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To Marketplace Or Not To Marketplace? Featured

  • Written by  Klaudia Tirico
To Marketplace Or Not To Marketplace?

Retailers are clamoring to find new ways to reach their target audience and expand their brand reach. Some are turning to marketplaces to reach this goal. The fact is: As many as 64% of shoppers start their journey on an online marketplace, compared to 48% who search merchant web sites and 40% on search platforms like Google, according to a 2015 study from PYMNTS.com and Amazon.

As many as 32% of retailers planned to spend more on online marketplaces in 2015 compared to 2014, according to an NRF report. But does that mean a retailer should focus on selling via Amazon or other third parties? Or does it mean opening up a branded marketplace?

Best Buy learned the hard way that opening up a branded marketplace was not the right answer for the electronics retailer. So, where did Best Buy go wrong? The retailer cited low revenues and confused customers as the primary reasons for abandoning the platform.

Keep Your Enemies Closer: Joining Amazon Is A Viable Option

Best Buy's marketplace model didn't work. But others are finding success, including Walmart.com, Sears.com and eBay.

But retailers don’t have to build their own marketplace to reap the benefits of one. "Using marketplaces gives [retailers] a new way to compete with Amazon, even if that means selling their products on Amazon itself,” said Sucharita Mulpuru, VP and Principal Analyst of Forrester, in a statement.

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Certainly to no one’s surprise, Amazon is the leader of the online marketplace world, specifically on mobile. As many as 43% of online shoppers start on Amazon when searching for a specific product, according to the PYMNTS.com study. In order to compete with Amazon, retailers need to develop a strategy that drives unique interest.

“Anyone who decides to get into business against Amazon has to really think it through,” said Customer Service Expert Shep Hyken. “Amazon created this business model, and the model itself is far different than the typical business. If you decide to treat your business like a typical business, and go up against Amazon, it’s probably not going to work.”

As innovation and growth are at the core of Amazon’s business model, Hyken said that simply having an online presence and bringing in third-party vendors is not going to cut it.

“From the customer’s point of view, retailers think they are doing a great service to the customer by offering an extension,” said Hyken. “I would try to make it blatantly obvious that this is a service. Retailers are just representing these vendors on their web sites. They have to make it clear.”

Trust: A Key Element of Successful Marketplace Strategies

A key factor in successful online marketplaces is trust. In the recent PYMNTS.com study, the highest percentage of shoppers (23%) chose to shop with retail brands they trust, compared to those offering tailored promotions or rewards (16%), good experience in the past (14%), and available inventory in an acceptable time frame (13%).

“The ultimate digital destinations are driven by trust,” said Karen Webster, CEO of Market Platform Dynamics, in response to the research. “Trust that the sites have what they want to buy, trust that they will be given a fair price, trust that their goods will be delivered to them in a time frame that is relevant.”

A key factor in building a trustworthy marketplace is making sure the customer understands whom he or she is doing business with. In the Best Buy example, customers were confused, which leads to distrust. Shoppers assumed they could return items purchased via the marketplace to a Best Buy store, but that was not the case.

“Any business that decides to rely upon third-party vendors has to take responsibility if the third-party vendor doesn’t perform,” said Hyken. “It’s a breakdown in the consistency of the brand. That would frustrate a customer.”

In conclusion, retailers should embrace online marketplaces in some way, whether it’s by leveraging another company’s platform or building one of their own.  If you can’t beat existing retailers’ marketplaces, join them. But if you can establish a unique platform built on the foundation of trust, take the plunge.

 

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