Marketplace is a term that is on everyone’s lips. From Amazon to Wildberries, success stories are everywhere. However, there are many trading platforms that started working, but soon closed, unable to reach a payback. The reasons are always the same: lack of demand, unsustainable business model, bad technology solutions and insufficient marketing. Let’s talk about what marketplaces are and how to launch them correctly.
What is a marketplace?
First, let’s define terminology. A marketplace is a single online trading platform that allows various sellers to offer their services or products, and buyers to receive them. There are many types of marketplaces, but all of them are united by a convenient and thoughtful service. The following conditions are always met:
goods or services are offered for sale by third-party sellers (merchants);
buyers can purchase goods from several sellers at the same time;
the trading platform – the owner of the marketplace – processes payments and makes a profit from the commission.
Types of marketplaces
Marketplaces differ by the types of participants (B2B, B2C, C2C), by the products offered (goods, services, coupons, etc.) and by the method of monetization (commission, sales of traffic, sales of leads, additional services, etc.).
Marketplaces can vary in structure: vertically structured marketplaces sell only one category of goods, while horizontally structured marketplaces sell different categories of goods.
Advantages and disadvantages of marketplaces
The marketplace gives a business a lot of new opportunities for growth. Here are the key benefits this business model provides:
The possibility of unlimited expansion of the range and penetration into any niche.
Since the sales volume in the Internet channel directly depends on the width and depth of the assortment, in the case of a marketplace, growth will be limited by purchase budgets. Due to the possibility of an infinite increase in the range, i.e. “endless shelf”, the marketplace will increase organic traffic to the site and the number of purchases.
Ability to enter different price segments.
Regardless of positioning, you can sell products of completely different price categories – from budget to luxury goods.
Greater geographic coverage.
The marketplace does not have to worry about which region to work in, as it can connect sellers and suppliers from any location. After all, it is sellers and suppliers themselves who transfer goods to logistics companies from their warehouses.
Growth of Lifetime Value.
Lifetime Value (LTV, customer lifetime value) is all the current and potential profit that you will receive at the expense of one client. This indicator greatly affects the growth of the business. When an online store switches to a marketplace format, sellers join it, including those who sell goods of regular demand. As a result, buyers begin to make purchases more often and LTV grows.
Studies show that the average margin of marketplace owners is at the level of 25%, which is significantly higher than that of individual online stores. This is due to the commission that trading platforms take from sellers. It can be different and depend on the interest of the supplier and the marketplace in working together.
Of course, like any business model, the marketplace has its weaknesses:
The need for a strong technological base.
Marketplace is primarily a technological platform. In order to ensure stable operation, the ability to scale the business and uninterrupted operation, you must create a strong infrastructure and an IT service that will support this. Accordingly, you must budget in advance for this item of expenditure.
For large marketplaces, this risk is minimized, but for beginner marketplaces, it plays a big role. An unscrupulous seller, goods not delivered on time, the quality of the assortment – all this can hurt the image of your online platform.
The target audience of the marketplace is both sellers of goods (merchants) and buyers. You need to work with them differently.
The wider the range of products on your marketplace, the more difficult it is to define a buyer persona (this is especially true for horizontally structured marketplaces).
How to make money with the marketplace
The specific way in which the marketplace will make a profit depends on a large number of factors.
The most common ways to monetize:
Registration fee is a fixed one-time payment that you charge a seller for registering on your marketplace. The advantages of this monetization method are that you start earning even before the site starts to bring big profits. To implement this method, it is enough to use any payment gateway or even a manual payment.
Subscription, that is, charging a certain amount from sellers on a regular basis, is one of the most convenient methods of monetization. But it is important to give sellers the opportunity to earn more on your platform than the subscription itself costs.
By the way, this approach can be diversified by offering several levels of access to the capabilities of your service (for example, providing more tools for a premium subscription or a lower commission on each sale).
When listing products in listings of sold products on your marketplace, sellers can be charged a listing fee. This commission can be fixed or tied to the price of the product, its category and other parameters. However, as with subscriptions, sellers will only be willing to pay a small commission to list products if it makes them a profit.
Sales commission is a great monetization strategy. The more orders your marketplace receives, the more profit you make in this way.
In addition to these examples, there are other marketplace monetization tools.
payment processing fee;
sale of advertisements for individual stores and sponsored goods and services;
creation of own system of advertising banners.
How to create a marketplace
After you have decided on the business model, type and monetization strategy of your future marketplace, you need to pay attention to a few more key aspects:
Determine the composition of the team of the future project. Who will be responsible for each function? How will the hierarchy be built? How will the interaction within the team be organized? What will you do in-house and what will you outsource?
Make a plan that will describe all business processes and stages of interaction with users within the marketplace.
Use a standardized product catalog. Analyze competitor marketplaces, as well as ratings of popular queries and categories. Based on them, compile a catalog into categories that are familiar to the user.
The internal interface of the marketplace and the site structure should be intuitive for the user and the seller.
Develop a mid-term marketing strategy with online and offline marketplace promotion. Think about whether you have covered all channels and sources of communication with your target audience?
And most importantly – choose the right technological platform on which you will build your marketplace.
The platform will depend on a lot of factors: goods, services and functions required by the marketplace (payment processing, logistics, returns, recommender systems). And, of course, the budget that you are willing to invest in creating a trading platform plays an important role.
How to choose a platform for creating a marketplace
In order not to get lost in the variety of platforms for developing marketplaces, you should adhere to the main criteria for choosing a CMS to create your trading platform:
Popularity in the Russian market. Well-known CMS for marketplaces are well known to developers and users, it is easier to find resources and specialists in the market for development on them and further support.
Ready adaptation of the platform for the Russian market. First of all, the marketplace platform that will work in Russia should support domestic payment methods, delivery methods, integration with Russian-language social networks and other important elements for a pleasant user experience.
Required functionality. Here you should strike a balance between the modules you need to launch the marketplace and those that you will need when scaling your business, entering other regions, etc.
Possibility of additional improvements. Even a ready-made marketplace platform with the widest functionality may not have the modules that your marketplace will need. Therefore, it is desirable that the CMS you choose has an open source code or API.
Convenience and simplicity of work with CMS. The system control panel should be convenient and simple so that the platform loads quickly, is adapted for mobile devices, allows users to log in through social networks, and has other useful features.
Resistant to high loads. At the beginning of the marketplace, this may not seem like such an important factor, however, once your site becomes popular and a large number of visitors come to it daily, it is important that the system remains operational.
Request a free consultation from our expert, we will help you choose the right marketplace development platform for your business.