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How you can drive a 10% increase in revenue with the marketplace model

Published on July 27, 2021

With around half of all global eCommerce sales occurring on marketplaces, it’s little wonder the marketplace model has become a key strategy for driving digital commerce revenue. This is backed by Gartner, who predicted that by 2023, organizations that have operated enterprise marketplaces for a year will pull ahead with a 10% increase in digital revenue, at minimum.

Yet despite all the buzz, many brands still struggle to understand how the marketplace model, with its ability to enable third-party sellers to sell directly to end customers, is able to generate these financial advantages. Let’s take a look.

Tapping new revenue streams

The traditional eCommerce model sees retailers sell products to buyers online. The merchant is responsible for everything – the warehousing, packing, shipping, payments and marketing. Revenue then comes from product sales. Switching to a marketplace model provides new revenue opportunities such as operator and listing fees, lead generation fees, and advertising and commissions – all charged to third-party sellers. The operator is not responsible for the burden of warehousing and logistics either. Combined, these features allow marketplace operators to manage a selling environment that offers multiple new revenue streams while also being highly scalable – there is no limit to the number of sellers that can be onboarded.

Increased lifetime value of customers and order size

Retaining customers is just as important as acquiring them. After all, revenue from existing customers is often used to attract new ones. A marketplace better serves the customer by providing them with a wider, richer product assortment to choose from. The expanded product selection also contributes to an increase in order size and, because there are more sellers with their own stock for existing product categories, reduces the likelihood of products being out of stock. These features help turn a marketplace into the go-to destination for shoppers needs; decreasing the spend needed to motivate them to return and make repeat purchases.

The increase in customer satisfaction and loyalty translates into an increased customer Lifetime Value (LTV) – the total value a customer generates for your company, over time. And of course, more sales in the long run.

Expanding products without the overhead

For a conventional eCommerce business, creating a wider product portfolio is a natural step when looking to grow sales and meet the needs of various customer segments. But as the number of products increases, the cost of inventory, stock management and logistics goes up too. A marketplace carries less financial risk because it follows a zero inventory model with no investment in inventory or warehousing and logistics. Not having to manage growing inventory enables the operator to easily add an unlimited number of sellers and products without facing traditional roadblocks.

Balance demand better

Providing a broad variety of goods helps operators better ride out fluctuations in demand. Some products may experience a decline in demand, just as others surge. The large variety of products means a dip in one product category is more likely to be offset by the rise in another, ensuring the wider business is not affected by unpredictable market movements.

The data advantage

Marketplaces generate a lot of customer data. Harnessing this real-time information and data insights can help to transform operations, deliver the best customer experience, and ensure operators can make confident decisions to inform future product innovation.

The critical technology foundation

The focus for retailers today is less about developing and selling their own first-party products, and more about deploying a solution to easily manage their marketplace ecosystem including:

  • onboarding sellers
  • importing products
  • order orchestration
  • payments
  • commission calculations, and
  • support for post-purchase activities.

The Marketplacer platform is built to add flexibility to this process. Not only is it incredibly fast to onboard new sellers and import their products, you can build your solution to suit your business. This can vary from deploying an end-to-end Marketplacer solution with our full stack solution, or by adding required functionality to your existing eCommerce site with Marketplacer’s headless or connected options.

As the marketplace model continues to prove its financial value for operators, third party sellers and customers, expect to see more marketplaces launch over the coming years. In fact, retailers who fail to weigh up the marketplace model for their business, may be risking irrelevancy.

Marketplacer
Published on July 27, 2021

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