By Tony Preedy, Managing Director of Fruugo
The boom of ecommerce has triggered several changes to customer habits. Brand loyalty is now secondary to value and availability. Instead of consumers leisurely browsing their favourite brands’ shops, purchasing journeys now focus on finding specific solutions to a current need at the best price possible. This is shopping at the ‘atomic’ level, where shoppers can drill down to item-level shopping, orchestrated by search engines.
Marketplaces are proving to be an answer to this shift in purchasing habits, by offering consumers a ‘one-stop shop’ for all their needs. Mirakl’s annual consumer data report for 2023 suggests that 46% of global consumers now conduct their online shopping on marketplaces, and 77% continue to believe marketplaces are the most convenient way to shop online.
The rise of the marketplace model
Due to its growing popularity, several established retailers in the UK are now adopting the marketplace model. For example, B&Q launched a home improvement marketplace in March 2022, and both Boots and Superdrug have confirmed plans to launch their own third-party platform this year. More retailers are expected to follow suit.
When launching a marketplace, retailers have one main objective: traffic generation. The modern shopping experience has made it increasingly important for retailers to optimise their own e-commerce websites to ensure they receive high footfall from their target audience. Offering a more diverse range of brands via third parties enhances the retailers’ search engine optimisation and helps drive traffic to their platform.
With the increased footfall acquired, retailers then sell their own-brand products alongside the third-party offerings with the intention of driving own-brand sales.
The overarching objective seems simple and effective at first glance. By August 2022, the B&Q marketplace had accounted for 8% of the retailer’s online sales, performing ahead of its predicted expectations. However, retailers who plan to launch their own marketplace platform need to be aware of the challenges they may face.
Encountering marketplace challenges
Adopting a marketplace model can entail huge hidden costs, both in time and money. By adding new sellers onto their platform, retailers lose control over certain aspects of their business. For example, they can’t determine the pricing of items, nor the products to place in the online shop window. Logistically, they need to oversee every aspect of a purchase from payment to delivery, follow specific regulations and thoroughly check every new seller that joins the platform. By losing overall control, the retailer must maintain a much larger and more complicated selling platform, requiring additional resources and expenditure output.
To counter this additional expenditure, retailers need to ensure they’re seeing an increase in traffic generation to help drive sales. For market leaders such as B&Q and Superdrug, which already generate high footfall, this may work. However, if they are not a leader in their sector, they have less authority. Most products added to the platform via third-party sellers are available across multiple sales channels. Therefore, if the footfall is not high prior to the creation of a marketplace, the new product additions won’t generate additional traffic as they will already be available on better-known sites.
Another concern is that placing an own-brand product in a substantial range of close substitutes sold by affiliated, but separate, third parties may dilute retailers’ own offering. Retailers may wish to prioritise the promotion of their own range, however certain marketplaces have been criticised for undercutting sellers who use their services. It is imperative that retailers remain vendor neutral, as the role of a marketplace is to support sellers in driving sales and reaching new audiences with minimal risk, not to compete with them.
Fully embracing marketplaces in 2023
The marketplace model is integral to retail’s evolution. However, this does not automatically mean that retailers should develop their own. Instead, retailers should consider selling on marketplaces that are already well established.
Whilst the idea of listing products on platforms with ‘competing’ retailers may sound counter intuitive, those that embrace the marketplace model know that this is exactly what they should do to achieve their key objective: driving sales.
By selling on multiple marketplaces, retailers can generate more reach and visibility for their products, without needing to commit to additional resources or expenditure for a major platform redevelopment.
Retailers can also simplify the execution of an international growth strategy by selling on cross-border-centric marketplaces that tap into the demand of various markets. This ensures they are not solely relying on sales from one audience which could have a devastating effect on the business if local demand dwindles.
Listing on marketplaces offers incremental sales internationally at a low marginal cost. The more marketplaces that retailers list their products on, the greater their total digital presence and the higher their overall sales and brand awareness.