Thirty years ago, modern listings marketplaces began to appear on the internet1, and since then, haven’t stopped growing. Recently, their importance was accelerated with the meteoric rise in the popularity of ecommerce during the pandemic. Today, this business model plays a critical role in local commerce, proving to be valuable and durable for both sides: sellers (the companies that offer its products or services on the online marketplace)2 and operators (the organisations that provide a digital platform to facilitate buying and selling and sellers).
Benefits for operators
A marketplace’s primary purpose is connecting a customer and a seller on the platform. Through this partnership, many benefits can be gathered:
- Larger product selection with no need to invest on inventory or stocking
- Diversification of their core business
- Deeper customer engagement, better targeting and customer segmentation
- Stronger customer loyalty, if executed right3
Benefits for sellers
On the other hand, the partnership is also valuable for sellers, who can:
- Start right away, as the platforms are easy to use
- Advertise their products to a much larger volume of potential customers
- Associate their brand with a trusted retail operator
- Use the operator’s infrastructure, with no need to have their own tech resources
Most marketplaces have focused on the seller experience rather than the shopper experience but putting the customer in the centre of both strategies is essential for encouraging an ever-growing competitive landscape. Marketplaces will need to improve by creating an ‘end-to-end’ experience for buyers in which the individual seller is almost irrelevant.
That said, which role are marketplaces currently playing for customers? Since online marketplace platforms allow numerous sellers to offer goods or services, the selection, delivery times and fees are much wider than on individual company websites, which gives consumers greater choice, enabling a one-stop-shop experience fitting their needs and missions. For operators it is fundamental to have a clear strategy with their marketplace business, with clear definitions about what they want to achieve with sellers.
But which strategies can be developed to make marketplaces more customer-centric?
- Pro: Marketplace businesses can offer an endless variety of items to customers, with both breadth and depth.
- Watch-out: Overwhelming shoppers with too many buying options can be counterproductive and discourage customer engagement. Too much choice isn’t always a good thing, and marketplace operators should have a good understanding of category roles and levers to define the right number of brands and sellers. It’s important to have a clear view about which categories should have more sellers and which customer needs they are addressing.
- Pro: Within the same platform, app or website, customers can easily compare characteristics, check out reviews and ratings, and analyse delivery details to find the most attractive offer.
- Watch-out: Operators should define rules for product registration (product name, attributes order, etc.) and have high quality standards for additional information (product picture, characteristics, instructions, details, etc.), so that customers have a uniform user experience across all products.
- Pro: If customers can concentrate their purchases in one platform, they have more chance to get familiar with loyalty programmes and enjoy the benefits and bonuses that the vendors can offer to reward their engagement.
- Watch-out: Operators should take advantage of all customer knowledge and structure processes to provide a higher level of customer personalisation. It’s important to implement strategies according to overall customer behaviour and develop science to simplify shopping and personalise users’ experience with meaningful choices (creating demand by delivering targeted recommendations at the right time, motivating customers to add more to their basket, etc.).
- Pro: A one-stop-shop is an unquestionable benefit for customers, as they can solve a wide variety of needs in the same place, making higher orders. With bigger carts, the chances are that they will receive some benefits, such as free delivery or coupons for the next order.
- Watch-out: As a basket can have items from different sellers, it could be tricky for a customer to understand shipping policies, different taxes, and delivery times. Operators should try to optimise shipping for different sellers, encourage people to buy more from the same seller, adding this as a feature on the navigation flow, and communicate with the customer with transparency. Besides this, in general, operators may be able to offer fulfilment and operations services to sellers to achieve more scalable and efficient order and pick. It’s important to employ advanced use of data, technology, and robotics, enabling economies of scale.
Ecommerce marketplaces are a great solution for many operators, and especially for the retailers who are already in the ecommerce business and have the appropriate supply chain to support it3.
The expectation is that this business model will keep growing; in this competitive market it will be fundamental for the businesses to take care of the customer experience, using deep customer knowledge to create solutions to overcome the challenges and moving forward successfully riding this wave. In this landscape, dunnhumby can assess a clients’ capability against ecommerce areas and provide recommendations to increase maturity across different pillars.
Case study: Magalu, Brazil
The retailer: Magazine Luiza is one of the largest retail chains in Brazil, focusing on durable assets and enjoying a strong geographic reach across Brazil’s low-income class with 45 million registered clients. They offer a highly diversified products mix focused on household appliances, electronic products, technology, furniture and kitchen, domestic utilities, sporting goods and fashion. They are a multichannel sales platform which allows clients to choose where, when and how they want to buy. The company declares the digital transformation of Brazilian retail as their key strategy.
Marketplace success: For Magalu marketplace sales now make up 36% of total online sales. Over the last three years, the Magalu Marketplace has shown an average annual growth rate of 84%, and recently they passed the 200,000-sellers mark.
Benefit for the operator: For Magalu, this is a game-changing point. The expansion of their marketplace is impressive when measured by new categories. During the second quarter of 2022, sales of items in new categories, such as fashion, home, garden, sports, beauty, and automotive accessories, grew more than double the rate of the core categories.
Benefits for the sellers: There are more than five million customers who access the Magalu app daily. In the entire Magalu ecosystem, the audience is 350M sessions each month. A common seller would be unlikely to have access to this audience working alone.
- Sorting their assortment: Magalu use specific methodologies and processes to create and support category roles and levers, and priority assortments can ensure that the right balance is met.
- Engaging with customers: Understanding the difference in behaviour between first party and third party shoppers is critical in understanding if they have specific needs that must be attended to, and how best to do this.
- Ship-shape shipping: Within Magalu, 40% of third party deliveries are made within 48 hours. Magalu recently launched their own fulfilment operation, fully integrated with its first party operation and leveraging its existing logistics infrastructure. Today, sellers can accelerate the speed of their deliveries, combining a high level of service with lower costs.
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