By Philip Hall, Managing Director Europe, CommerceHub.
Online marketplaces are booming in popularity and it’s hardly surprising: they provide an excellent selling channel for brands to attract new customers and allow retailers to expand their offering to appeal to more customers.
For many brands and retailers, it is an incredibly successful model; eBay, for example, sells a pair of women’s footwear every five seconds and a pair of men’s shoes every 10, and Next’s ‘Labels’ marketplace enabled the business to grow by 29% last year. Many now believe that marketplaces are the future of fashion retailing, but how can retailers build a successful marketplace, without compromising the customer experience?
Expansion is a marathon, not a sprint
In an age of increased competition, different buying habits and the need for consumers to have their chosen product as soon as they’ve clicked ‘order’, most retailers are currently looking at how to expand their product offering in order to stay relevant. After all, surely more products will lead to increased sales, right?
Unfortunately, it isn’t always that clear cut. History shows that if a retailer tries to sell too many unrelated products too fast, growth can not only be unprofitable, but disappointing. Worse still, when this happens, the retailer often loses control of the customer experience, having a damaging impact on their brand and reputation. Consumers enjoy knowing what to expect when they shop with their favourite retailer or brand, so an experience that doesn’t match expectations, with disjointed product ‘add-ons’ offered or too many products to choose from that aren’t what they’re looking for, won’t encourage the consumer to come back for more.
Executed properly, however, product expansion can absolutely lead to linear growth in revenues for retailers. The retailers that take the time to think about how they can best add value to their product range, as well as how it will create a better experience for the customer, will see better results; incidentally, not only through additional revenue as might be expected, but actually through increased visitor numbers, contributing to SEO efforts and overall conversion rates.
When the retailer combines a smart expansion in products with an investment in the customer experience, growth in new customers, increased order values and greater loyalty is achievable. What’s more, analysis from the best performing retailers shows that for every 10% increase in SKU’s, a 12% increase in revenue can be achieved¹. This shows that it is entirely possible for retailers to scale, increase product range and increase revenues, it just has to be executed strategically and with the customer experience at the forefront of decision making. But how can a marketplace enable a retailer to do this?
The myriad of marketplaces
The growth of marketplace revenue has been predicted to double between 2017 and 2022; in fact, marketplaces already accounted for 52% of global web sales in 2018, according to Internet Retailer’s analysis. Marketplace models, whether a retailer chooses open, specialist, adjacent or integrated, can also provide value-added services in technology, marketing and delivery, without the need to invest as much in resources and inventory.
Furthermore, Buyers and Category Managers can be freed from the constraints of their physical supply chain, whilst still loading up consumer shopping bags. Businesses that can’t fill every niche or category can do so by selling along with complementary brands or even with their competitors. The success and appeal of marketplaces as a means to drive increased choice is clear, but which model to choose and how to implement a strategy effectively still remains in question for many retailers.
With growth, speed of adoption and excelling the customer experience all high priorities for retailers adopting a marketplace model, the choice lies between choosing a commission model, where the brand is the seller of record, or wholesale model, where the retailer remains the seller of record. Whilst the wholesale model is ideal for a marketplace, many argue the commission model allows for accelerated growth. Does the retailer want to retain top-line revenue and control pricing and the customer experience, or are speed of investment and lower internal investment the most important considerations? If the former, then the wholesale model may be favourable, but if the latter, then commission could be the commercial model of choice.
An integrated marketplace
However, it doesn’t have to be a flip-coin exercise; retailers and brands can have their cake and eat it too. An integrated marketplace provides retailers with the flexibility to manage both wholesale- and commission-based commercial models. Retailers can use an integrated marketplace model to grow rapidly, taking as much of the margin as possible, and crucially, controlling, maintaining and excelling the customer experience. This includes ensuring that product data can be mapped accurately and efficiently from brand to retailer; that inventory quantities are updated in near real-time, by location; that accurate estimated delivery dates are provided to the customer and adhered to; and that there is consistent management of delivery options such as click and collect and returns. Not to mention, the ability and need to integrate with the diverse technologies of each brand in order to provide a streamlined experience.
With costs on the rise and warehouse space quickly becoming limited, now is the time for retailers and brands to take advantage of a marketplace model. Assortment expansion doesn’t have to be complicated, but it does need to be strategic, keeping the customer and core values at the heart of decision making and ensuring product ranges are kept relevant. After all, a marketplace that can tick many items off the customer’s shopping list, with quick and easy delivery options, will be a competitive marketplace that creates loyalty that lasts.
 Source: CommerceHub internal data