May 13, 2021
The Marketplace Strategy, How and Why to Launch a Marketplace
A marketplace is defined as “an open space where a market is or was formerly held in town” or as “the arena of competitive or commercial dealings; the world of trade”, but when it comes to online marketplaces, the definition is less traditional. It’s an e-commerce platform or website where third party “vendors” can sell their products.
Most consumers aren’t always aware when they are shopping on an online marketplace. Etsy, obviously being the leader in the space is very easy to identify as one, but there are many other websites we regularly purchase from that are also marketplaces. Amazon.com is itself a marketplace where businesses can use their fulfillment model or self-fulfilled model to list products on Amazon and sell them, giving a percentage of the sale to the “owner” of the marketplace itself. Yes, Amazon has its own products that it makes a significant margin on, but in most cases the actual sale is going to a smaller business, with Amazon claiming a percentage of the transaction. Many other large retailers alsouse a marketplace model to increase their sales and traffic to their online stores. If you think about the business model at its core, even platforms like “Uber” are marketplaces. Though you have less preference over your driver, essentially, drivers have offered their services up for grabs and customers are able to hire them directly through a third party app/ platform.
We have seen a significant amount of marketplaces come through our question queue and have also worked with several businesses launching their own marketplaces throughout the last few years.
Why Would Someone Want to Launch a Marketplace?
The idea of having vendors promote your website for you and bring in online traffic is the goal. If you have 100 vendors actively promoting your website instead of their own, you should see a mass amount of cross-traffic and cross-promotion on your website. The other benefits are obvious. You don’t hold any inventory yourself (unless you do fulfillment) and you get a piece off of the hard work of other business owners, entrepreneurs and hard working brands.
However it’s not as easy as it sounds.
What Does it Take to Operate a Marketplace?
The technology is becoming more and more available with models that can utilize third party software to build out a successful marketplace environment on major platforms such as WordPress, Shopify and BigCommerce. While some of the configuration and platform selection can still be complex, for the most part a development team can successfully launch a marketplace without issue.
What it really comes down to is that like every other business model out there, setting up a marketplace is not a get rich quick scheme. You can’t just launch one and then expect thousands of people to sell their products on it, or customers to even visit the website for that matter. It still takes significant strategic thinking, planning and branding.
Your marketplace not only has to entice customers, but also vendors to supply their products to your store rather than just set up their own marketplace.
With that being said, here are the questions we discuss with businesses prior to working with them on launching an online marketplace:
1. Do you have the strategy in place to promote your marketplace once launched?
2. Will your marketplace support a niche, or specific customer segment that has an unfilled gap or opportunity to compete with some of the major players? (ie, what is your brand’s compelling story).
3. Do you have an advertising budget setup so that you can guarantee your vendors you will bring eyes to their products?
4. Do you have an advertising strategy and budget setup to acquire vendors?
With the above strategies in place a marketplace can be successful in various sectors. Some sort of edge to tie in a purpose to buy from is needed, and the right technology needs to be in place.