ASOS have followed different model and philosophy for their respective marketplaces. The Amazon marketplace describes itself as:
‘Amazon.co.uk Marketplace provides a venue for you to buy and sell new, used, collectable and refurbished items–live on our website–on the same page that we display the item new. Marketplace is not an auction–sellers set the price of each item they list.’
Three important points to note about Amazon’s model:
- First, the seller has to be accredited by Amazon before they are able to sell their wares through Amazon. Amazon encourages both small and large volume drivers.
- Second, Amazon offers its fulfilment infrastructure to be extended to the seller for an additional fee – this is very powerful but may not be suitable for low margin products
- Third, the seller products are sold alongside products directly sourced and fulfilled by Amazon
ASOS describes it’s marketplace as:
‘Where anyone who loves fashion, anywhere in the world, can sell fashion, to anyone who loves fashion, anywhere in the world. ‘
Three important points to note about ASOS’ model:
- The model is centred around social outreach in addition to enhancing monetisation i.e. to spread the word of ASOS around and drive more traffic through social networking
- Marketplace items are sold separtely from ASOS inventories – this is due to the nature of the products and perhaps a strategy to draw distinction
- ASOS promotes its popular sellers through their blog ‘The People’s Runway’
While the rewards are plenty, the biggest issue with Marketplace is twofold:
Branding & Trust: The primary question when deciding upon going down the marketplace route for Retailers what is the acceptable level of risk the brand is able to undertake whilst extending the brand to services and products delivered by virtually anybody and how to minismise this risk.
Retailers need to think through carefully the impact of the failure from the marketplace participant with respect to time, quality or promise on the retailer’s brand. This risk appetite would primarily drive the level of accreditation a seller would need to go through before being able to participate in the marketplace. Equally important is the communication about the marketplace and its intention to the customer both explicitly and implicitly to the customers. Retailers need to clearly define the benefit and boundaries of the marketplace.
Amazon’s positioning is very clear – Their intention is to offer the widest possible choice to the customers through the marketplace and they have integrated the marketplace seamlessly with their own stock for customers to discover (search), explore and purchase. This integration also asserts clear distinction to the customers about the source, seller and other details about around the sale.
Similarly ASOS’ positioning too is very clear – The message is about empowerment and giving the fashion designers and manufacturers a voice. The marketplace is clearly serparted from their own wares but get equal branding and design treatment on the website.
Experience & Logistcs: The other important consideration is how to build the infrastructure and policies to ensure that overall promise of the Retailers offering with respect to customer experience is preserved while operating a marketplace. In order to put an effective marketplace together retailers need to focus on the following areas to pull it all together:
- Integration with the online channel – How are the marketplace products presented? Are the sellers and their terms clearly identified? Is there a good seller profile available? Can customers rate and provide feedback about the sellers?
- Integration with the Sellers – How are sellers onboarded? What facilities are made available for sellers to upload and manage their inventory? How are orders communicated to the sellers?
- Packaging and Delivery – How are the sellers packaging and delivery aligned to the Retailers own packgaging and delivery standards? How to vet the sellers packaging and delivery infrastructure? Can the Retailer extend their own infrastructure to the seller?
- Payment – Who takes the payment? What fees and commercial terms to offer the sellers? How are the payments reconciled with the sellers? What MIS needs to be put in place to ensure transparency?
- Complaints and Customer Service – How to monitor and enforce quality with the sellers? How to receive and manage complaints regarding the sellers? How to promote a culture of competing for quality amongst the sellers?
- Size and scale – How do you forecast the growth of the marketplace? How to scale the infrastructure with the growth of the marketplace? Do you impose restrictions on the size of the marketplace? What to do if a seller in the marketplace becomes or has the potential to become a competitor (think Facebook and Zynga)
The rewards of creating a marketplace are many – increased revenues, better terms with suppliers with increasing clout, building customer loyalty and creating an entry barrier for competition.
The road to creating a marketplace though is riddled with many complexities and the strategy has to include difficult decisions around boundaries and policies that must be adhered by all participants in the ecosystem. The bold and innovative take the plunge and reap the rewards!