Multi-vendor marketplaces are the future of online retail (and retailers know it!)
What do Aliexpress, Amazon, and Alibaba have in common apart from starting with the first letter of the alphabet and being among the most valuable ecommerce brands in the world? They all operate in the multi-vendor marketplace business model.
The multi-vendor marketplace model is currently one of the sexiest business models in the ecommerce world. McFayden Digital states that global ecommerce is predicted to be worth $4 Trillion by 2020 and that marketplaces are playing an increasingly important role in this booming industry. This growth comes from the flexibility of the model and the ability to apply it in nearly every business—be it in the B2B or B2C sector, selling products and services alike. In fact, many modern unicorns, including Uber or Airbnb, are marketplaces that are strictly designed to fulfill a particular need and operate in a previously unaddressed niche.
But what is a marketplace website?
What is a (multi-vendor) marketplace?
A marketplace is the most common and probably the most primal way of selling goods delivered by various vendors, be they, merchants or craftsmen. The marketplace is a straightforward derivative of a traditional market square. The practice of placing a large square in the center of a city or town to enable people to buy and sell goods is common in nearly every culture. In medieval times, it was legally required and there were even strict instructions about the buildings surrounding the square. That’s why there are so many old towns built in the same pattern across Europe. The Magdeburg Rights were both popular and effective in urbanization and building the power of cities.
The age-old idea of third-party sellers gathered in one place to sell goods is called a multi-vendor marketplace. It offers customers the convenience of going easily from one vendor to another to collect whatever they need, and it is easily replicated on the modern internet. There are countless examples of multi-vendor marketplaces out there. here just a few:
- Etsy is the most well-known multi-vendor marketplace for artists and craftsmen to sell unique, hand-crafted goods.
- Aliexpress sells basically everything produced in China, from consumer electronics to fancy hair combs. Exploring the offer can take weeks if not more. Aliexpress is owned by Alibaba, one of the largest ecommerce players in the world.
- Uber being on this list may surprise some, as it is mostly associated with personal transportation services. In fact, Uber itself is a marketplace where customers (people wanting to find a ride) can choose from offers from multiple vendors (all of the available drivers).
Basically, to deliver a multi-vendor marketplace, there are at least three conditions to meet: numerous vendors, customers with a particular need, and a platform to connect them.
What are the advantages of a multi-vendor marketplace strategy?
The success behind online marketplaces comes from the benefits which other types of online business cannot match, including:
- Stability – Once established, a popular multi-vendor marketplace is hard to beat. That’s the network effect. To put it simply; the more users there are, the more attractive for vendors the platform is, and vice-versa. Once built and popularized, an online marketplace can be surprisingly resilient when compared to other types of internet businesses. Ebay was established in 1995, making it a real digital dinosaur!
- Reduced effort – The owner of the marketplace earns from commissions. All of the dirty work—including most of the logistics and customer service—is done by someone else.
- Rich offers – Both horizontal and vertical marketplaces attract multiple vendors who focus on their own segments, delivering best-in-class products, and serving a particular need. Thus, the platform owner does not need to gather intelligence about the customers; it is all done by the vendors.
- Additional ways to earn – Most popular marketplaces earn not only from commissions (or listing fees) but also from internal ads or ways to promote the offer. Vendors can buy premium accounts to reduce commissions, get better exposition, or gain access to tiered features like enriched customer experience.
Considering all of the above, it is a good idea to start a multi-vendor marketplace as a business. However, the challenge is to make it popular enough to ride on the network effect. That’s why it is increasingly popular for brands to launch a marketplace to augment their core activities like running a retailing business.
How to start running a multi-vendor marketplace as a retailer?
Popular retailers have one great advantage over newcomers in the ecommerce market. They already have an established, strong brand and traffic to ride on. Also, these companies do not need to build a brand new pure-play marketplace. They can simply augment their existing retail website with third-party offers, which is a much easier path. The business can continue ongoing marketing activities with only slight communication about the marketplace being added.
That’s why, according to retail-week analysis, up to 44% of retailers are launching their own marketplaces. The most interesting examples include:
Carrefour – Carrefour launched the marketplace just after the concept was tested in France and Poland. The main goal is to enrich the product base available in shops with local products.
Target – The renowned retailer from North America launched Target+, a curated marketplace to support the company with a multi-vendor offering in areas like home, toys, electronics, and sporting goods. Buyers will enjoy the same perks when using their Target RED loyalty program card.
Walmart – The largest brick-and-mortar retailer in the world (originating from the United States) launched its own marketplace to better compete with Amazon, the online hegemon of ecommerce. Walmart aims to enrich its offer and leverage its offline presence by offering a convenient click and collect functionality.
Christian Lacroix – A surprise entry on this list. The company offers luxury products inspired by the aesthetics of the baroque era. The main goal of launching the marketplace was to deal with the diversified offering on multiple markets that were supported by many local partners. Establishing the online marketplace platform enabled the company’s customers to browse through all available products.
GoSport – The company wanted to enrich its offer by adding more products, yet struggled to keep the descriptions updated. Transferring this duty to the vendor solved the problem.
Summary
The marketplace model solves multiple challenges that a modern retailer faces every day. Apart from delivering top-of-mind advantages, like building the network effect, companies enjoy other less-obvious perks. For example, product information management becomes easier in a marketplace and existing offers become more clarified.
Retailers can also gain competitive advantages over other online players by enriching their offer with products one wouldn’t consider attractive at scale. And such cooperation with niche vendors attracts niche customers who would not otherwise visit the site.
Building a multi-vendor marketplace as a retailer lets the company leverage all the advantages of the model while omitting nearly all of its flaws. That’s why it is the right strategy for most retail brands—and the future of online marketplaces looks brighter than ever before.
