Marketplace as a sales model: what is it and how is it different from dropshipping?

Marketplace as a sales model – today, we’d like to explain the details of online marketplaces and how your company can benefit from such a business model – but is it the same as dropshipping?

Find out below!

What is an online marketplace and how to start one?

At a first glance, an online marketplace might look similar to a regular e-commerce retail store – however, when you take a better look, the two are often fundamentally different. An online marketplace connects buyers and sellers on a single platform, while a retail store usually acts as the only seller to a customer base of buyers.

To run an online marketplace, you don’t need your own inventory of products – apart from managing the marketplace system and ensuring steady revenue with methods like commission fees or paid membership, you only need people willing to sell their products on your platform, and people willing to buy those products from the sellers on your platform. This creates the so-called Chicken and Egg problem – how do you convince manufacturers to use a platform without established buyers or the opposite?

With rising competition, you need a good business plan and solid software to beat other platforms – making your marketplace fast and easy to use is important, but so is making it safe and reliable. You’ll also need a good understanding of the industry you’re aiming for to find a customer niche with a specific need your marketplace can fulfill.

Now we know what an online marketplace is – but how do we make creating one profitable?

Marketplace business models – pros and cons of the marketplace approach

A marketplace is a type of online service, provided by you for both buyers and sellers, and as with any such type of service, you would expect to be paid for it. There are many ways of making money as an online marketplace – let’s take a look at some of the most popular marketplace business models:

• Commissions. We already mentioned commissions, as they are the most common approach to making revenue as an online marketplace – simply charge your customers either a percentage or a flat fee for each transaction. Platforms like eBay and Etsy all use this model, as its main advantage is that your customers only pay for what they get. However, you’ll still have to convince customers that there is enough value in what they’re paying for to warrant its price.
• Paid membership. Instead of having your users pay for each transaction, you can ask them to pay a flat monthly or yearly fee for using your platform. Memberships can be broken down into tiers, offering more functionality at a higher price. This approach is great for dedicated customers who will frequently use your marketplace, as their costs don’t grow together with the number of transactions. Take note that it’s already a delicate task to build a marketplace supply, finding sellers to satisfy buyers and buyers to satisfy sellers, and the membership model might make it even more difficult at first.
• Paid listings, premium features, visibility preference. Online marketplaces pick and choose the features of their specific business approach. You can even hide some of them behind a paywall, providing basic experience for free and extending it at a price. This can be commonly seen with featured listings and other visibility preference methods – or you can ask a set fee for every listing, but you’ll need a lot of them if your business model depends solely on that.

As with every business approach, there are pros and cons to the marketplace model:

• Required staff isn’t proportional to the number of products sold
• You don’t have to handle manufacturing and delivery
• It’s easy to offer a wide variety of products
• Many monetization options
• Finding customers might not be easy at first – your user base is split in two and you’ll need both sellers and buyers to make the model work
• You’ll need proper software to assure enjoyable user experience
• Rising competition

Marketplace as a sales model – examples of successful marketplaces

There are many companies who made it big as online marketplaces – the first one that might come to mind is Amazon. Even though the company offers a wide variety of services, from cloud computing to entertainment, Amazon Marketplace is a huge e-commerce platform that combines Amazon’s regular offerings with an immense online marketplace.

In fact, over 55% of sales on Amazon’s platform come from third-party sellers. While now the company offers an extensive range of product categories, they started just with online book selling.

Finding a niche is the key to establishing a successful marketplace – just take a look at Etsy. Etsy gave creators a platform to sell their arts and crafts, from handmade plushies to elaborate sculptures costing tens of thousands dollars. Making money on flat listing fees and 3.5% commision rate of all sales, plus advertisement revenue from featured sellers, Etsy created a global platform which enables artists to express themselves and sell their creations – and generates over $1.7 billion in revenue based on Etsy’s 2020 annual report.

Are marketplaces the same as dropshipping?

Even though a marketplace might look very similar to dropshipping, they are in fact two very distinct business models. Dropshipping involves first buying the product from a 3rd party by a retailer, who then sells it to buyers under their own brand. While the dropshipper handles the shipping directly to the buyer, product ownership rights are held by the retailer until sold to a customer.

In case of a marketplace, the retailer simply brokers a deal between a 3rd party seller and a buyer, without interacting with the physical product or service at all. The branding remains unchanged, and the seller ships the product directly. The buyer transfers the payment to the marketplace retailer, who then transfers it to the 3rd party seller after taking any potential commissions. While both approaches are similar, dropshipping involves fundamental accounting differences and transfers most of responsibility for the product on the retailer.

Is now the best time to adopt the marketplace model?

Online marketplaces are booming, with the competition getting fiercer and fiercer each year – now might be the best time to join the game and reap the benefits, before others can satisfy the market.

Marketplaces are highly scalable and, when successful, continue to grow almost by themselves. Your job is to create a system that’s easy to use and offers extensive functionality, depending on whether you’re aiming for the B2C or B2B market – or you can skip right to managing by using a professional marketplace platform instead.

Projections confirm the trend to continue, and the popularity of online marketplaces will only grow. When adopting the marketplace model, remember that there is no universal approach that’ll suit all – you’ll need to combine and rework business models to make it big, depending on your industry and competition, your target market, and customer needs.

Marketplace – summary

If you think that your organization has a chance to develop using the opportunities offered by the marketplace operators – contact us! We have many years of experience in integrating sales systems with all marketplaces operating on the market (e.g. Amazon, eBay, Allegro). As well as implementing omnichannel sales support systems – including marketplace trading platforms – we are also partners with leading marketplace technology providers (e.g. Mirakl).

If you would like to find out more about the opportunities offered by the implementation of your own marketplace for B2B and B2C sales, we would be delighted to introduce you to this topic – CONTACT US.

10 ideas to boost your BLACK FRIDAY eCommerce marketing strategy!

Because of the ongoing pandemic, to a large extent, digital shopping is taking over offline sales at an extremely rapid rate. According to studies, eCommerce sales in the United States increased from ~16% to ~20% between 2019 and 2020, compared to an only 1,5% difference between 2018 and 2019.

To make the most out of the Black Friday season and maximize your eCommerce profits, you need a proper plan. Building the right strategy for Black Friday is the key to success, saving you the headache of brainstorming and implementing ideas at the last moment. It is also an exceptional moment to introduce a digital aspect to your brick and mortar store, which is only a small investment compared to the potential increase in sales!

Black Friday eCommerce strategy | Marketing tips

However, how exactly do you prepare a Black Friday eCommerce strategy? What are the best ideas to increase your revenue and help your company grow? To help you answer those questions, we have prepared this guide of the 10 best ideas to build your eCommerce strategy for the Black Friday season!

Step 1: Start with the basics – setting up your platform, advertising, and UX

Let’s start with the fundamentals – if you have no clue what to do to prepare your eCommerce business for the upcoming Black Friday shopping rage, these ideas will be perfect to begin with.

• Consider your business approach when setting up an eCommerce platform

Whether your company specializes in B2B or B2C products/services matters significantly when launching an eCommerce platform. The two types of clients each have their own buying behaviors that need to be considered and often look for distinct features first.

B2B eCommerce platforms might prefer a more streamlined design, while B2C platforms can benefit from visible customer reviews and transparent product highlights.

• Expand your advertising channels

Are you utilizing your social media channels optimally when reaching customers? Going deep with your target research might bring you valuable information on how to better target your Facebook and Instagram ads, so make sure you do it right – or get a team of experienced analysts to do it for you!

You can also think about diversifying your outreach channels – transferring some of your advertising budget into paid advertisements might pay out in the future, as statistics show it is one of the most effective ways of reaching new customers, especially close to Black Friday.

• Perform a thorough UX analysis

Are your customers suddenly leaving your website in the middle of the buying process and you can’t figure out why? It just might be an UX flaw that’s turning your clients away!

Conducting a deep UX analysis will give you valuable insight into how your eCommerce platform performs from the user’s point of view. Taking action appropriate to the results is the key to guaranteeing a smooth user experience and is one of the best eCommerce marketing ideas for you to implement.

Step 2: consider branching out your eCommerce marketing strategy efforts | Remarketing, SEO, and ERPs

Now we’re getting into details – if you haven’t looked at these when devising your eCommerce marketing strategy, it is the best time to do so if you want solid results for Black Friday!

• Try out Remarketing

Returning clients can be just as important as new ones – even more so for B2B businesses! With an ever-increasing saturation of varying client types, clinging on to your customer base is the key to increasing sales. Remarketing is a feature of Google Ads that will allow you to retain more clients after Black Friday ends, in a simple and easy way.

• Search Engine Optimization – boost your visibility

SEO has been proven times and times again to be an effective tool in increasing website outreach, and through this boosting revenue. Google’s algorithms are getting more and more sophisticated with every update, so making sure your SEO features fit in organically with the content is a fool-proof approach to positioning.

• A one-in-all solution to business management with ERPs

Making sure your eCommerce platform works without hicks and allows scalability are the keys to growth. An ERP (Enterprise Resource Planning) is an extensive software, which when properly integrated with your eCommerce platform, gives you an easy way to manage all vital processes of your company using a unified system. Proper ERP integration is crucial to making sure every piece fits together in a perfect harmony.

Step 3: specific tools to use – specialized copy, newsletters, and automation

Here, we want to give you some specific ideas to implement in your eCommerce marketing strategy for Black Friday, which can immediately improve your turnover for the upcoming holidays.

• Publish Black Friday oriented copy

Taking advantage of your content is crucial to reaching out more customers before, during, and after Black Friday. Think about publishing posts, stories, or articles that are relevant to the Black Friday shopping spree – sharing shopping tips and best deals are great ways of reaching out to customers.

• Implement newsletter segmentation

As research shows, it is much more effective to send out personalized newsletters to each segment of your audience, instead of just bombarding them all with the same emails. This way, you’ll be able to meet the specific needs of each customer segment and actually get through to them instead of just annoying them.

• Increase order values with automated rewards

Loyalty rewards are a classic strategy for increasing retention rate and purchase frequency. Giving your customers automatic access to these rewards during checkout has been shown to increase order values – after all, clients prefer such simple solutions to browsing the Internet in search of coupon codes for hours.

Black Friday eCommerce marketing strategy – final thoughts | Always keep experimenting!

The best way of staying ahead of your competition is constant experimentation – never stop developing new ideas and trying them out, as it will give you a wider perspective on which strategies are effective.

Now that you know how to prepare an effective Black Friday eCommerce marketing strategy, nothing is stopping you from maximizing your sales for the holiday season. However, if you need a pair of extra hands to bring your online store to the next level, contact us at ORBA – we help clients with everything eCommerce related, from UX design, eCommerce development and implementation, to service & maintenance!