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Perspectives

Digital marketplaces: The new frontier for retail innovation

Creating a seamless path to purchase anything, anytime

As companies scramble to meet evolving postpandemic consumer needs and expectations, digital marketplaces offer a promising avenue for responding to this shift in retailing and capturing new value segments. This article offers strategies and considerations for retail organizations to consider when launching or optimizing new digital marketplaces.

Published June 2022

Retailers are challenged daily to address the shifting demands of post-pandemic consumers. As consumers spent more time at home and less in stores, the migration to online shopping and preference for the one-click convenience of a digital marketplace only accelerated during the pandemic.
This digital shift in retailing shows little sign of slowing down. Sixty-one percent of customers are planning to spend more time online after the pandemic than they did before, and these increasingly digital customers expect the businesses they buy from to keep up.1

As a result of consumers’ evolving behaviors and expectations, traditional retailer-to-consumer models are evolving to provide customers access to an endless aisle of products and services across multiple touchpoints. A marketplace model helps enable retailers that might not have the bandwidth to own and manage an endless aisle of inventory. If properly executed, marketplace models can drive financial upside. Nontraditional players, such as Google Shopping and Facebook Marketplace, are toppling the barriers around digital retail innovation by offering digital marketplaces that pressure incumbent retailers to expand their ecosystem of offerings to remain competitive.

These digital marketplaces, which match buyers seeking a service or product with sellers while allowing retailers to expand assortment without holding inventory, are a critical step forward in the digital shift in retailing.2 Already, several retailers enjoy success, including:

  • Amazon: Amazon’s Marketplace (e.g., third-party sellers) represent about 60% of Amazon’s overall gross merchandise value3, equating to roughly a 25% market share of the total US e-commerce spending for its marketplace alone.4
  • Etsy: Etsy’s fourth quarter of FY2021 saw sales climb 16.5% year over year to $4.2 billion, a 72% increase in active sellers to 7.5 million, and a spike in active buyers of 17.6% to 96.3 million.5
  • Kroger: The grocery giant had $11.3 billion in digital sales in 20206 and this is expected to double by 2025. Kroger attributes the growth to the expansion of its online marketplace.7

As consumer demand for seamless digital retail experiences continues to grow, retailers are seeking ways to provide convenience, variety, and value. But even as digital marketplaces become an important business model consideration, not every retailer that launches one will find success. To create a satisfying digital marketplace—one that produces true value for customers, sellers, and the retailer—companies must make a series of strategic choices.

Steps to digital marketplace success

Gross merchandise value (GMV) is the gold standard for measuring digital marketplace success. GMV captures the total value of merchandise sold over a given period through a retailer’s platform. Maximizing GMV requires the right products and services at the right price, fulfilled the way customers desire. Based on our experience, companies that are successful in launching or optimizing a marketplace as part of the digital shift in retailing begin by answering the following questions:

  • Identify the purpose and objectives of your marketplace. Evaluate your organization's current goals and determine where you believe future growth will come from. Define the desired outcome of your digital marketplace strategy and how it will tie back to your organization’s overall vision.
  • Consider complementary capabilities. Discuss benefits beyond goods and services that might attract customers and sellers, including:
  • Ad publishing: Retailers with digital marketplaces are uniquely positioned to use customer and product data to drive both effective ad spend for sellers and relevant marketing messaging for customers. For example, Walmart Connect allows the retailer to connect brands and customers through targeted advertising via Walmart’s digital and in-store channels.
  • Data aggregation: Retailers can facilitate the transfer of consumer and sales information to help sellers make more informed decisions around product development, pricing, marketing, and inventory. For example, Instacart provides tailored insights on search and purchase trends to its partners. These insights help manage inventory and optimize the customer experience.
  • Fulfillment provider: Retailers can provide inventory storage and distribute physical goods to optimize shipping speed and prices. In doing so, retailers can maintain more control of the customer experience. Amazon’s Fulfilled by Amazon services provide inventory storage and fulfillment support to third-party sellers for a fee.
  • Branded innovation hub: Retailers have the unique ability to influence customer selections with curated, branded experiences that drive engagement. These branded spaces can serve as an innovation hub for sellers to test new products, bundles, or subscription services.

Consider where to position your offering, along with what customers and sellers to target.

  • Assess the market and competition. Evaluate the market landscape and major players. Understand what competitors are doing well and not so well. Identify potential white space where customers and sellers are underserved.
  • Understand current and target customers. Recognize your current customers and determine how you can better serve them. Determine what consumers you aren’t reaching today and how you can serve their unique behaviors, needs, and preferences tomorrow.
  • Engage with target sellers. Develop a value proposition for sellers and customers. Identify which sellers you’ll seek to partner with, and at what organizational size and level of maturity (i.e.: how well established they are in the industry, how well-known the products are, and how loyal the customer following is). Understand their needs and consider capabilities that will drive mutual benefits.

A successful marketplace is one that meets or exceeds both customer and seller needs, while also filling a market gap.

  • Develop your strategy. Determine which products or services to offer. Establish pricing and fulfillment methods. Identify any partnership or acquisition needs.
  • Test your strategy with customers and sellers. Understand what works and what doesn’t resonate.
  • Run the numbers. Estimate expenses and project potential growth based on GMV.

Once you’ve developed, tested, and refined a marketplace strategy, it’s time to prepare your organization for launch.

  • Determine capabilities and gaps. Understand what capabilities are needed—and gaps to fill—to successfully launch, run, and scale the marketplace. These may exist across a range of organizational functions, including technology, data, talent, operations.
  • Understand and prioritize investments. Prioritize capability needs and estimate the level of investment required in terms of time, effort, and resources. Prepare an investment timetable.
  • Plan your path forward. Establish a roadmap, including prioritized capabilities and key milestones. Confirm funding or partnerships. Identify organizational changes, from process to culture, that may be required.

Ready to unlock digital retail innovation and growth?

Digital marketplaces enable retailers to unlock growth with expanded offerings as customers concurrently seek a wide variety of goods and services with a frictionless digital marketplace.

Successful retailers make deliberate efforts to understand customer, seller, and competitor dynamics. These organizations carefully craft strategies that meet the needs of the market, while also driving profitability for the business. If your organization finds itself at the crossroads of a digital marketplace decision, consider the steps you can take to create a differentiated, seamless, and convenient path to purchase anything, anytime.

Endnotes

1 Salesforce State of Marketing, Seventh Edition; Salesforce State of the Connected Customer Report, October 2020.
2 The Future of Customer Engagement and Experience; Digital Marketplaces Examples and Strategies.
3 Forbes. “Amazon’s Third-Party Marketplace Is Its Cash Cow, not AWS,” Forbes.com, February 2021.
4 Marketplace Pulse “Amazon’s Marketplace is 25% of US E-Commerce?” Marketplace Pulse, February 2022.
5 PYMNTS “Etsy Active Buyers Reach 7.5M, Active Buyers Hit 96.3M,” PYMNTS.com, February 2022.
6 Supermarket News, “Kroger breaks into top 10 U.S. e-commerce companies,” Supermarket News, December 2020.
7 Statista, Share of net sales value of Kroger in 2020 with a forecast for 2025, by channel; Statista.

Special thanks to Rachel Simoff and Brigitte Fox for their authorship, support, and research throughout the development of this article.

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