Who is scared of the big bad marketplace?

06-05-2019 Dennis Zuurhout

Platforming a multi-vendor e-commerce portal is a great way to enhance your market position, but requires detailed preparation, not least because there is no off-the-shelf solution to get you there.

If you run a successful online music shop, selling anything from piano stools to professional recording equipment, why would you invite your competitors to offer similar, or even the exact same products, on your platform?

On the face of it, this is madness, like a pack of door-to-door salesmen travelling together to sell different makes of vacuum cleaner, or perhaps even the same brand!

But hang on a moment …. isn’t this what is happening? The 21st century consumer has a million salesmen knocking on the door of his computer or his mobile phone every second of the day. If there are rival websites marketing piano stools or ukuleles that are better or cheaper than yours, the customer will find out soon enough, almost as easily as if these rival products were listed on your site.

So perhaps it is better to open a marketplace, and have consumers looking for a Gretsch guitar come to you first, and do their searches on your site instead of Google, even if they end up purchasing the instrument from a competing vendor. 

Instrument of change

This is the calculation made by Bax Music, the Dutch music store. It believes that by becoming the go-to site for its niche, its dominant position will be enhanced, not undermined. 

The marketplace model is attractive for many different types of product: office wares, IT peripherals, personal protection equipment, electrical goods, fashion accessories. For many of these sectors, the race is on to develop the best marketplace.

Bax expects to complete its marketplace project in about a year. This may be optimistic because multi-vendor portals are extremely challenging to conceptualise and to build. 

To own or not to own?

What kind of marketplace do you want to be? The existential question that you have to confront head-on is: who is the owner of the transactions that go through your portal? eBay takes a hands-off approach, and merely introduces the buyer to the seller, hence the term ‘digital matchmaker’ to describe marketplaces. 

In this model, you are relying on your vendors to fulfil the order, and offer a first-rate customer service. You have to trust all of them to do that because if they mess up, it is the reputation of your marketplace that takes a hit.

The alternative is to take control and plan a marketplace where you own the order. This is not for the faint-hearted, and requires a sophisticated organizational infrastructure. Where ‘control marketplaces’ struggle is not so much with the logistical headache of delivering the order, but with providing top-notch customer service, especially if you have a strong international presence.

Whether you go for hands-off or control, or a hybrid combination of two, the decision cannot be ‘unbuilt’. So the implications of your choice will have to be thought through very carefully.

Other considerations

And that’s just the beginning. How do you guarantee uniformity in how products are catalogued and presented on your platform? If there are errors (and there always are), you won’t find out about them until it is too late and the buyer has complained or returned the product.

How do you rank the products? Amazon uses algorithms based on a combination of price/delivery terms and customer reviews. This may not suit you. You may want to be more hands-on in how you orchestrate your listings. 

Either way, the logic of the marketplace demands that vendors compete with each other on price, even if that means a product from your own assortment is sometimes more expensive than a rival deal. Buyers will flock to your marketplace if they know it’s where they get the lowest prices, the best delivery terms and a great customer service.

Multiple vendors, multiple orders

Delivery is not only about logistics. Consider this very common scenario: a buyer has purchased three items on your marketplace, each with a different vendor who all offer free delivery of orders over €50. But each of the items is priced just below €50, but the total value of the order come to €130. You can’t really charge the customer three times for delivery, and even less so if the goods arrive together which is what everyone prefers - and which is key for a lot of B2B transactions.

The VAT quagmire

Your B2B customers want to reclaim VAT, but in many tax regimes, the middleman is not allowed to list VAT separately in the invoice. The buyer has to click on a link to contact the re-seller for whom VAT invoicing is a massive administrative nuisance. Yet to attract B2B to your marketplace, you need to make this process as effortless as possible.

Out-of-the-box is more Pandora’s box

As will be obvious by now, there are no out-of-the-box solutions for multi-vendor platforms. Each marketplace has evolved its own DNA from the many decisions that were made in the initial planning phase. 

The only way to begin is to begin. Reading blogs on marketplaces will get you only so far! Before you daydream too much about the kind of marketplace that you believe will propel your business forward, get some expert tech advice. Early advice, because it is very likely that the technical consequences of your strategy are even more complicated than you first suspected. 

Not only that, a trusted adviser will highlight challenges and opportunities that did not yet occur to you.

Marketplaces are a wonderful opportunity for niche retailers, and one that consumers increasingly like and trust. Don’t be put off by the pitfalls: you didn’t build your brand by shirking challenges. But make sure that you allow yourself to take a step back and ask someone who has been there, done that, for advice.