Running marketplaces is a cut-throat job. Who will survive?
2017 was the year of retail apocalypse. Now it looks like the worst has passed. The SPDR S&P Retail fund (XRT), a collection of traditional retail stocks, has gained 35% compared to its low in 2017 and is currently trading higher than its peak in 2015. But while retailers like Abercrombie & Fitch and Urban Outfitters are seeing a surge in interest, the online revolution isn’t quite silenced.
In 2017, Softbank invested $2.5 billion in Flipkart (a stake that was later sold to Walmart) and Alibaba put $200 million towards Paytm Mall. Indonesian marketplace Tokopedia raised $100 million, again from Softbank. This glut of money also means a glut of competitors and marketplaces were never an easy business to begin with.
Research by Retail Dive showed that over 65% of consumers conduct online research before shopping offline. And this is the more conservative number — some firms cite numbers as high as 88%. Combined with the fact that the majority of US shoppers browse on online marketplaces, it is easy to see why so much money is being poured into the industry.
Marketplaces may be a high stakes high rewards game but they are not easy money by any means. Increased funding is not the only reason for higher competition, now tech companies too are trying to set up their own native marketplaces — think Facebook, Pinterest and Google Shopping.
The problem with marketplaces
When it comes to marketplaces there are many companies that have tried. And failed. Remember fab.com? Or Gilt.com? A big reason why so many marketplaces don’t take off is a lack of active users. Marketplaces are very hard to build and sustain. This barrier is why good marketplaces are very hard to build.
The size of your virtual inventory
As stated in the Digitalcommerce360 survey linked to above, a majority of people who shop online use marketplaces for comparison shopping. And there’s going to be no comparison if the marketplace contains a measly 1000–2000 items. Unless your category is very very niche, a marketplace needs to have millions of products and vendors in order to become a central fixture in people’s minds. It’s the old chicken and egg problem. How can a marketplace attract lots of listings and vendors without a big user base? And why would users flock to the site if it only has a few hundred vendors?
One option is to use solutions like Semantics3 and UPCItemDB to get a head start by onboarding products via universal product catalogs. This would ease the way for vendors to start selling without having to go through the hassle and time taken for setup.
The quality of said inventory
If we are looking at sheer scale then ideally we’d like tens of thousands of goods in a online marketplace. Where’s all that going to come from? It’s easy to decide what you want to list but getting a good listing is a complicated task. Suppliers, brands and retailers all have different Product Information Management (PIM) systems that format data differently. There do exist services which can help with reformatting and standardizing data, but what about handling missing information?
Product descriptions and specs influence 82% of purchase decisions (for context, product ratings influence just 64%). After product images, product descriptions are the most important factor in moving a customer towards purchase and yet they are woefully under utilized. Ecommerce as a channel misses the tactile feedback that an actual store can provide and that is why the best websites are the ones that provide the maximum amount of information in the most digestible format possible.
What does digestible format mean?
Imagine you are looking to buy a Cannon EOS 1300D. The screenshot below provides all the information you might need, but for a customer who is browsing and looking at dozens of listing in under 10 minutes it is worthless. It is hard to read and discern the actual product specs from a listing with minimal formatting and basic information.
A second problem is when dimensions change between different products on the same website. On marketplaces, generally, multiple sellers upload information so while the inconsistency is understandable, it is also undesirable. If I’m looking for a table then I don’t want to find some measurements in inches, some in metres and some in centimetres. A standardized product listing makes the shopping experience a lot more seamless. No website does this better than IKEA which has the advantage of control when it comes to inventory, channels and more. The magic question is — how can a marketplace become as good as IKEA while not being vertically integrated?
What does an amazing marketplace look like?
Scale is (almost) everything
Unless your marketplace has a niche focus, having a large (virtual) inventory is important. Retail is segregating increasingly into two groups — specialized boutique stores that focus on a very narrow but appealing product or category and huge aggregated marketplaces where you can source literally anything. The second is a winner takes all strategy.
Bite-sized information, but lots of it
No one can accuse Amazon or Alibaba product pages of being pretty. Looking stylish, updated or slick is clearly not their core competency. And there is very good reason for this. In a marketplace, quantity and quality are both important. The trick lies in having a lot of information available and yet making it easy to understand.
Efficiency and vertical integration
Marketplaces are often trying to do the impossible and the move towards vertical integration is no different. On the one hand having a large virtual inventory with no real inventory is a very lucrative low risk prospect. But vertical integration also means higher margins and more efficiency in terms of faster delivery and better service. Hence, the push towards private labels in Amazon and delivery fulfilled by Prime.
Getting an edge
The race for marketplace domination is fuelled by colossal funding but money is not the only thing that will win this war. Along with being the best, fastest and (often) cheapest place to shop, marketplaces also have to think about how to convey a barrage of information to their customers in a friendly, easy-to-use manner. Those challenges involve everything from standardizing product data to controlling fraud. First-mover advantages are vital in the retail industry and companies that solve these problems first will likely win the war.
Do you run a marketplace or brand, and are looking to expand your product catalog significantly? Get in touch with us.
Published at: August 16, 2018