Creation of marketplaces – a new impetus for the development of e-commerce

We have been developing marketplaces since 2018 and follow Western trends in this direction. We present a translation of an analytical article from Gartner, which will be useful for everyone who is thinking about developing their own marketplace. In this article, I’m going to look at how ecommerce leaders can use marketplaces to gain a variety of benefits in their business by attracting third-party sellers, expanding their offering, and driving growth.

Gartner analysts estimate that by 2023, 15% of medium and large eCommerce companies will deploy their own marketplaces, thereby creating a completely new digital ecosystem. By 2023, more than 70% of marketplaces will serve B2B clients.

Main problems

Often eCommerce companies looking to improve their customer experience find that they have to engage multiple partner organizations to increase pricing transparency and connect with customers.
Traditionally, sales companies are involved in linear sales directly to the end customer. However, sooner or later they realize that it is necessary to scale the business and use a platform that allows them to interact with a large number of partners at the same time.
Companies do not always have the capacity to independently develop new technical and operational capabilities to launch a new product or business model.

Find out the goals of the company’s digital development and analyze what benefits the creation of a marketplace will bring. Such benefits can be: increased efficiency, reduced costs, business expansion, improved customer service, etc.
Develop an enterprise marketplace development strategy, taking into account additional new opportunities, services and interactions with partners in various areas.
Try to find the most suitable partners for launching the platform, determine the model for its future monetization and the operational processes required to launch the site. Choose the best technical tools, as well as educational and training programs for partners and customers.
It is desirable that top management and / or the head of your company take part in the work.

Introduction

The difference between online shopping marketplaces and marketplaces created by non-retail companies

Online marketplaces are digital platforms that host offers from different sellers. In the traditional model, the marketplace plays the role of an organization that manages the trading platform and can both sell its own products and services, and provide services to third-party sellers.

Online marketplace operators manage the seller’s offers on the site, work with his price lists, provide the tools necessary for online commerce to manage orders, sales and financial transactions, and also help establish customer feedback. Inventory management capabilities vary by site. They may be null when the operator is acting on behalf of the seller in all aspects of the trade on the basis of a distribution agreement. Or, conversely, the management of the store can be completely shifted to the shoulders of the seller – from technical to operational aspects. For example, Amazon, Walmart, and JD.com generate a significant portion of their revenue through distribution, while Tmall and eBay partners manage all of their store operations themselves.

There is another type of marketplace created by non-eCommerce organizations in the traditional sense of the word. However, for various reasons, they have thought about selling goods and services to third-party sellers. This is especially true in a pandemic, when a company cannot engage in traditional activities. A typical example is an air carrier. The task of the corporate marketplace in this case is to expand the range through third-party offers.

Why do companies create a marketplace?

Companies can have many reasons for creating a marketplace and the goals they intend to achieve with it. One thing in common: the marketplace is a new business model. It can become a new source of income and help develop other opportunities.

New Ways of Doing Business . Companies not only sell their products and services directly to customers, but also provide sales to third-party sellers. At the same time, as the number of such sellers grows, the assortment of the marketplace expands due to their offers. In this case, it is necessary to involve partners who will manage their stores. Examples include Walmart Marketplace, Best Buy Canada, H&M.
Ecosystem expansion . The traditional commercial ecosystem means that manufacturers and distributors supply goods and services, and an intermediary company provides a steady demand from buyers. Marketplaces can bring to market new players in the value chain, such as developers, technology and financial service providers, and even competitors. The marketplace is a stimulating basis for creating diversification. Examples include the RIO logistics marketplace of the German automaker Volkswagen and the duty-free shop site at Frankfurt Airport.
New opportunities. At the initial stage, companies need to create a technological platform for connecting sellers and buyers, as well as provide partners with tools to ensure transactions and business management. This is much more difficult than creating a traditional direct sales model, because each seller has different products and prices, each independently manages their sales. But this is only the beginning. Successful work requires additional opportunities: the search for new partners and the high level of customer service necessary to attract them. Finally, you need to constantly expand the range of products and services in order to maintain the attractiveness of the platform for sellers and buyers. An example is Alstom’s railway marketplace StationOne. Therefore, the marketplace opens up huge horizons for the company to develop.
New sources of income . The marketplace will generate income not only from direct sales. Logistics, payment processing, maintenance and service, advertising, commissions from affiliate sales – all this can be a source of additional profit.

Analytics

Determine your motivation and benefits of creating a marketplace

Leaders of eCommerce platforms need to have a clear understanding of partners, their problems and the difficulties they may face. Only then will they be able to clearly explain what benefits cooperation with the marketplace will give them. Gartner experts have identified three main motivations for launching an enterprise marketplace and the benefits they provide.

Increase business efficiency and reduce costs

Many organizations, especially in the B2B sector, face the problem of inefficient and complex buying and selling processes. Orders are not only processed manually, but often require face-to-face meetings, phone calls, sending documents and e-mail correspondence. Applications can also be compound, that is, include several hundred or thousands of goods from different suppliers with different delivery times and methods.

In addition, when buying on classic B2B portals, supply chain information is not always transparent to the buyer: they do not always know where suppliers are located or who offers the best prices, products and services. And buyers do not have the opportunity to negotiate on their own in order to achieve the most favorable terms of the transaction. Marketplaces allow buyers to communicate directly with suppliers and make information more transparent, which increases efficiency and reduces procurement costs.

Optimization of purchase and sale processes

Marketplaces are especially important for manufacturers who have to constantly deal with a large number of suppliers and buyers.

Sourceability ‘s Sourcengine electronics marketplace allows manufacturers to find out prices in seconds, not months. The company offers distribution services to find suppliers of necessary goods. In the past, this process was very cumbersome, as some electronic component catalogs may contain thousands of items. Finding suppliers and obtaining specifications for each item could take weeks or even months. The Sourengine engine now connects approximately 1,700 suppliers worldwide with OEMs, provides tools to download specification requirements and receive a related technical and commercial proposal within seconds.
Transportation systems manufacturer Alstom ‘s StationOne marketplace connects railway workers with suppliers of rail system parts and greatly simplifies and speeds up the ordering process.

Control of costs and procurement processes

Branched companies with a large number of subsidiaries and partners can greatly simplify the procurement process, while ensuring compliance with corporate requirements and reducing buyer costs.

AccorHotels uses the marketplace to connect suppliers with subsidiaries, franchisees and various internal purchasing services. The platform provides them with the opportunity to quickly coordinate procurement processes, helps to reduce costs and the leakage of funds to third-party suppliers.
Texas Purchasing has launched Texas SmartBuy , a marketplace that connects thousands of local governments, agencies and counties with suppliers, giving them access to contracts across the state and enforcing procurement regulations.

Expansion of product offerings

The most common way to develop a business using a marketplace is to expand the range. By engaging third parties, the company adds to its portfolio of goods and services offers of third-party sellers and thereby expands the range and improves customer satisfaction. Among the retailers actively using this opportunity, Walmart can be named in the first place.

Best Buy Canada increased its product range by 200% in the first year after launching the marketplace, and its online sales grew by 30% during this period.
Italian retailer ePRICE increased its product range by 100% in six months and online sales by 37.5% in its first year of operation.

Business scaling

The key motivation for any business innovation, including digital ones, is to ensure growth. Marketplaces help to unite a large number of partner organizations, thereby not only expanding their own range of goods and services, but also creating new ways to generate income and additional sales channels.

Improving the customer and partner experience

Another key motivation for creating a marketplace is to improve the customer experience. Marketplace customers are both partner companies and end users, and in some situations their roles can be interchangeable. A positive customer experience helps to attract more partners and customers, which means it increases the volume of transactions.

Leveraging Asset Synergy

Some companies start by connecting existing assets to the marketplace to increase sales and traffic. Typical examples are retail houses and property owners who already work with a large number of brands and retailers. In fact, such companies need marketplaces, first of all, to automate and increase sales.

H&M launched Afound as a brand that sells discount clothing and accessories for the company and its partners. Afound works both in the format of traditional stores and with an online channel.
Simon Property Group , which owns malls in the US, has launched a Premium Outlets marketplace for its tenants to help brands and retailers increase sales and traffic not only online but in traditional stores.

The path of synergy between the two sales channels allows you to better track inventory and provide services to customers in a timely manner. Even if making additional profit is not the primary goal of the company, launching a marketplace improves the work of all processes.

DNV GL (an assessment, consulting and risk management company ) had its own system with a large number of partners. The launch of the Veracity platform allowed its customers to securely store and share data, easily access and manage it. Veracity also has a marketplace where customers can purchase industrial applications, communications solutions, and analytics tools to process the data they upload to the platform, thereby improving their own productivity.

On the other hand, companies that create marketplaces at the beginning of their journey can later turn into a full-fledged ecosystem, where the trading platform will remain only one of the components. Such a system provides much more opportunities than trading in its pure form: data storage and exchange, analytics, marketing, advertising, loyalty program management, API management. The availability of such services for customers brings additional profit.

Access to new channels

Companies offering online payment, credit, logistics and other services can attract new customers using the marketplace.

China’s leading commercial bank, ICBC , has launched its own online platform to offer its services to consumers directly, rather than through third-party resources. ICBC promotes banking payment and loan products, as well as financing for entrepreneurs. Previously, the bank had to sell its products through branches, to third parties, such as online marketplaces of other companies and retailers. Results suffered as a result, as data was limited and credit decisions based on it were not always correct. Now the marketplace gives the bank the opportunity to receive and process more information about orders and payments, which can be used to make decisions on loans.

Logistics service providers have also started creating marketplaces. This not only allows their customers to be more successful in selling services to end consumers, but also helps to increase the transparency of supply chains and their implementation, as well as to offer new services.

Attracting clients and partners

When launching a sales platform, end users often encounter channel conflicts. Some organizations solve this problem with the help of a marketplace. Through it, it is easier to find a way to end consumers, and sales become more transparent. This form is called B2B2C.

Toyota Material Handling has created a marketplace so that certified dealers can reach the end customer online. The result was the attraction of more than 200 dealers and an increase in the level of customer service.
Frankfurt Airport (Fraport) is developing a duty-free marketplace for brands and retailers. The site presents shops and restaurants located in the duty-free zone of the airport. Passengers can place an order not only offline, but also via the Internet in advance, and then pick it up before departure. In addition, Fraport has a loyalty program, thanks to which passengers receive points for purchases both through the marketplace and at duty-free outlets. These points can be used to pay for airport services. Directly in the halls are intelligent billboards that personalize marketing messages for passengers passing by.

Development of new offers and opportunities

Sometimes organizations develop new offerings for customers. And to support them, new solutions are required. In digital business, where a technology platform provides unique opportunities to achieve a goal, this approach is obvious.

Volkswagen has launched a marketplace for RIO transport workers . With the ability to track vehicles, fuel consumption, vehicle health and driver behavior, the site is expected to make it easier for logistics service providers and fleet operators to manage their business. In addition, RIO will provide accurate service information. Vehicle tracking, telematics and route planning technologies can be provided by third-party developers – they will pay for access to customers through the platform. The ultimate goal is to improve the efficiency of the transport industry.

However, in order for the marketplace to reach its design capacity, Volkswagen needs to develop hardware solutions for upgrading vehicles to collect operational data and create a management platform with analytical tools. The company will then be able to provide fleet operators with up-to-date information and operating advice. In addition, the marketplace must be adapted for hosting, purchasing and downloading third-party applications, as well as be able to manage data, securely transfer, store and exchange it.

China’s leading oil and gas company Sinopec launches EPEC marketplaceto help other manufacturing enterprises solve procurement problems. At the time of launch, Sinopec had many suppliers, and many of them could also serve enterprises in the chemical, mining, engineering and other industries. Sinopec connects those suppliers and buyers who otherwise would not be able to work with each other. The company has a dedicated team that is actively looking for suppliers and helping them adapt to the site. A team of purchasing managers works with buyers, offering them individual assistance services. The IT team works with large enterprises – integrates their procurement systems into the marketplace. This allows you to improve customer experience in accordance with the internal policies of client companies and their business processes.

At the moment, EPEC has expanded beyond China and operates in 104 countries. It has over 1,200 suppliers and over 10,000 buyers. As of April 2019, the marketplace has generated $17.5 billion in sales.

eCommerce platform leaders need to understand the benefits of marketplaces and assess which of those benefits are in line with the company’s own ambitions and which will help solve business problems. The key issue here is the development of such offers that will interest partners and customers, provide them with benefits through cooperation with the marketplace.

Development strategy development

Any marketplace is constantly evolving, expanding its functionality and capabilities, increasing the value of its offers for partners and customers. Constantly improve, think over what new opportunities can be given to partners, what offers to customers and what partners can be brought to the platform so that they expand the range of services and increase sales dynamics.

New features . Features and offerings include product and service bundles, subscriptions, free features, loyalty programs, on-demand or real-time support, store integrations, advertising and marketing, conversational interfaces, app marketplace, API management, building blocks, and tools, in particular – analytics, built-in AI capabilities.
New partners . As partners, you can attract enterprises that offer similar or competitive products: providers of logistics, payment, financial, technology services, third-party developers, industry associations, non-profit and government organizations, freelance exchanges.

It is necessary to understand what technology resources can be attracted to implement the plan, plan investments in technology, and train both employees and customers in their use.

Ensuring a strong start

After choosing a development strategy, there is still a lot of work to be done to successfully start a business.

Technological solutions

Companies that already have commercial platforms find it easier to deploy a marketplace focused on their existing most important processes, while those starting from scratch need to provide all the necessary functions right away. At the same time, any companies may need advice on the implementation of technological solutions that adapt the trading platform to the needs and opportunities of the business, since settings and integration with the digital ecosystem will be required.

Search for partners

When starting a marketplace from scratch, organizations often need to look for partners who can provide the necessary services that meet market requirements. Determine the partners in which area you need to involve, as well as the degree of their qualifications. To do this, post affiliate offers on your website and social networks, attend trade shows and industry events, etc.

Remember : at the start of the project, it is very important to select a group of serious and respected partners, because it is thanks to them that the first impression of the quality of goods and services offered on the marketplace will be created by potential customers and future sellers. Analyze what value a sale or purchase on the marketplace can provide for them, and think about how to get them interested in starting to work together.

Income Model

The revenue model is a key focus when developing the concept of a marketplace. Not all marketplaces make money from day one. Many try to promote the site first in order to reach a critical mass of users and transactions, after which monetization is greatly simplified. However, you need to have a monetization plan in place at an early stage, even if the marketplace cannot be profitable for some time after launch. Potential sources of income:

Commission – a percentage or a fixed amount of payments for a transaction;
Paid features and tools that help sellers promote products and manage sales operations;
Subscription: paid “gold” membership, which gives the seller access to additional functionality or service;
Technical services: implementation, configuration and integration, as well as ongoing technical support;
Commercial services: customer service, payment processing, financing;
Logistics: warehousing, picking, delivery and return;
Advertising: various forms of placement on the marketplace and product promotion.

Operational processes

Determine the procedure for providing information about partners and their qualifications, the timing of feedback and the registration process on the site.

You also need to determine how payments for goods and services will be processed. Some marketplaces allow affiliates to receive payments directly from end customers and then pay a commission to the marketplace operator. Increasingly, however, companies are opting to collect payments directly from consumers themselves, bundling transactions and withholding fees before distributing funds to merchants.

Many online payment providers now provide ready-made packages of services for financing and revenue sharing, registering third-party vendors, and creating marketplace reporting. It is necessary to define the processes for each step, the timing of payments, and provide mechanisms for partners to check for discrepancies.

When selling physical goods, you need to determine the responsibility of each participant in the supply chain. Companies can use different executors to form and deliver orders: for example, fulfillment services can be provided both by the marketplace and directly by the seller, depending on the location of the goods and the choice of the merchant.

Partner and client: communication and training

The marketplace can change a lot in business management processes for both partners and customers. Organize seminars for partners and clients, and notify them in a timely manner, convince them of the need to attend such events and their benefits.

More importantly, marketplaces must offer the right tools to really make it easy for partners and customers to use the marketplace. For example, some merchants may work with paper documents or use spreadsheets to take orders and save customer data, and it will be difficult for them to connect to the eCommerce platform. Ideally, solutions should be implemented to help partners digitize key operational processes before connecting to the marketplace. And not as a one-time action, but on an ongoing basis. Help sellers and buyers replace manual processes with digital ones.

In addition, the habit and inertia of thinking can repel partners from using digital tools. Therefore, education and ongoing training should be organized for partners and customers, explaining to them the convenience of using digital tools and the benefits that this provides.