What is the online marketplace opportunity for retailers?

Discussion
Source: Amazon Fulfillment
Oct 17, 2017
Chris Petersen, PhD.

with Adam Simon

Through a special arrangement, presented here for discussion is a summary of a current article from the IMS Results Count blog.

Online marketplaces are predicted to drive much of e-commerce’s robust growth in the decades ahead. And while Amazon.com and Alibaba are retailers and formidable competitors, they have also created the most robust collaborative marketplaces in the world. Amazon’s Marketplace in the U.S. offers unparalleled choice of over 480 million products online.

There are many reasons over two million brands and resellers have chosen to participate in Amazon’s Marketplace including:

  • A turnkey solution to online e-commerce at a massive scale;
  • A marketing system, plus Amazon brand value, with traffic from 250 million customers;
  • Amazon’s inventory management and replenishment;
  • Integrated order and shipment tracking with real time visibility for customers;
  • Fulfillment to the last mile with automated reverse logistics for returns.

As a retailer seller, Amazon achieves a huge benefit of only having to stock less than 10 percent of the actual inventory for all the products listed for sale. The Marketplace sellers also subsidize Amazon’s infrastructure and systems costs across many partner sellers in the Marketplace.

Whether it be Amazon, Alibaba, eBay, Walmart, etc., their hyper growth is built upon a collective collaboration ecosystem designed to list, sell and deliver hundreds of millions of products to the consumer’s door.

So, why not close stores and just sell on the marketplaces?

There are major financial and consumer reasons why people choose other strategic collaborations and ecosystems:

  • Sellers have to absorb the high marketplace costs — typically 10 percent or more of revenue;
  • While you can get online quickly, your product is just one of over 400 million;
  • As a marketplace seller, you follow the same algorithms as the other 2+ million sellers;
  • The quality of customer experience/engagement online is severely limited;
  • The online marketplace owner owns the customer relationship.!

The smart brands and retailers are selectively participating in Amazon, Alibaba and eBay marketplaces. In addition, they are also strategically collaborating with other partners where they can differentiate their value, services, experience and engage customers directly.

DISCUSSION QUESTIONS: To what extent should brands and retailers participate in the big online marketplaces? Will online marketplaces continue to expand or do you see their penetration of overall retail sales plateauing in the years ahead?

Braintrust
"The shopper goes everywhere to find what they want — if you're not everywhere, then you're nowhere. "
"Online marketplaces will continue to expand. Retailers are constrained by capital, but marketplaces can provide infinite selection."
"Brands need to be where their target audience is. For the foreseeable future, that means the biggest online marketplace."

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19 Comments on "What is the online marketplace opportunity for retailers?"

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Shep Hyken
BrainTrust

The online marketplaces give local and boutique businesses a national — and even international — reach. Thanks to the Internet and online retailers like Amazon and Alibaba, the retail world gets smaller and smaller.

Kim Garretson
BrainTrust

A warning for retailers and their marketplaces comes from Best Buy’s experience. “The Marketplace only brought in 1% of domestic revenue, and created confusion among buyers who thought they were able to return the third-party merchandise.” “Best Buy Abandons Online Marketplace, Citing Low Revenues And Confused Customers” — Retail TouchPoints.

Phil Chang
BrainTrust

And … the flipside is, “Sales by marketplace sellers accounted for 50% of the units sold on Amazon.com, up from 48% in Q1 2016.”

Retailers do need to do their homework here. You can’t setup an online flea market and hope to be able to do well. Like everything else that retailers know — execution is key … but you do need to be here. A consumer knows to look for product everywhere.

Charles Dimov
BrainTrust
Selective and strategic collaboration is the key. Retailers and brands need to have a presence on these large marketplaces. However experimenting with the selection of products on the site, and always having a draw for the customer to come back to the retailer or brand’s own site is a good strategy. Use the marketplace to capture new customers that the brand might not have otherwise tapped into. Then offer special discounts with a sale for in-store purchases, or a coupon code for purchases on the retailer’s own site, etc. Use the marketplaces but, for the reasons mentioned above, do everything… Read more »
Phil Chang
BrainTrust
Online marketplaces represent the chance for retailers to bring an endless aisle of choices to the consumer. It’s the chance to level the playing field if you’re a small retailer trying to compete with a big box retailer, and the easiest way for a big box retailer to spread out and become multi-channel. Brands and retailers should be all over this. The shopper goes everywhere to find what they want — if you’re not everywhere, then you’re nowhere. Online marketplaces aren’t all roses though — the same instincts to find and partner with reliable brands is key to the consumer… Read more »
Art Suriano
BrainTrust
I see nothing wrong with retailers participating in online marketplaces. In a way, we have to look at the internet today as shopping malls in the cloud. Amazon would be Mall of America. The concept of how retailers should pick and choose their online partners is not much different than store locations. Retailers ask questions like: where will I see the most traffic? Do the customers shopping here match my customer profile? Can I make a good profit? If a retailer can partner with an online marketplace in the right way without damaging its core business, then it’s smart for… Read more »
Bob Amster
BrainTrust
Brands should definitely participate in online marketplaces. Brands may want to participate in marketplaces specifically designed for the brands’ demographic target and price point so as to keep some of their differentiation and uniqueness. Pricing considerations are important as the same product that a brand sells to brick-and-mortar chains may appear in an online marketplace. As to whether retailers should participate, that demands a different answer. Retailers need to own the relationship with the customer. Retailers themselves have an image to keep and should want to control that image themselves. The burden of being an online retailer is mastering the… Read more »
Kiri Masters
BrainTrust

Online marketplaces will continue to expand. Retailers are constrained by capital, but marketplaces can provide infinite selection. Marketplaces can acquire brands and products from all corners of the globe and develop their own private label brands.

Retailers should participate in marketplaces with their eyes wide open. There are still many opportunities for retailers to sell brands who don’t want to directly engage with marketplaces themselves. Those opportunities won’t last forever, though. Retailers need to identify on which dimension they will compete: service, curation and experience being some of those dimensions that marketplaces are weak in.

Brandon Rael
BrainTrust
With the expanded reach and great potential of the online marketplaces, companies such as Amazon, Alibaba and Farfetch have opened doors and provided a direct-to-consumer channel that may have otherwise been very challenging. However, the marketplace is very mature at this point. While an online marketplace has significant advantages and benefits from a branding standpoint, the ultimate goal may not always be to have the conversion take place on the online market place. Rather, the retailer will benefit by having this online presence, but ultimately the objective is to build the relationship via the online channels and draw them into… Read more »
Chris Petersen, PhD.
BrainTrust

A fascinating range of comments on this topic already. Testimony to the transformation of retail across many dimensions. For retailers is no longer a question of “either or”, but one of finding a strategic balance with partners that will optimize success across the emerging ecosystem that has become today’s retail.

Neil Saunders
BrainTrust

Online marketplaces can be useful for foreign expansion, especially to countries like China. They provide a fast, low-risk way of entering a new geography and expose brands to many people without extensive marketing efforts.

Closer to home they can be a useful sales channel for retailers, though care needs to be taken that they don’t cannibalize sales from other channels and that a retailer doesn’t become overly reliant on them. As part of a wider strategy, however, there’s nothing wrong with them being a part of the mix.

Tom Dougherty
BrainTrust

Soon, we will not be discussing online vs in-store. The line will meld into shoppers buying what they want. How they do that will not matter much as online retail will find innovative ways to make the shopping experience superior. Time to get with the program.

Adam Simon
Guest

It works in some countries and not in others. In France many retailers and e-tailers have their marketplaces — Fnac, Cdiscount, La Redoute, Carrefour (via rueducommerce). in the UK many key retailers have steered away from i — JLP and Dixons, for example. A lot depends on how much they want to be seen. Curating the offer is a strong part of retail in the UK.

Ralph Jacobson
BrainTrust

Brands need to be where their target audience is. For the foreseeable future, that means the biggest online marketplace. With the aggressive penetration of the largest marketplace moving into more and more industries, let alone industry categories, I don’t see any plateauing anytime soon. Brands need to gain awareness first and foremost. This is a critical way to do that.

James Tenser
BrainTrust
Alert retailers are well aware that more product searches begin on Amazon.com than on Google. So being present in its Marketplace may be regarded as a necessity. Finding ways to rise to the top of the 480 million-item stack is the challenge. How can a retailer excel in an environment where the primary differentiators are price and shipping terms? For commodity and highly-researched items, the only sure way to win the search is to be a penny cheaper than 100 other guys. This sets up a race to the bottom that retailers rightly abhor. If the cost of marketplace participation… Read more »
Ricardo Belmar
BrainTrust

Retailers need to go where their customers are and if customers shop at marketplaces, then retailers need to be there! In this multi-channel world we are in, the marketplaces are one more channel that can drive sales with easy startup for smaller retailers. The only risk is that the marketplace could “steal” sales from other channels, so it’s important this be considered part of a broader sales strategy. These top marketplaces are like the digital world’s equivalent of the physical mall and shoppers are not going to stop using them anytime soon.

Min-Jee Hwang
BrainTrust
Online marketplaces are a staple for online shoppers as well as smaller brands and retailers. It’s a great move to boost exposure and it is often used alongside other selling channels. Selling purely on marketplaces is also possible, and especially streamlined when it comes to Fulfilled by Amazon, but of course it comes with trade-offs. Brands and retailers will undoubtedly gain more sales if they are properly optimized for the specific marketplace (prices, assortment, product information), but they also lose some control over the process and are subject to strict rules. I don’t see marketplaces slowing down any time soon,… Read more »
Ken Morris
BrainTrust
Many consumers are now accustomed to shopping Amazon first for many products — especially commodity product categories. If you are selling commodity products, items that aren’t exclusive to your brand, you are almost forced to sell on marketplaces or you risk losing many sales opportunities. Luxury and high-fashion brands aren’t as dependent on marketplaces, as loyal brand enthusiasts will seek out their brands specifically instead of doing general product searches for the lowest price on a marketplace. That said, some fashion brands, like Calvin Klein, Tommy Hilfiger and Michael Kors, have succumbed to selling on Amazon. As consumers quest for… Read more »
Alex Levashov
Guest
The marketplace space is a good place for startup businesses to test the market, especially if they are selling new products. For bigger businesses I think that it depends and they need to do your calculation carefully. To sell or not to sell on the marketplaces depends on many factors, including pricing, margin, acquisition cost with other channels, lifetime value of customers, probability to convert marketplace customers to the retailer’s customer and the chances of cannibalization — to name the most important. Often it makes sense to sell on the marketplace only a subset of all products; those that fit… Read more »
wpDiscuz
Braintrust
"The shopper goes everywhere to find what they want — if you're not everywhere, then you're nowhere. "
"Online marketplaces will continue to expand. Retailers are constrained by capital, but marketplaces can provide infinite selection."
"Brands need to be where their target audience is. For the foreseeable future, that means the biggest online marketplace."

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