To those completely new to the term, it may sound like a confusing term or simply, a "dressed" up, "marketing" way of presenting an e-shop. This indeed, could not be further from the truth. So how exactly do we really define a marketplace, and how does it differ from an online shop?
A marketplace by definition is a type of e-commerce web platform that helps sellers and potential buyers find each other online and then interact.
It is effectively a platform where vendors can come together to sell their products or services to a curated customer base. The role of a marketplace owner is to bring together the right vendors and the right customers to drive sales through an exceptional multi-vendor platform - sellers have a place to gain visibility and sell their products, and the marketplace owner earns a commission from each sale. An online store, on the other hand, is a single store selling its own products online. All marketing and operations are managed by the company that owns the website and products.
When it comes to marketplaces, things work slightly differently to your conventional online shop owner as marketplace owners do not own the inventory their platform sells. The marketplace owner, therefore, leaves the more operational side of the business to vendors while focusing mainly on promoting their marketplace brand with a view to driving traffic to the platform and converting site views into sales.
The first generation of marketplaces back in the late nineties (e.g. eBay) were purely making the connection between buyers and sellers – basically giving users on either side a way to contact the other party via using their platform to buy or sells their products. They basically created a new niche, in which everyone had the opportunity to become an online store owner by simply making use of their platforms.
Since then, things have changed enormously in the industry, with companies like Amazon and Rakuten now dominating the online market whilst also diversifying into a number of other fields. At the same time, Marketplaces have become increasingly intuitive and able to allow owners, to offer custom page, multiple drop-shippers and even invoicing.
What Types of Marketplaces are there?
Marketplaces can be segmented into 3 different categories, namely: horizontal, vertical and global.
Vertical: An vertical marketplace is one that offers a number of different products, which are all of the same type. Such an example would be Chrono, a UK company that is able to boast and promote selling the best quality watches available. Their specific target and focus on the market, allows them to dominate their niche and offer a more customised and selective service to watch-lovers nationwide.
Horizontal: A horizontal marketplace offers products of many types but they all share a characteristic. For example Farfetch, is an online luxury fashion retail platform that sells products from over 700 boutiques and brands from around the world. It offers its users the possibility to simply download its app (rather than individual apps for each brand that one likes), and shop from a variety of products, brands and prices. It effectively focuses on a type of customer and offers them multiple products across many types of retailers.
Global: A Global marketplace, does really what it says on the "tin". Everything and Anything. It sells all kinds of products, to all audiences, worldwide. The most common example that tends to pop to people's minds, is of course Amazon that have dominated the market and became on the largest brands worldwide.
So as we have provided a brief introduction of what a marketplace is and its differences with a conventional, online shop, let's have a look at 3 of its' key features, that makes a marketplace so unique and attractive to today's entrepreneurs worldwide.
More Customer Satisfaction
Marketplaces remove the extra processes involved with running a traditional online shop which allows you more time to concentrate on the areas that really matter - Customer Satisfaction. With less to think about in regards to keeping on top of your inventory management, site management, marketing etc. Operating within a marketplace allows you to focus on attending to your customers needs to optimise their user experience.
No Inventory stocked
One of the biggest advantages for marketplaces is the fact they are not required to pre-order or stock large quantities of inventory. As one of the most common reasons that cripples start-ups as well as companies looking to scale up fast, inventory not only requires meticulous planning as well as the space and staff to maintain and manage. A marketplace eliminates all this stress and cost, allowing entrepreneurs to start fast, with minimal costs as long as they make sure that their vendors are adhering to quality regulations and guidelines
Scalable Business Model
Marketplaces (from examples like Uber to Amazon) marketplaces have revolutionised the Online "playing field" and created a number of new business models and successful enterprises. While marketplaces do often indeed need to sell a higher amount of products, the fact that focus is on the platform, and reaching consumers, rather than stock and inventory, translates into economies of scale are becoming much easier to achieve. This has allows marketplaces to rapidly dominate the world of e-commerce in just 10 t 15 years time.
Marketplaces are undoubtedly, a new, better way for business to grow and scale up with lesser risk and much more opportunities to have full control.
We recognise the majority of businesses are going through challenging times and do our best to support our clients and partners. All new clients can now take advantage of 28 days free trial. We also offer a complimentary White Glove Onboarding session with one of our skilled marketplace consultants.
Our team has worked with over 1500 marketplaces and happy to provide support and advice beyond technical set up.
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