Marketplaces are making headlines across the retail industry. While Amazon enjoys market dominance in the U.S. and other regions, the Chinese marketplace, Alibaba, is preparing to launch an IPO reportedly worth more than $40 billion. Last year, Alibaba sold more than $240 billion in merchandise, outpacing Amazon and eBay combined.
Although retailers stand to reap big benefits from marketplaces, there are also several concerns that need to be addressed in order to protect brand reputation and customer experience. In many ways, the challenges associated with marketplaces parallel the challenges drop shipping presented 10 years ago. And unless retailers and marketplaces can identify ways to overcome those challenges, the future of marketplaces for retail brands is far from certain.
Why Marketplaces Are Appealing To Retailers
Online marketplaces are designed to mimic the physical marketplaces consumers encounter at shopping centers and other multi-vendor retail locations. In addition to the digital nature of marketplaces, the major difference is that consumers who visit marketplaces have access to a nearly limitless range of brands and product options, enabling them to participate in streamlined, one-stop shopping experiences.
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Marketplaces also help retailers to reduce inventory risks. By maintaining a virtual inventory of products, retailers can avoid investing in costly warehouse infrastructure or surplus inventory — requirements that often limit retailers’ ability to compete in crowded, price-sensitive product categories.
Marketplace Risks For Retailers
With major retailers like Sears, Best Buy and Walmart launching their own online marketplaces, it’s clear that the push for marketplaces is gaining steam. But marketplaces represent a relatively new and immature approach to e-commerce and third-party fulfillment, and an approach that presents several significant risks to retailers:
- Brand reputation: Customers don’t know or care who handles shipping as long as they receive their orders as quickly as possible. With marketplaces, retailers lack control over shipping and are forced to put their brands’ reputations in the hands of third-party sellers.
- Customer service: Marketplaces usually offer little to no retailer visibility into order and delivery status, making it impossible to ensure a high level of customer service.
- Fulfillment: Retailers relinquish control over fulfillment with marketplaces and have to rely on third-party sellers that typically don’t provide real-time fulfillment insights, further compromising retailers’ ability to manage customer expectations.
These risks place retailers between a rock and a hard place, creating a scenario in which retailers are forced to choose between expanded revenue opportunities and the holy grail of today’s retail marketplace: a truly exceptional customer experience.
Lessons Learned From Drop Shipping
Because a less-than-stellar customer experience isn’t a realistic option for retailers, marketplaces need to take steps to mitigate risks and empower retailers with tools that protect the quality of the customer experience.
The challenges retailers face are similar to the challenges they faced when drop shipping arrived on the scene 16 years ago. Fortunately, the kinks have been ironed out with drop shipping. But before marketplaces can realize their full potential, they need to take a page out of drop shipping’s playbook.
- Ability to vet suppliers: Retailers need direct access to accurate information about each supplier, including the vendor’s technical sophistication, system compatibilities and product listings. Additionally, retailers should be able to view past supplier performance. For example, if a supplier has experienced issues keeping pace with demand, retailers need to know about it before they commit to a partnership.
- Real-time tracking and alerts: Retailers must also have “Big Brother” control over the marketplace, with the ability to create rules and alerts that monitor their third-party sellers. Likewise, retailers need real-time tracking capabilities to monitor the status of orders at any given point in time. This gives retailers improved visibility and partial control over shipping and fulfillment, which is directly tied to brand reputation and customer service.
- Rapid shipping solutions: Retailers should be able to automatically optimize shipping service levels based on factors such as delivery window, inventory location and destination. By monitoring shipments closely, retailers can flag late deliveries and automatically upgrade shipping service, or save on shipping costs by downgrading service level based on promised delivery date.
Marketplaces can improve retailers’ bottom lines by decreasing operational costs, increasing product assortments and protecting retailers’ ability to deliver a first-class customer experience. But while marketplaces have potential, they have a long way to go before they become a mature and sustainable e-Commerce solution.
Until then, a best practice for retailers is to work with a third-party solution provider to ensure the marketplace operates smoothly and efficiently. With the right technology and support, retailers can fill the gaps that currently exist in the marketplace model and achieve competitive advantage by dramatically increasing the size of their product catalogs as well as their reach with consumers.
Frank Poore is founder and CEO of CommerceHub, a merchandising and fulfillment platform for online retailers.
