14.06.21

Transformation Of An Online Store Into A Marketplace

The massive transformation of classic online stores into marketplaces is a bright global trend of the past year 2020. The business model change is driven by the desire of online retailers to survive amid economic uncertainty and high competition.

But does everyone need a marketplace? We propose to consider the cases when such a step is justified.
Why online stores are losing to marketplaces in the fight for a customer
A marketplace is not just a sale point, but a large-scale online platform with an unlimited product shelf. It helps sellers (merchants) and customers find each other and conclude safe trade deals.

The value for the customers lies in the ability to buy almost everything he needs in one place. As a rule, also at a favorable price due to internal competition between suppliers. It is easy to find products on the marketplace, compare prices, see seller ratings and customer reviews.

According to the research "THE FUTURE SHOPPER REPORT 2020", 52% of buyers search for a product directly on Amazon, and not in search engines.

From a business point of view, the advantages of a marketplace are also:
You don't have to be an expert in a particular product category.
It is enough to connect suppliers who already have the necessary expertise.
Some of the business processes are delegated to suppliers.
Merchants are responsible for the sale of goods. This cooperation excludes from the marketplace's tasks updating prices and availability, customer service, disputes, and other proprietary operational processes. Due to this delegation, the time for managing the assortment and its time-to-market is reduced.
Different ways to monetize.
A popular option is to charge a commission on sales: the platform owner receives income from the sale of goods that he does not even own. Also, additional income can be from the advertising capabilities of the platform or additional functions/tariff plans.
According to Scallium analytics, the transformation into a marketplace is driving an average check increase of 14.9% and store sales growth by 54% per year.
Does everyone need to create a marketplace?
When transforming an online store into a marketplace, you need to understand that many processes will have to be changed. Including the technical platform. At the same time, the marketplace will not bring quick income: for the project to become successful, it will take considerable effort and struggle with the existing e-commerce giants.

One of the reasons for failure is the unpreparedness of the business to scale. Even if the company has experience in online trading, the creation of a marketplace will be a serious test of strength: it will be necessary to revise the operational processes and take responsibility for the merchants who have joined the platform.

The transformation of an online store into a marketplace is possible if the business has:

  1. motivation to change the sales system and there is no fear of responsibility for merchants,

  2. the basis for the active development in a highly competitive market captured by major players,

  3. a team that will take care of the development of the marketplace and its continual maintenance,

  4. funds for development, payment for the operational part (office support, staff), and marketing promotion,

  5. a marketing strategy aimed at increasing the awareness of the startup on the network and attracting traffic.

Two approaches to creating a marketplace
An IT platform is the foundation for the development of an e-commerce business. It must be reliable and flexible, able to adapt to changes in the market. For example, provide an opportunity to quickly launch new product categories and develop markets. There are two ways for a marketplace development: a budget approach and an advanced one.

The first option is to use a special website CMS (Content management system) created for work with external suppliers. Such platforms, as a rule, launch quickly, since they are already adapted to the local market. However, CMS is not a system for process automation. In this sense, the functionality of such systems is rather scarce. In addition, when it comes to a large assortment (SKU), the site speed is greatly reduced, which can be a problem for visitors. You also need to take into account that in this case, the entry threshold is budgetary but support and revision are expensive as a rule.

The second option is to develop a comprehensive solution for automating e-commerce processes. This is a full-fledged marketplace back office, which consists of several systems for managing key processes:
How transformation into a marketplace affects business processes
In fact, a marketplace is a platform where a large number of participants interact: suppliers, brands, customers. The task of a marketplace as a business is to create conditions and rules for all participants. An online store task is direct sales. This is the key difference between the marketplace and online store business processes.

The marketplace has about 25 standard business processes, and the task of the IT platform is to automate them in order to reduce operating costs and increase the efficiency of a team with a huge number of SKUs.
How Marketplace Transformation Will Affect Marketing
The often reason for the transition to the marketplace model is traffic. Suppliers create a large number of product pages that are indexed and displayed in search results. As traffic grows, sales are also increasing.
Expansion of product assortment → growth of organic traffic → growth of direct traffic → expansion of remarketing opportunities
According to Scallium data, one product placed on a storefront by a supplier gives on average from 3.97 to 6.07 visitors. And this is without investment in advertising, only with SEO - Search Engine Optimization. Besides that, there are other ways to drive traffic: PPC ads allow you to promote low-cost SKUs based on relevance and seasonality, and media banner ads make cross-selling easier.

In conclusion, we would like to recall a classic example. Amazon started out as a mini bookstore and has grown to become a top global platform: it quadrupled its traffic and sales right after the business model change. But Amazon isn't the only marketplace model. And not the most effective one. Find your own hybrid model and think again if your e-commerce business is ready to transform.
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