January 19th, 2021 | 4 MIN READ

Should I Consider Adding a Marketplace to My Business Model?

Written by Shaneil Lafayette

Shaneil is a Commerce Technology Advocate and Data Analyst at Elastic Path. As a part of the Product Marketing Team, she focuses on enabling the market on the commerce solution technology that helps digitally-driven brands drive revenue growth.

As we continue to assess the implications of the COVID pandemic on consumer buying behaviors and expectations, brands will need to constantly evaluate their Go-To-Market strategies in order to remain relevant and be successful. In light of these new realities, Gartner has analyzed the market implications and published predictions you should consider as application leaders in their Predicts 2021 Report.

So far we have addressed recommendations from the report that speak to the use of digital commerce platforms for B2B companies, shifts in product offerings and multiple go-to-market approaches. Up next, we will focus on the marketplace prediction. Gartner states “By 2023, 30% of enterprise marketplaces will transition into a majority third-party seller model for better profitability.”

 

What is a Third Party Seller Model?

The emphasis on “enterprise marketplaces” is very crucial, because this doesn’t speak to our more renowned online marketplaces like Amazon, eBay and Alibaba, but rather to businesses that have mostly operated in analog mode before entering the digital space like Walmart. These types of businesses have or will essentially change their business model to open their ecosystem, provide new capabilities, and generate new sources of revenue. However, in the report, Gartner specifically calls out the “third-party seller model for better profitability,” and we think this directly correlates to consumers' drive and need for convenience.

 

The Drive for Convenience

As consumers become smarter with their purchases, they spend more time researching their products by looking at the different offerings, assessing customer reviews, and comparing pricing. Many consumers are looking for a way to avoid the "review rabbit hole" by streamlining the process and cutting down on endless searching and scrolling. They shoppers welcome marketplaces as one of their first sources of information in their purchase cycle. According to a consumer survey by emarketer, about half of all searches start on marketplaces.

When done right, Marketplaces, especially those who support a third party model, take user experience a notch above traditional digital commerce avenues. Not only are consumers able to save a trip to a physical store, but now they have a one stop shop to compare similar products without switching from site to site. This type of ease of use, convenience, and accessibility continues to attract shoppers presenting an opportunity for many brands to capitalize on.

 

How Will a Third Party Model Help Your Business?

While it is widely known that sellers increase impressions and conversions by participating in a third party model marketplace, being the operator can carry even larger benefits. As the operator you can expect:

  • Increase catalog size. Opening up your model allows for third parties to contribute their growing catalog of products and services to your existing one. This creates variety for consumers searching the marketplace and maximizes your selling potential. Customers are more likely to browse on a platform that doesn’t limit their choice of a provider. As such, even if they never considered a specific product or provider before, the mere access to it creates the potential for a new purchase.

 

  • Experience fewer out of stock scenarios. Demand for your products can be a great thing, except for when the supply doesn’t match- we all know you can’t sell what you don’t have. The third party model facilitates the fuelling of your marketplace inventory, to limit the chances of experiencing “out-of-stock” scenarios.

 

  • Lower fulfillment and inventory cost. In addition to the reduction of “out-of-stock” scenarios, third parties bear the cost of producing and fulfilling inventory. This will be especially beneficial if the cost of production of your products are high. If you aren't the one producing the products, you can re-route those funds to create awesome customer experiences that beat out the competition/ win the hearts & minds of more customers.

 

  • Customer loyalty. While many individual retailers are heavily competing to retain customers, it has been found that consumers prefer marketplaces over brands’ websites for repeat purchases. It was reported that while 50% of first purchases start at the retailer, 47% of shoppers choose marketplaces for repeat purchases. This gives you an opportunity to optimize your model to cater to returning customers.

 

  • New sources of revenue. As the operator of a marketplace, you will have more opportunities to grow revenue aside from direct selling. You could choose to:
    • Charge a percentage or fixed fee for every transaction to merchants
    • Employ a subscription or membership fee to consumers Run advertisements throughout the marketplaces
    • No longer will you be limited to your direct sales and marketing efforts because now you have a team of vendors all working for your marketplace.

Marketplaces can provide better buying experiences that keep customers coming back, so it’s no surprise that Gartner believes this model will lead to higher profitability. However, operating a third party model enterprise marketplace will require you to view competitors in a different light, reevaluate your strategy for the user experience, and consider the best interest of all participants of your ecosystem. A Composable Commerce approach can help you to quickly add a marketplace to your existing digital strategy through its open ecosystem. To learn more about the recommendations from Gartner, download the report here.

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