10 key questions to keep your marketplace project on track

Marketplace project

This practical guide is first and foremost aimed at these companies’ key staff in charge of pinpointing areas for potential growth.

During this period of high pressure on the economy and increased competition, two of the main potential areas for growth open to companies are geographical extension and adding new product categories to their own range. Nonetheless, whether you’re setting up operations in countries or proposing new goods and services to your customers, these two areas for growth have their intrinsic limits, which are sometimes seen as overly restrictive.

In addition to the difficult new economic climate, the growing trend of the digital transformation of organisations forces all the company’s staff responsible for pinpointing areas for potential growth to study the now essential digital models.

Marketplaces account for 21% of the volume of business of the 40 biggest French e-retailers (1)

Against this backdrop, executives in fields such as e-commerce, sales, marketing, development, etc. are generally seduced by the idea of working on a third area for growth by creating a marketplace , a crossroads where the worlds of the traditional and digital economies, geographical frontiers and product categories all meet. Accordingly, an increasing number of traditional brick and mortar companies with an e-commerce site that enjoys an attractive and monetizable audience as well as companies with one or more well-known brands are considering beginning work on this new area for growth.

Offering a clear and concise list of ten essential and key questions, this practical guide is first and foremost aimed at these companies’ key staff who want to apply the marketplace model to their environment and find out whether this approach makes practical sense for their companies. A quick read to get a clear idea of the most practical and effective way to approach a marketplace project.

1 | Money for nothing?

If the marketplace has a pitfall, it’s certainly the issue of its mythology which must be carefully and intelligently worked through to dig down to the symbolic and fundamental value hidden behind the fairytale. People tend to believe that the promise of the marketplace echoes the myth of El Dorado , the South-American kingdom overflowing with gold, just waiting to be picked up, but in fact the model is much closer to the myth of California , a land that’s difficult to reach where gold is plentiful, but that is inhabited by cave-dwelling Amazons (battles to fight, resistance and competition) and strange animals (obstacles, dangers). In other words, for a marketplace to keep its promises of gold and profitability , it’s not enough to just rely on your reputation, simply putting vendors and clients in touch with each other, cutting out the costs of managing a traditional store (stock, transport, logistics, after-sales service, etc.) to spectacularly increase your sales margin.

In France, marketplaces generated sales of a little more than 2 Mds € in 2014

Brief e-commerce recap. The year is 1995. Online sales sites are springing up fast. At the heart of this trend, the simple idea – which proved to be simplistic – of creating a single virtual store open to all, based on a total rationalisation approach. Just one outlet versus multiple stores, centralised stock compared to costly scattering, only web hosting costs compared to renting physical outlets. The beliefs of the time summed up in a few words. Making unprecedented profits by continuing to operate an existing business but cutting out its main costs, easily eliminated by the simplicity and power of the internet. Believing themselves to be in El Dorado, our e-retailers don’t take long to catch on to the existence of rival amazons – no Amazon.com pun intended, it’s just a mythological coincidence… or is it? – so we’re clearly in the land of California, ready to give up its gold in return for hard work, which also has its price. To fight against the competition, you have to invest much more than before in web marketing. Traffic, which initially came naturally, slowly becomes reliant on audience buying. Transport costs increase, as do IT expenses, on top of return management costs which go through the roof on the internet due to strange customers who, for instance, buy their shoes without trying them on first. A significant proportion of the costs that are slashed with online sales are in fact moved to new areas (referencing, transport, marketing, etc.). Fortunately, the successful pioneering companies in the ecosystem – and there are a good number of them – spot the change of myth and adapted quickly, proving themselves valiant.

An easy but both relevant and legitimate analogy. We mustn’t fall into the same trap as the pioneers of e-commerce. Due to its integration into active channels and its high potential, the slightest inconsistency or error in the management of a marketplace project has much greater repercussions. Both the risks and rewards are exponential. If the marketplace model follows the way of the world – cyclical and non-linear model? – it appears wise to take a closer look. But we must go about this process in the right way, setting well-thought-out and realistic objectives and take this model for what it is: a great opportunity rather than a miracle.

2 | The initial question of the stakes

Naturally, the starting point of any project is strong belief and ambition. Its detailed expression will form the foundations on which the different parts of the project can be constructed and coordinated.

It’s easy to understand, for instance, that creating a marketplace for a well-known brick and mortar retailer (with a traditionally physical activity, distribution networks and outlets), that already has an e-commerce site and wants to propose new products, go upmarket, work with new specialist vendors and use its physical stores to develop services is totally incomparable with the project of a retailer that wants to start selling products with no direct link to their core business, propose all ranges, work with a single vendor per product category, and not incorporate its physical stores in its burgeoning digital channel. Metaphorically-speaking, the issue of scope is the new story you want to write with your brand or retail business. A marketing manager will also talk about the type of customer relations you want to develop and the brand image you want to promote.

This initial question of the type of marketplace project is absolutely essential and vital to launch the advisability study, which is nothing other than comparing the initial ambition of the theoretical project with reality to see what you can learn and determine the adjustments that need to be made for it to succeed.
Continual comparison of profitability and investments, always focusing on three questions to identify the right economic model: products, vendors and target. What assortments of products and what categories are right for the marketplace? What services should be provided with them? How should they be sold? With which vendors? Via which channels? What target and what positioning should you look for? What policy and brand image should be adopted to support all these efforts? And at all times: what combination of these three interlinked questions offers the best return on investment? Endless examination is needed until you hit on the perfect equation, which will still require regular re-examination.

Continual and cyclical comparison at all stages of the project, from the start of qualification and throughout the entire period over which the marketplace is operated. It is important to begin this comparative work from the start of the study phase.

3 | What products are most apt for my marketplace?

he real art of retail is knowing which products to sell, to whom, how and at what price. Accordingly, an advisability study must also look at the products for sale and more often than not raises decisive questions about not only sales but also organisation and logistics. Will the marketplace offer new categories of products? Is it best to work on the width or depth of the range? To propose all the products from one category? To go upmarket? Or rather down? To propose the whole range?

The objective is to meet the customer’s expectations. So be it. But you can’t possibly have all the products on your market yourself, nonetheless all retailers nurture the desire to always meet customer demand. Hence the suitability of the marketplace model, and it’s for this same reason that vendor selection must be linked to product selection.
One of the objectives of the marketplace is to promote products that the company has itself and stimulate sales via cross- and up-selling mechanisms. Proposing cookery books via a vendor is likely to generate additional sales of kitchen utensils.

Once again, the danger to look out for is the temptation to propose all products, without predetermined selection criteria, provided that the product makes sense on the marketplace. But how will the customer react when they get offered a low-quality product by a vendor when the marketplace’s promise to customers is based on confidence, advice and guarantees? Should you offer a well-positioned, but mediocre, product?

We can’t ever insist enough on the benefits of good market research, which lets you identify sales potential: market size, diversification opportunities, possible market share for the retailer itself or for marketplace vendors, average rates of commission, online sales potential (for instance, certain categories of products, such as washing machines and large home appliances, sell very badly on the internet in spite of the very good health of the physical market). The more in-depth the comparison of this potential with the project’s objectives, the more personalised and pertinent the research shall be.

4 | Which are the right vendors for my project?

The marketplace is by definition a market place featuring several vendors on a digital sales platform. Some might worry that for consumers the increased number of vendors would mean greater risk. But with an 85% satisfaction rate, marketplaces offer greater benefits than classic online sales. More than 8 out of 10 buyers choose marketplaces because they make buying easier by offering a wide range in the same place at the best price. Nearly 9 out of 10 consumers think that marketplaces offer good quality service .
Choice of vendors therefore stands out as a key factor. Certain marketplaces try to team up vendors in niche markets, like A Little Market for hand-made goods, Helpling for household services, monEchelle for DIY, or even chrono24 for watches. Other marketplaces are much more general. There’s space for everyone, from micro-retailers to mass distributors. Depending on the type of project, the idea of inviting B2B, B2C or even C2C vendors onto the marketplace obviously comes up.

8 out of ten online buyers choose marketplaces

After this initial whittling down of vendors, more in-depth segmentation is necessary to meet requirements in terms of quality of service and choice of products.
The temptation to pack a large number of vendors into a marketplace can become great. After all, this desire simply and directly reflects the wish to propose a well-stocked market place. But you need to know how to avoid certain pitfalls. The right way to select vendors essentially meets three criteria.

Firstly, the vendor’s catalogue of products must suit the choice of category, positioning and level of quality. Likewise, the quality of services provided by the partner vendors is a real key factor for the success of the project, particularly during the start-up phase. It is essential that the marketplace vendors propose a service in line with the retailer’s customer promise. For instance, it’s not possible to add vendors that deliver in fifteen days to a marketplace if one of the promises on this market is 48-hour delivery. It’s then better to work with vendors that are quite well-known, or even very well-known, including specialists renowned in their field, on the one hand, and already well-established retailers on the other.

Another important point, is it preferable to launch your marketplace with several vendors per product category in order to fuel competition and competitiveness, or is it wiser to start with only one vendor per category? Each marketplace is different and there’s no one right answer. However, it’s a question that’s best looked at in advance to properly manage your model.

Can the presence of competitors be considered? Once again, there’s no «one size fits all» solution. Most often, the competitor’s size remains the most decisive factor. Vendors that offer the exact same range as the marketplace are in theory competitors. In reality, if they are modestly sized, they can also generate extra sales on products that are not in their catalogue, or otherwise be short on stock and pass the sale on to another vendor on the marketplace.

The choice of vendors therefore depends in part on the products (see above: What products are most apt for my marketplace?), but also the desired positioning (specialist, generalist, etc.), choice of range, and also the marketing mix with its price component. Inconsistency must be avoided insofar as possible. Is it possible, for example, to work with a vendor that offers an iPhone 6 at a lower price than an iPhone 5 sold by the retailer operating the marketplace?
Finally, one of the selection criteria that will become important in the near future is the vendor’s ability to proactively contribute to the community and social ecosystem that is developing in e-commerce in the broad sense of the term.

5 | What services should be proposed?

A land of great opportunity (California!) awaits companies that know how to skilfully juggle their choices in terms of both vendor and product issues. But to fully achieve their ambitions, they must then define the services that need to be provided with them. One question comes up naturally: can you treat a marketplace product sold by a vendor like one of your own products, and include it in the chain of traditional services such as loyalty programmes? How about standard and extended warranties? Return management (in-store)? Training? Installation or assembly? Is it possible, or desirable, to provide all the services the company provides for its own products for vendors’ products?

Clearly, the services are not only aimed at customers. The marketplace operator can offer and provide services for vendors, such as stocking of goods and delivery. This, for instance, is what Amazon offers with its «Fulfilment by Amazon» service that manages stocks and shipments for its vendors, which is of course billed. Likewise, click and collect (pick-up of an order from an outlet that is not the vendor’s, but rather the operator’s) is sometimes proposed and used. Finally, comprehensive customer service can also be provided by the owner of the marketplace.

It would seem that the right approach is to identify which of the services proposed by the retailer itself are linked to the brand promise and set them apart from the rest of the market. It appears preferable, for instance, that a retailer’s promise, with a reputation based on customer service, providing installation and offering all the warranties on products sold directly, is also kept for the products sold on the marketplace. If the operator of the marketplace does not provide its warranties and services for all channels, there’s an inconsistency between the brand’s promise and the actual service, which appears as a positioning error.

It’s also possible that the arrival of new products could lead to new services that were not previously provided in its line of business. Selling telephones, for instance, often also means selling subscriptions. There is potentially a genuine difficulty in inheriting services provided by marketplace vendors, although these services can set you apart and offer high added value for the client.

These are all questions that must be taken into consideration very early in a project, particularly as the extension of traditional services and the creation of new services are not without impact. The repercussions are multiple and generally affect the entire organisation.

6 | What technology for what magic?

There are several options available when choosing a marketplace technology platform. People generally distinguish between two major groups – or two schools – that each have their benefits. Conventional market solutions proposed by publishers make up the first major group. They are presented as full platforms or specific bricks that are integrated to extend an e-commerce base (pre-existing or not) or a back-end. Easier and often quicker to roll out, they offer standardised functionalities – though some of them are highly customisable –, but cannot cover all the specific needs of a company, market or field of business. The second group includes all the alternatives involving specifically developed solutions, whether in-house or by a third-party service provider. Though keeping prices and integration lead times (the famous time to market!) down is riskier in this second group, the only limits in terms of functional scope are your own. Accordingly, choosing the right technological solution means selecting the platform or custom IT system that best suits your needs.

The key question is the issue of needs, which must be examined. Knowing, for instance, the level of personalisation of the offer-price combination proposed to customers; not all systems let you adjust prices based on a discount agreed by purchasing. You also need to judge the impact of your technological choice on the recruitment of the marketplace’s vendors. Will one technology make them easier to get? Can it be an obstacle?

Next comes the question of which services/functionalities you want to offer your vendor community in order to attract them. Should the management back office to simplify business handle mass updates of catalogues, products and prices? How about merging & purging product sheets? Should vendors be offered a performance management dashboard? Should order flows to the vendor’s IS be automated? Likewise, should banking flows be automated (payment, commission, billing)? Accordingly, the list of required functionalities helps to guide the choice of technology, as well as flow management and coordination.

Requirements can also prove purely technical. First of all, you need to forecast your needs in terms of volume which, depending on the type of marketplace, can increase rapidly. Over time, the number of products in the catalogue will grow and multiply. The proposed solution must therefore be scaled to the project.

Another point, is the marketplace solution being integrated into a very specific platform not compatible with market standards and that requires development? Does the company have the capacity to finance and manage specific development programmes either in-house or by third parties? And much more fundamentally, is the technology a long-term distinguishing and strategic area for the company? If technology is an integral part of the economic model, the needs are de facto completely redefined.

7 | How can we develop a sustainable economic model?

Now that a fair share of the cards have been dealt out (products, vendors, services, and technology – all four determined based on the strategy), it’s time to work the magic by combining these variables to develop the most effective and sustainable economic model possible. The model proposing sufficient profitability to justify the investment.

We’re now getting into a first «go/no go» phase. Either the project turns out to be totally unrealistic (which only happens very rarely, no project is actually unrealistic, the initial parameters are just wrong and need adjusting), or it appears to be a great opportunity. It’s time to work on hypotheses, study the different possible scenarios, and apply variations on the model. What rate(s) of commission should be applied? What is the best positioning and for what marketing mix? What is the expected revenue from the marketplace? How much will the technology and roll-out of the platform cost? Is the company’s historic model being transformed? What about latency? How much would such or such option bring in?

Then it’s time to examine the integration of this new offer into the historic offer (click and mortar) and in relation to the existing channels (other e-commerce sites, etc.). In any case – just emerging from the trauma of the battle between physical stores and e-commerce sites – the strange three-way couple or «throuple» formed by the physical store, the vendors and the digital channel (e-commerce site(s) and digital systems) requires the utmost vigilance to maintain a delicate balance; disruption and tension around the digital channel, sometimes unfairly seen as a rival to the store, must be avoided at all costs.

8 | The thorny issue of organisation and governance

The rumour of the arrival of a marketplace at a company can potentially create a revolution. Purchasing think that their work is going to disappear (or at least no longer develop) as it is taken on by external vendors. Logistics go into a head-spin: will they have to stock and ship products for other companies, like Amazon does? IT feels underequipped, etc. In order to defuse any crisis even before it arises and reassure the operational teams, you must absolutely evangelise and involve all the business lines from the study phase, and manage change.

The real change for a company is selling products it does not possess, either physically in its stocks, or on its accounts. This radical change leads to the appearance of new business lines or adjustment of existing ones. You need to create a marketplace department from scratch with account managers in charge of recruitment and managing trade relations with and relating to vendors, or even redesign accounting and finance to manage and account for the flows and transactions of the whole «throuple».

From a functional point of view, there’s organisational upheaval everywhere. IT and/or all the staff in charge of the development of the integration of vendor flows (EDI, web services, etc.) must adjust the ordering process to manage the new exchanges such as orders from several vendors at the same time. The increased number of flows and transactions also causes changes to accounting rules and operations. Purchasing is affected, as is finance. Marketing doesn’t get off scot-free, either. It must now guarantee the overall consistency of the customer’s view. The call centre, for its part, will inevitably take calls about products sold on the marketplace, so modifications and new procedures will be required. And how should customer service and all the return management processes be organised?

Finally, a special mention for the legal consequences. As payment intermediary for all its vendors, for example, the marketplace operator is now regulated by law and a range of possibilities can be considered to manage funds and flows of money . This compliance work is costly for a company. But it’s also a fundamental process that enables it to secure and manage its business.

Accordingly, the reorganisation of all a company’s services combined with the appearance of new functions logically requires the redefinition of rules and trade-offs. Clear governance is absolutely necessary during the entire project, then throughout the whole period during which the platform is operated to address a wide-ranging set of issues. Who is responsible for the marketplace? Is this person authorised to open any vendor account whatsoever? How about accounts competing with the traditional physical channel? Are they allowed to do this? Can they decide to create a new product category without consulting the other departments or business lines? What are the processes? Who approves the strategy? Who takes the decisions? Is there a steering committee? How about an executive committee? Do the business lines involved with the marketplace (IS, etc.) report to the marketplace manager? Or do they report to the CIO? Do you need to create dedicated marketing, or simply work with the pre-existing digital marketing?

This list is not exhaustive and governance is even trickier if there are plans for the marketplace to be rolled out internationally. All these issues should be examined closely during the project qualification workshops. In order to prevent any problems and any risk of conflict, all these rules should be defined from the launch of your marketplace project.

9 | On what should your business plan be based?

During joint workshops between the company examining its marketplace project and the consulting firm, the purpose of the advisability study is to answer all the contextual questions, particularly regarding the company’s strategy (if the company plans to double the number of its stores, this doesn’t have the same impact as if the plan is to close outlets) and regarding the offer, market and competition. At the end of the workshops, a summary customised to meet the company’s specific characteristics – ideally a detailed business plan based on all the areas for growth pinpointed and highlighted – allows the executive or strategy committee to decide whether to continue the project or not, and the procedures and means to implement to ensure its success. Accordingly, the main areas for growth connected with the marketplace are generally known and selected at the end of the first workshops.

The project can then enter its second phase, the qualification phase, which consists of defining how you can best engage the areas for growth selected in the economic model study. Take the example that the DIY category is a good area for growth, it is important during the qualification study to go into the details of the products and services, pinpoint specific vendors, choose a precise solution, then define all the adjustments that need to be made at the company in order to implement the project. The repercussions are multiple and affect a number of departments: information system, purchasing, sales, operations and logistics, etc.

At the same time as the advisability study then qualification workshops, from the launch of the project, you need to start work on evangelising and educating people about digital transformation and change management. It is essential to include the company’s historic business lines in the qualification project as early as possible.

10 | Why should you seek assistance?

Last but not least, as for any large-scale project, the absolute danger for a marketplace project is slipping up (scope, budget, lead times, launch, etc.), which can even lead to the failure of the model. And since the model is mainly reliant on audience, the success or failure shall be exponential. Any success shall be praised to the skies, any failure pilloried.

For your project to be a success, you must firstly properly understand the whole digital retail ecosystem: marketplaces, aggregators, product feed management, e-commerce platforms, customisation tools, recommendation engines, searchandising, retargeting, acquisition tools, etc.

Management of the information system is also decisive. System planning and development issues need to be managed: product listing, data flows, order management, etc.
Finally, as all the ecosystem and IT equation data is sure to change considerably, good change management helps ensure a smooth transition to permanent changes. The ten key questions that need to be examined to keep your marketplace project on track in fact form a cycle that must be run on an almost continuous basis.

Assistance from a consultant partner with extensive experience working on similar or identical projects helps you reduce the risks of slipping up due to continuous vigilance, in-depth knowledge of the entire ecosystem, the ability to analyse technological and marketing issues, and finally a solid methodology that has proven its worth on a number of projects.

A voyage of discovery

The marketplace model is an opportunity for organisations who develop their project carefully by asking the right questions, the 10 key questions. By rationally defining the scope of their project, selecting vendors, products and services based on a solid strategy, using technological solutions that suit their needs, developing the project based on a detailed economic model and a weighted business plan, putting in place effective organisation with clear governance and management rules, working in partnership with a consultant with expertise regarding all these issues, business lines and technology, they can’t help but defeat the Amazons, avoid the pitfalls, work around the obstacles and collect the digital gold.

They are not only likely to effectively and sustainably work on an area of growth, but also improve along the fabulous and transformative voyage of discovery that makes them more agile, stronger and better prepared to face the company’s future challenges.

See you in California!

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(1) Marketplace sales in France just keep on climbing. According to the latest figures published by the French e-commerce and distance selling federation (Fevad, January 2015), marketplaces are well established in the French e-commerce landscape, and generate 21% of the volume of business of the 40 biggest French e-retailers.

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