Blog
Third Party Marketplaces – a silver bullet? Or only part of the transformation retailers need?

Miriam Newton

Are you trying to decide if a marketplace is the right thing for your business?  If so, it’s worth making sure that you’ve explored the alternatives, complimentary capabilities and dependencies.  CommerceHub has over 15,000 retailers, brands and suppliers in our network, and based on our experience with customers and the retail industry, we’ve rounded up some points to think about if you are considering a marketplace:

  • Make it a part of a wider strategy which will enable you to more fully leverage the power of collaborating with brands and suppliers
  • Ensure you have the means to grow your business profitably under this model
  • Understand what you’re willing to give up in terms of control and/or which parts of your business makes sense for a marketplace?
  • Decide how it might impact the customer experience and your brand
  • Remember, marketplaces only affect the online purchasing capability for your customer, not their overall experience.

Why do so many people seem to be looking to implement a marketplace right now? Well, let’s back up a bit.

The allure of marketplaces

Retailers and brands are under severe pressure.  Consumers are experiencing a cost-of-living crisis and supply chain issues persist.  The pandemic saw huge shifts in buying behaviour and accelerated online demand, however, online fashion is stagnating and some gilded practices are now leading to unprofitable operations. As Warren Buffett says,“Only when the tide goes out do you discover who’s been swimming naked.” Enter the third-party marketplace – brands supply content to retailers’ websites and take responsibility for delivering product and managing their return. The retailer takes commission, attracts traffic and can spot trends.  The brand gets access to another channel and to control more of their product exposure and customer experience.  What’s not to like?

Are they a guarantee of success?

The short answer is no. While some retailers are experiencing success, some aren’t. Evolving from endless aisle to a curated experience, and more emphasis on the customer experience, can result in a best-of-both model, leveraging the benefits of marketplace and drop ship.

Also, in terms of size and revenue many marketplaces are yet to breakthrough the 10% of ecommerce barrier (which is for many retailers still a kind of glass ceiling). Additonally, some marketplaces are being shelved altogether. For example Bed, Bath and Beyond are the latest in a line of retailers that closed their marketplace after it failed to meet expectations. On the other hand DIY.com is a good example, where retailers adapted the model and reported to be delivering 8% of online sales less than a year after the implementation of their marketplace.

Specialisation and personal values are driving customer demand

As Chris Koeppel, our VP for Industry Strategy, puts it in an article for Retail Touchpoints: In today’s Now Economy, customers are gravitating toward the “I see it, I want it, I’ve got it” retail model – while at the same time they’re more intent than ever on making purchases that support their personal values…they don’t just want the perfect pair of black sneakers delivered to their door in 24 hours – they may want those sneakers to come from a company with a low carbon footprint, or from a minority-owned business in their local area.

What does this mean for you as a retailer? It means you need to offer more choice.

More options, more colours, more sizes, and more products. It doesn’t mean you need to be a faceless purveyor of everything or make your business the same as everyone else’s. It’s a chance to build your own brand too, by offering products which are carefully curated to fit in with your brand personality and values. Artisan retailer? Offer more lines from small, local creators who only sell in limited numbers. Appealing to the TikTok generation? Make sure you can add inventory at the speed of light and deliver it fast. High end retailer? Find out how to connect with the most upmarket brands to expand your assortment.

So what’s the drawback?

It’s the fact that you no longer own or control the customer experience – instead this is influenced by your weakest brands and suppliers.

Ominchannel retailers with a high bar for convenience need all channels to work with click and collect and returns to retailer, and some products will also require a service component.  All of this is inextricably linked with a customer’s perception of the retailer and not the brand they are buying from that retailer.

In a recent article by CX Today, the importance of managing the returns process, and in fact, knowing your customer’s buying history was highlighted: You’ll need to know how your customers and prospects want to be served based on different situations – making a purchase, getting information, or solving a problem…72% of consumers expect companies to know their purchase history regardless of the method of communication. It’s a compelling reason to make sure you’re in control of the end-to-end experience for your customer. According to a study by CX technology company, NICE inContact (which included UK consumers) customers who have excellent experiences with a brand are more willing to recommend that company on social media (83%), buy more products and services (89%) and go out of their way to purchase from that brand again (82%). On the other side of the customer experience – again from CX Today – one recent study highlighted that 79% of consumers will stop doing business with a brand after just one bad experience. It’s a sobering thought and crystallizes the importance of getting it right for the consumer. In fact, jumping too fast into a decision to invest in marketplace as a standalone solution can leave you feeling caught out in the long term. Having your best or most popular products on a commission basis can mean your net profit will be lower, for example. There is some slick marketplace technology out there for sure. But often it can mean that you have to fit your business into their model, and by doing so you have to give up perhaps more control than you want to. Also, that slick technology might look good – but is it actually giving you what you need? Or a whole bunch of functionality that you really don’t – but that you are still paying for, of course!

So, what should you do if you’re in the market for a marketplace?

Most retailers are coming around to the fact that adding more suppliers and outsourcing their inventory makes sense. But rather than buy a straight up, marketplace-only solution, perhaps you need to consider a platform which can work for you as a growth enabler? One that builds on top of your current capabilities and that allows you to add more of the best things about a marketplace to your existing program – but that doesn’t require a complete change for you to invest in a ground-up solution?  Why start again from zero when you’ve probably spent years building an unowned inventory partnership program which could be evolved to fit the needs of your ever-changing business?

We’re not trying to put people off having a marketplace. If you want a marketplace, we can help you! But what we’re saying is…be clear what you want, what your customer wants and what you’re prepared to give up control over. And bear in mind some of the stats we mentioned. Your customers want you to own the process. They’re buying from you. If a supplier or brand doesn’t manage a return well, customers will stop doing business with you.

You can choose how to manage relationships with your suppliers, including your marketplace suppliers. At CommerceHub, we build solutions around your business to help you accelerate growth. But most of all to deliver the great shopping experience your customers are relying on you for, regardless of where you’re selling. Looking for a marketplace? Talk to us and find out how to grow faster with the largest, most trusted commerce network.

About the Author

Miriam Newton

Topic