Mikko Seppä
September 7 2022
There’s actually a huge undiscovered opportunity for new marketplaces in specific industries in both B2C and B2B markets. The discussion about marketplaces often turns into big players like Amazon. It’s surely dominating one side of the market with its wide range of product selections, low prices, and powerful logistics, which can be nearly impossible to compete with. But Amazon can’t compete with everything.
What’s shocking is that very few, or even zero players in particular industries take advantage of the marketplace operating model. Now would be a once-in-a-lifetime opportunity to disrupt the market in one specific industry and take market leadership by launching a marketplace-based digital service.
What Is a Marketplace?
A marketplace is a digital service where vendors or service providers can sell their products or services directly to customers. The core idea of a marketplace is that it brings together the right vendors and the right customers. The revenue model is that a marketplace usually takes a commission of orders made through the service, but other revenue models could also be applied.
The role of the marketplace owner is to onboard vendors into the marketplace, promote the marketplace to customers, drive sales, and ensure an excellent customer experience. But on the other hand, some of the operational sides, like stocking, packaging, and shipping the products, is left to vendors. This is one of the things that differentiates a marketplace from retailers or wholesalers: a marketplace does not own the inventory it sells.
Marketplaces Enable Synergies Between Companies
Marketplaces create ecosystems! In the old days, companies with similar interests would often compete against each other and eat each other’s business. In an ecosystem, companies will join together in a digital platform, and offer complementary products and services to gain competitive advantage through better customer experience. It’s all about synergy between companies.
For vendors and service providers, joining a marketplace can also be very beneficial. For them, the marketplace will promote the services to customers and drive sales through digital channels, where the vendor can focus on building new innovative products and offering the best possible service. Each vendor doesn’t need to build their own digital service. Instead they can just join different marketplaces to reach customers, which will result in cost savings for them in digital service development and sales and marketing efforts.
More Efficient, Wider Assortment, Less Risk
Often, a wide product assortment can also be a differentiating factor in the market. Especially companies operating in retail or wholesale, who constantly need to balance between the size of the assortment they offer, and the inventory risk a broad assortment can create. The marketplace operating model opens up an amazing opportunity to scale up the product selection without taking a huge risk of unsold inventory. The marketplace model can also make a retailer’s or wholesaler's background operations more efficient since some of the responsibilities, like logistics, will be transferred to the vendor.
The Best Experience Will Win
A company that manufactures and sells clothing products could create a marketplace for reselling and repairing the clothes. Any company operating in that business area could easily join the ecosystem. The customer could purchase the actual product and get all the services they need during the product's lifecycle through one easy-to-use digital service.
The clothing manufacturer would then get continuous commissions for the sales, plus it would get the customers returning to their own digital sales channel after purchase, resulting in increased repurchase rates, and increased revenue. Overall, the mentioned arrangement would benefit everyone: the manufacturer, the service provider, and the customer. That’s the core idea of ecosystem thinking.
Benefits for the clothing company:
- Differentiation in the market
- Competitive advantage through exceptional customer experience
- New continuous revenue stream from commissions
- Improved customer loyalty and repurchase rates
- Improved sustainability by providing reselling and repair services for the products
Benefits for the customer:
- Better overall customer experience
- Makes the customer’s life easier, no need to search for complementary services from different channels
- Enables sustainable consumption of goods
Benefits for the vendor:
- Reach new customer segments without massive marketing efforts
- New revenue stream
- Improved efficiency (sales, marketing)
- Synergy benefits with a known brand
Now here’s the big deal: a similar operating model can be adapted to any business, regardless of the industry or if it’s a B2B or B2C business. Now's your chance to come up with a new marketplace concept that will take your business to the next level and disrupt the market.
How To Get Started?
Many times, it’s good to start by creating a direction for the marketplace, assessing your current commercial capabilities to run a marketplace, and to understand which capabilities need to be developed.
Here is a list of some examples you need to consider at the very beginning:
- Create a direction by defining a commercial strategy for the marketplace. Define what is the role and purpose of a marketplace as part of your overall business strategy. What are the competitive advantages of the marketplace? Who are the targeted customers?
- Create a concept for the marketplace and validate it with potential partners and end-users.
- Reach out to potential partners for the marketplace, like vendors and service providers. Assess their commercial capabilities to join into your marketplace ecosystem.
- Design the background processes needed to run a marketplace. For example, how are the payments processed and distributed to vendors? How to manage refunds and returns?
- Design a scalable technical architecture for the marketplace and make sure it fits your current IT environment and integrates into your existing systems.
- Study different technologies and platforms that support building the marketplace solution. What are the pros and cons of each platform, and how do they fit into the architecture? How scalable are they for your future needs?
Want To Learn More?
Join our webinar on September 20 at 14.00 EEST about the topic "Own marketplace – new business opportunities". In this webinar, you will hear the benefits of bringing several sellers to the same platform and what you need to consider when setting up your own marketplace.
The webinar will be presented in Finnish.
