eBay does it. Amazon does it. Alibaba does it. Walmart, Best Buy, Flipkart... list keeps growing every quarter. Quite a few clients I have talked to think marketplace is a "low hanging fruit" and are compelled to try it. This is especially true in what is traditionally referred to as "growth markets". On paper, the allure is irresistible - after all who wouldn't love to make a commission for providing real estate for sellers and buyers to meet and transact. In an era of cheap computing resources, this sounds almost like free lunch. Only it isn't. I will explore some aspects of a marketplace strategy that are worth considering before going live with a marketplace solution.
First of all - the millennial retailers often don't realize that marketplace model has been around for ages. Focus has always been to bring together sellers and buyers on a online portal. For example, manufacturing units would set up portal to bring suppliers together and bid for contracts. Metal junction is a successful auction based marketplace for coal industry in India. Even a stock exchange is a marketplace - with stock brokers playing the role of the portal to allow sellers and buyers to transact. Why then we see a renewed interest in marketplace? Why are retailers queuing up to try this model now?
Reason for adoption
Most consultants and retailers agree that decision to go for a marketplace is based on following reasons:
- Survival or expansion strategy based on whether retailer does it to counter erosion of customer base to large online retailers OR reaching out to new customer base/market
- expand the catalog that a retailer offers through their online channel without investing in larger warehouses and logistics
- Only the sale transaction need to be hosted by the marketplace provider - procurement and fulfillment is executed by the seller.
- no risk of stale inventory or need for mark down - inventory risk is with the seller
- sometimes the legal, political, social and cultural restrictions makes it easier for companies to launch marketplaces to circumvent those restrictions
- earn fees/commissions -- though this is relatively small, this is almost all profit when compared the cost of hosting transactions
- shopper may feel they got more choices in a single portal(psychological angle) hence popular expectation is that it leads to customer stickiness
I am sure there are more reasons, but no major surprises here.
But retailers overlook or don't give enough importance to some important aspects. I 'll talk about four such aspects in this blog.
Four aspects retailers mustn't overlook
- Main among them is that shoppers often don't differentiate between the seller and marketplace retailer. A poor experience with a seller often translates to poor experience with the marketplace and lead to a lost footfall. In other words, established retailers are putting their reputation on the line on behalf of sellers. So they better have a way to enforce discipline among sellers. One way could be to do random spot checks. I have heard of employees posing as shoppers to get proof of malpractice against sellers with questionable track record. But that is reactive approach. Marketplace provider would need to take up more responsibility. How about a tie up a logistics provider and have random quality check at pick up points? Companies often dismiss this as a risk that needs to be written off but overlook the intangible value of brand reputation. Differentiating on trust often wins long lasting clientele beyond finicky deal-hunters.
- Other thing is standardization of catalog information - quality of information from many sellers is below par. They are probably managing all information in spreadsheets and have systemic problems of duplication, inconsistency or general lack of information. Unless the marketplace strategy has a solution to address this problem, shoppers are going to find anemic product details pages.
- Sellers have a mix of mature and amateur back end systems. So the marketplace solution must be able to expose robust APIs for mature sellers to integrate with their back end systems while allowing gateways for upstart sellers to directly manage their business on the marketplace itself.
- Fourth is differentiation. When marketplaces are dime a dozen, what makes a shopper select a particular solution. This is where opinions are as diverse as people. Some say cool User Interface, others say cool features, yet others rich content, SEO, social integration etc. Most impactful ecommerce solutions have a compelling reason for shoppers and sellers to stay with you. Companies that target specific market segments have better success than generic retailers. If the marketplace is targeting office supplies, home furnishings or industrial tools, it is more likely to succeed than a low-margin driven competitive general retail.
There are many more - a quick search on the Internet should reveal a more comprehensive list. But above four is what I found as prerequisites a retailer must think before opening up a marketplace.
The tool for success
IBM Commerce portfolio has a rich set of products that enables a end-to-end ecommerce solution to be built to custom order. It comes with a rich set of off the shelf features, however its real value is in building on top of the vast and deep foundation it provides. At face value people often dismiss it as not suitable for marketplace solution. However its data model is rich in its catalog, contract and organizational capabilities, almost all of its services are available as REST APIs and WebSphere Commerce and Order management tandem provides the deep catalog and order management capabilities that is par none. IBM's deep analytics portfolio is well known and is available as real time as-a-service solutions. What I would like is a unified business tool that can bring together and expose all these deep capabilities to enable execution of a marketplace strategy. With all essential backend services available as web services and REST APIs it is just a matter of exposing them over relevant UI