Increasingly, traditional retailers (and other businesses like banks and telcos) are expanding their value offering in the market by adopting a third-party marketplace model covering additional (non-core) services, such as a bank selling airtime or connecting car buyers with private sellers or a telco offering financial services and even a full product marketplace like Vodapay.
In one sense, this is nothing different from retailers who have always offered value add-ons like airtime or funeral policies in-store. Digital has made expanding these services a whole lot easier.
These businesses all face pressure from changing consumer habits, online competition and rising costs. Why the shift to expand?
Third-party marketplaces offer several advantages:
- Expanded product range: Retailers can offer more products without the cost of holding inventory (e.g., over 60% of SKUs on Amazon are not products they hold stock of themselves)
- Boosted customer engagement: Marketplaces reduce lost sales due to unavailability and increase customer visits
- Monetised existing assets: Retailers can generate revenue through commissions and by offering services like fulfillment to third-party sellers (e.g. BoBGo Fulfillment Services) combined with membership-based subscriptions like Checkers60 Xtra Savings Plus or Amazon Prime.
- Valuable data collection: Marketplaces provide insights into customer behaviour and preferences.
Challenges of the marketplace model
- Operational complexity: Retailers must manage workflows with multiple sellers, including order processing, fulfilment, returns and compliance
- Customer experience: Retailers are held accountable for the performance of third-party sellers
- Cultural shift: Retailers must adapt to managing an external network of sellers and address concerns about competition with their products.
Marketplace strategies
The article suggests three approaches:
- Full adoption: Suitable for mass-market retailers offering a wide variety of products (e.g. Loot, Pricecheck, Takealot, Makro)
- Selective adoption: Best for retailers focused on their own product lines or premium brands (e.g. Leroy Merlin)
- Wait-and-see: Appropriate for retailers prioritising exclusivity or tight supply chain control (e.g. Mr Price, Coricraft).
The omnichannel advantage
Traditional retailers can leverage their physical stores and omnichannel capabilities to differentiate themselves. Stores can become customer engagement centres, distribution hubs and return points, benefiting both customers and sellers. Reimagining retail
To fully leverage marketplaces, retailers should:
- Evolve the integrated model: Reimagine store portfolios and product assortment strategies and potentially expand into new categories.
- Embrace a marketplace mindset: Prioritise marketplace excellence and attract and retain high-quality sellers.
- Explore new business models: Generate revenue through seller services like fulfilment, shipping, and advertising.
Conclusion
My personal view, after spending more than 10 years in the ecommerce industry in South Africa, ranging from working at Google working with SA’s largest retailers, to my own digital agency working with Amazon sellers globally, to owning an omnichannel store, is this:
Third-party marketplaces offer traditional retailers a way to revitalise their businesses and remain competitive. By integrating marketplaces into their overall strategy and leveraging their unique strengths, retailers can reimagine their future and thrive in the changing retail landscape.
The core value offering of the brand, its product, and its experience to the right customer should always be leading in how wide and deep a marketplace is adopted. If a brand goes too wide with its marketplace strategy, it risks competing with too many bigger and more established players, and you can’t deliver on the promise of a multi-category marketplace. Ideally, a marketplace strategy is rolled out by a brand/retailer that complements their existing offering within their niche or category. Focused on key competitive advantages such as product quality, store experience, brand or price.