Over 70 % of the 10 largest online businesses in France and the US offer a marketplace that complements their direct sales business. This model was first introduced in the early 2000s by Amazon and is now attracting increasing numbers of players. What the industry giants have understood is that the marketplace seems to offer the solution to achieving growth and profit by responding to the expectations of customers who are increasingly demanding.
Nothing seems more appealing than making the most of leading marketplaces to sell products and boost turnover.
The only physical assets that pure-players have are warehouses and head offices, with just online catalogues and no shops to welcome their customers. This format is a major time-saving option for visitors looking for a specific item. Amazon proposed 183 million products in 2015, which is a massive offer.
Customers are therefore likely to find what they are looking for and receive the item in one click.
Another benefit of these e-commerce sites is their price. Amazon prices are very attractive, because with no provision of service, they can sell products for less than in the large stores. This new form of digital shopping is a resounding success that is not diminishing. Large retailers feared that they would be outsold and even worried that they would be forgotten. Two solutions to the problem were available– either to acquire those businesses or to develop identical services with added benefits – both options that they are exploiting more and more effectively.
Having everything online is based on a strategy that is not fully formed, that of volume. In other words, it leads to battling on cost and on price. Can it be profitable despite all that?
A topic for discussion is the cost of the process vis-à-vis its margins. Some marketplaces require a monthly subscription, but that’s relatively rare. However, all of them clearly take a commission (between 5 and 15% of the price). This principal is the basis of their business model. But whilst there is no financial risk – no sale, no commission – it remains to be seen whether commission offers a sufficient profit margin.
Marketplaces are multiplying on the web. In the face of this wave, the fact that a company offers a strategy of volume is, on its own, no longer sufficient. Everyone will offer a vast catalogue and prices that are always more attractive. So how do pure-players think they will manage ? The only obvious way for them to set themselves apart is to acquire new clients at a lesser cost and to significantly increase their loyalty rates. However, it is far from easy to respond to those two conditions.
21st century shoppers are more demanding because they have unlimited access to information.
They are demanding and you need to be highly performing if you want to attract their attention and push for a sale. The solution is therefore to offer more and more services. Is this approach cost-effective enough to be able to succeed?
For vendors, the marketplace is a new distribution channel or portal that allows them to reach a qualitative target audience without needing a marketing budget.
This way they can increase their turnover via a performance-based business model, since they only have to pay commission once a sale is made.
Once invested into the marketplace, it’s not necessarily plain sailing. There is also the question of how visible the catalogue is. On Ebay, for example, you have to pay for higher visibility. On the other hand, with Amazon, it is the highest selling products that feature first. Consequently, it is in the e-seller’s interest to list their most popular products. Retailers therefore face disadvantages as well as advantages when they are involved in one marketplace.
It would seem that in the long term pure-players are destined to transform themselves. Many of them have been bought out and others are looking at opening physical stores with the aim of completing and increasing their sales and services.
Due to growing customer distrust of the internet, entirely virtual brands are taking shape and the big companies are developing internet platforms to complete their offer. The result is a modernization in the sector, with pure-players getting closer to their clientele. A new economic model is underway…
We have not yet heard the last word from retailers. If physical stores are still around, it is because they are managing to make a profit. Faced with increased competition from marketplaces, they have to find cost-effective responses which enable them to generate profit once again. In order to confront these connected businesses, it might be possible to compete with them on their own playground : the internet.
Several pure-players are tempted to get into the physical retail game, faced as they are by customers wanting to be able to “touch” the products they buy and the constraints that come with not having a store presence.
In 2015, Amazon opened its first bookstore in Seattle, selling books that had been chosen by internet users. More and more online clothing retailers, such as Zalando, and shoe retailers, such as Spartoo, are opening stores.
Nevertheless, over recent years there has been a real swing towards web-to-store strategies.
In effect, retailers are looking to get an online presence whilst pure-players are aiming to win their customers’ confidence via physical stores. Somewhat ironic, isn’t it?
INVESTING IN OTHER COMPANIES
At the same time as the internet has become essential to people’s daily life, pure-players and retailers are desperately trying to improve their online offer in order to increase their profit margins. So you have two different solutions available:
Partner programs : this is a strategy that vendors use to enable their suppliers to recommend or sell products and associated services. They can have a genuine impact on your profit margins. Suppliers still expect a certain level of resources and advantages to be provided by the vendor. In exchange for commission on sales, your suppliers together with other partner websites can give you publicity that will increase traffic and they can also recommend you to build loyalty. You must know the saying “unity creates strength”…that’s just what Amazon has done!
Invest in other companies : thanks to partner programs, your profit margins are supposed to increase. You shouldn’t hesitate to invest in other companies’ development, as soon as you see the first signs of profit growth. Diversification in what you sell can be beneficial up to a point. You shouldn’t spread yourself too thinly nor create offers that compete with each other. If you don’t want to launch into this sort of adventure, you can diversify your equity portfolio. Investing in companies that seem to have potential will enable you to encourage your own growth in the short and medium term. Exponential growth can be expected in the fashion sector with regard to the rest of Europe.
Make a choice to be creative : you will already have noted that pure-players are envious of retailers and vice versa. In this digital era, the physical elements need to be reinvented and your clients deserve to enjoy the best of both worlds: the convenience of online shopping and the in-store experience. The solution is therefore clear – the setting up of new omnichannel features.
Customers are demanding and want to be advised effectively. Which means that they want the best advice in the quickest time. In order to achieve that, you have to know your client by heart. Whilst crowded stores don’t give you the opportunity to be so focused, the online experience gets rid of that aspect completely. So you need to opt for a convergence of the physical and digital. The forecasts are permanent : we expect a significant increase in purchasing power.
Creating loyalty needs to be at the heart of your strategy.
Wishibam is able to innovate in this domain precisely because of the creation of an intelligent CRM which uses machine learning to humanize e-commerce and offer an emotional purchasing experience. Higher performing services logically lead to a more profitable business.
Passionnée par la transformation digitale dans le secteur du retail.