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BW Businessworld

What Is Your Online Marketplace Strategy?

One need to consider products sale volume, their shelf life, what inventory level is being held, settlement cycle, expected sale lead time etc. to create a ROI model before starting to sell on marketplaces

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As per a Forrester forecast, the top two Online Marketplaces have 71% Market share of online retail business in India which is growing at 31.2% CAGR. Globally, more than half of the B2C online retail spend comes from marketplaces.

Selling on either B2C Marketplaces or creating one is a key aspect for a retailer's business strategy. The important factors that drive the inevitability of Marketplaces in geographies like India and South East Asia markets are:

"    Opportunity for the relatively larger unorganized retail sector to increase reach via digital channels
"    Availability of mature online marketplaces (like Amazon, Flipkart) with high brand visibility and operations
"    Increase in Internet & Mobile penetration
"    Customers' expectation around increased buying options and lower prices
Some of the key benefits for sellers to build visibility in a marketplace include:
"    Leveraging the trusted "marketplace brand" to reach a wider customer base
"    Building an additional channel for sale
"    To be able to provide multiple delivery & payment options
"    Opportunity to learn best practices from the marketplaces

While the afore-mentioned aspects necessitate the domestic sellers and brands towards a marketplace eco-system, global brands (especially luxury) can also look at a marketplace model as an entry strategy into India before investing in their own branded site. The key drivers for them include lesser time to market, lesser initial investment and an immediate access to a customer base leveraging the existing marketplaces. However, the key consideration for global brands is to not dilute their brand positioning and hence look at segmenting their assortment for the marketplace business and their branded store/online business.

For any brand, the options range from "having branded site/web/apps as primary channels with marketplaces as additional channels" to "marketplaces as the only digital channel to building one's own marketplace."

Brands can either take a bolder strategy by creating their own marketplace (E.g. retailers like Walmart, JCPenney in the US) or, leverage the existing marketplaces which are more mature (Amazon, Flipkart) or upcoming (Tata CLiQ, Reliance) which may potentially provide an offline option due to an existing eco-system. Furthermore, there are other non-retail brands foraying into marketplace models like the payment provider PayTM (PayTM mall) or even OEM brands like Samsung (leveraging Samsung Pay and Samsung Store) to get their share of the marketplace pie.
Here are some of the key considerations while calibrating a successful marketplace strategy:

1.    Brand Positioning

Price and product availability are some of the key reasons for customers to come to a marketplace. For a brand like Batla who sells commoditized products like aluminum ladders, all they need to do is to ensure availability across multiple channels while keeping the prices consistent across all channels including marketplaces. Whereas, Tanishq a niche jewelry brand has a limited assortment with lower price points on Amazon but has a wider collection on its own site for their premium customers so as not to dilute their brand image. Similarly, Xiaomi plays through availability (limited flash sales) as a mechanism to position themselves through exclusive tie-ups with marketplaces.

2.    Creative Freedom 
While marketplaces give readymade tools and processes, they are also restrictive in their preset rules and workflows, which may limit the sellers' creative ability in expressing their brand proposition completely to their customers. For example, Bata, a popular footwear brand, sells on all leading marketplaces in India, but their landing pages or checkout path on marketplaces are nowhere close to "lifestyle focused journeys" on their own freshly launched website, Hence, brands should strategize to get customer acquisition through marketplace and lead them into their own Online/In-store for a richer experience through loyalty, promotions and personalized experiences.

3.    Financial Model
Marketplaces can be either commission, or margin-based. In the commission-based model, the financial structure is standard and comprises of two types of fees, viz transactional (per order) and non-transactional (listing or storage fee) which could vary by category. In a margin-based model, the product is sold to the marketplace for resale on a lower margin. Margins could be different for different sellers (based on the negotiated contract).

One needs to consider the products' sale volume, their shelf life, what inventory level is being held, settlement cycle, expected sale lead time etc. to create an ROI model before starting to sell on marketplaces.

4.    Fulfillment Model & Operations
Fulfillment models are based on who holds the inventory, who picks the packages and does the last mile delivery. A full drop ship model is easiest to get started wherein the inventory liability and the whole fulfillment are with sellers with no dependency on marketplace. The flipside is the credibility aspect as customers would trust the marketplace brand than the individual seller brand. This opens up other models like Fulfilled by Marketplace (FBA) or Marketplace offering only last mile (eKart of Flipkart) or sellers selling to marketplace entities like Cloudtail (Amazon).

It is recommended to have the same fulfillment model for all the product categories sold, as it would make the operations easy. Most of the marketplaces will have clear SLAs defined for the various operation stages. The rating of the seller goes down with lesser compliance to these SLAs.

Post-sales delivery promises & customer services play a key role in customer retention. Having a unified dashboard to track and run the operations will help especially in case of higher order volumes and with a larger assortment.

5.    Products Visibility

Product discoverability across the customer journey (Google Search, Internal Search, Site navigation, Product Details page) within the marketplace is one of the key considerations for brands. Managing product data - images, content and price using the right processes and toolsets plays a critical role in SEO and search results. Categories of the products being sold should be sufficiently visible on the navigation path and not buried deep down in the category hierarchy. When multiple sellers sell the same product, it is critical to get the default 'Add to Cart' button on PDP for sellers based on things like customer location, inventory availability, seller reputation (KPIs), boost (monetary) etc.

Setting up one's own marketplace: 

The key reason to create a new marketplace for a traditional offline business like Malls (Phoenix, Prestige Forum) could be to defend by sustaining their existing business model online and having a new revenue stream or to differentiate from pure-plays through the existing ecosystem like stores, logistics (Reliance, More) or to disrupt with new business models (service marketplace like urbanclap). Setting up a new marketplace will require a detailed go-to market strategy and an elaborate plan with robust execution chops, not to mention deep pockets for investment. To succeed, some of the key decisions include:

"    Build vs. Buy off the shelf product
"    Organization structure (offline and online)
"    Operations Processes
"    Seller selection & onboarding mechanism
"    Tools for sellers to manage products and orders

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Online Retail business Marketplaces

Pradeep Ganesh

The author is Senior Director, Publicis.Sapient

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Vasanth Desikan Vasudevan

The author is Director, Publicis.Sapient

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