Marketplaces: Friends or Foes?

Consumers spent 1.7 trillion dollars in the biggest 100 online marketplaces in 2018 which accounts for more than 50% of global online retail sales*, with a 20% year over year growth. While the tough competition between platforms continues there are so many issues that brands and marketplaces have to discuss.

Digital commerce has utterly changed the business models of the retail industry for good. It has not only enhanced the industry as a whole but has also created new business opportunities in other related fields, such as logistics, stocks and data protection.

Digital commerce as we know it has an enormous impact on outputs such as sales volume and revenue, as well as on brand presence and reputation. The concern here is, the decisions companies make regarding their digital commerce usually have exponential results. The real questions are; which channels should be used and how to effectively utilize these channels. Marketplaces are one of the most controversial channels for that matter.

Do marketplaces have a positive or negative impact on retail brands?

With the right strategy, there is no reason to be afraid of their increasing dominance over e-commerce. Marketplaces are useful tools that can significantly improve sales and brand recognition. Through the digital resources provided by marketplaces, new establishments can view purchasing habits and order reports. Marketplaces provide a labor force, performance improvements and operational services for a reasonable price which small firms cannot or would not typically prefer to finance themselves.

Should brands invest in online channels or choose marketplaces? 

It depends on the brands’ DNA. There are some well-known brands which do not plan to enter marketplaces because it does not fit their DNA for the time being. Additionally, there are brands that recently quit marketplaces for the same reason.

Recently, Nike announced a change in its digital commerce strategy. Nike plans on reducing the number of channels selling their products; therefore sales will take place through its own website and network of stores. Since they know the power of the brand, Nike does not want to cut their profit. 

Should brands be picky or should they reach out to the maximum number of consumers by entering every marketplace? 

Taking place in every marketplace possible without having strategic objectives would most probably affect a brand negatively. It does not only reduce the control of the brand over its own image but it is also not a profitable approach in most cases.

Here is another good example from Nike: After announcing its pilot program to test the sales on their website, they decided not to sell their products on Amazon. Such pilot programs are a good way to get to know your customers and choose the right strategy for your brand.

So…

Retail brands should know their DNA and their customers before positioning themselves for marketplaces. Taking that into account, there is no reason for marketplaces to be enemies. Marketplaces can help brands in growing their target audience and expanding their sales, if they are approached with a smart strategy.

The ideal positioning is creating a dynamic balance with marketplaces, by constantly implementing minor adjustments according to feedback gathered from the market. Whatever retail brands decide to do, rather than labelling marketplaces as ultimate friends or foes, maintaining a co-operative perspective can provide the best results possible.

Moris Kastro
Partner, Inveon

 

*https://www.digitalcommerce360.com/product/online-marketplaces-report/

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