How marketplaces benefit new e-commerce entrants

How marketplaces benefit new e-commerce entrants
October 18, 2016 Jason Wyatt

How marketplaces benefit new e-commerce entrants

By Jason Wyatt, Managing Director Marketplacer 

The new e-commerce entrant faces plenty of challenges in successfully setting up their business and growing a customer base. This is especially the case for the majority of smaller e-commerce entrants who are looking to grow a business either from scratch or are making their foray online from a base that might include a bricks-and-mortar store.

The fact is that starting up an e-commerce business can still be a daunting proposition for many small business people. The idealised version of the small business e-commerce story is that you set up a website with a shopping cart, find a product to sell, and watch the dollars roll in.

Of course we all know this is usually not the reality, and if you talk to enough people who have gone through the process of setting up their own webstore, tried to attract decent traffic from Google, and marketed their new venture relentlessly through social media, you’ll know the many headaches new entrants can endure in starting up.

It’s very hard to do this successfully if you have little e-commerce experience or don’t have the right resources behind you. It’s sometimes hard enough to do even with the experience and resources.

In Australia, we’re still at the point in our online retail evolution where there is still a significant digital divide. If you’re in the online commerce game, this can sometimes be a difficult fact to grasp. The CPA Australia Small Business Survey Report 2015 came out with a few illuminating findings on this issue, including this:

“Small businesses with an e-commerce presence are more likely to be growing and creating jobs, yet the number of Australian small businesses generating revenue from online sales lags well behind Asia.”

The figures given in the report for the percentage of small businesses that generate revenue from online sales highlighted this gulf:

  • 82.3% of small businesses in Asia generate revenue from online sales
  • 37% of small businesses in New Zealand generate revenue from online sales
  • 33% of small businesses in Australia generate revenue from online sales

There are multiple structural and cultural reasons for this disparity between Asia and Australia/New Zealand, but one factor worth examining is the penetration of online marketplaces in Asia compared to Australia.

The Asia Pacific Foundation of Canada published a policy paper in 2014, E-Commerce in Asia: Growth of the Online Marketplace, which looked at the phenomenal growth of online marketplaces in East Asian markets and discussed what could be done to help Canadian SMEs tap into this lucrative space: “In East Asia, online marketplaces … are dominating online retailing and are emerging as a major source of economic growth.”

“Online marketplaces are also helping to facilitate the growth of SMEs. Often for nominal membership and royalty fees, SMEs can gain access to a larger consumer base to sell their goods and services. In China, the number of SMEs using online marketplaces surpassed 17 million in 2012.”

Australian SMEs eager to generate online sales should start considering the benefits of becoming participants in online marketplaces, especially in vertical and niche marketplaces that cater to consumers who fit their marketing profile. For new entrants, this could be the most cost-effective way to quickly secure customers, make sales, and start to build a substantive customer base.

For new e-commerce entrants, online marketplaces can provide:

  • Quality leads and sales
  • Convenience and flexibility
  • Visibility
  • Scale
  • Trust

By becoming a vendor on a vertical marketplace, for example Bike Exchange, a retailer immediately taps into a powerful lead generation framework with a streamlined and effective sales funnel. Potential customers are already on the site, browsing and adding items to a single shopping cart. The marketplace model encourages shoppers to come for one item and leave with many more.

The new vendor is being exposed to qualified leads made possible by the aggregated SEO power of the marketplace and through product recommendation prompts. The SEO ‘juice’ created by the thousands of retailers plugged into a marketplace is converted into better search engine rankings and higher online visibility for retailers and their products. This is one more powerful aspect of online marketplaces for retailers. Greater visibility leads to even greater potential scale for the retailer, and the potential to grow your customer base quickly as a startup entrant.

Online marketplaces, like those powered by Marketplacer’s enterprise marketplace platform, make it as easy for retailers to set up and start selling. Aspects such as inventory control, payments, fraud prevention, reporting, SEO or product categorisation and presentation are all taken care of by the platform, leaving the retailer free to grow their business by concentrating on other areas. The new entrant does not have to worry about the technical rigmarole of website maintenance as that is pretty much done by the marketplace.

Another benefit for new entrants is that trust issues surrounding factors like payments and data security are taken care of by the marketplace. This removes a significant degree of potential problems for online retailers as a trusted intermediary — the marketplace — becomes responsible for the policies, procedures and protocols that by extension protect both buyers and sellers.

New e-commerce entrants should think carefully before taking the plunge to concentrate all their efforts on building a standalone web store. The smarter option is to investigate the online marketplaces available that align with the new entrant’s desired market alongside establishing their own webstore.

This multichannel approach allows new online retailers to spread their risk profile while also tapping into the power of the marketplace to leverage growth for their own webstore. The relative convenience of setting up on a marketplace means it’s not a great impost on the resources of the new retailer and it will only serve to generate online sales more quickly and at greater value, while also helping to generate recognition and traffic for their own webstore.