An online marketplace is an e-commerce platform provided by an aggregator for the participating retail/wholesale providers of goods/services to the consumers. Initially, the online marketplace started in the B2B space, but now, it has evolved into a B2C platform. Increasing penetration of the Internet and smartphones leading to growing availability and acceptance of multiple e-payment channels has fueled this sector’s exponential growth in recent times.
Types of online marketplaces
There are different types of marketplaces available to choose from, depending on your business objective:
- Vertical: Deals in one specific product type sourced from different suppliers. For example, cameras and accessories of different brands.
- Horizontal: Deals in different products with a common characteristic. For example, consumer electronics like phones, laptops, tablets, music systems, televisions, etc.
- Global – Sells almost everything.
Pros and cons of online marketplace
Before you start setting up your marketplace, consider these pros and cons.
- Facilitate trade without incurring cost on storage/warehousing of goods/logistics.
- Maximize customer satisfaction/loyalty by offering a wide range of product specifications/brands/price options (mitigate brand fatigue).
- Quick scalability of customer base/products/services.
- Adverse/erratic changes in government tax regulations.
- Adverse publicity by brick-mortar shops/service providers, leading to a stricter regulatory environment.
- Regular investment in upgrading networking/computer systems involving heavy investment.
- External risks like low internet penetration, network malfunctioning, increase in mobile phone and/or internet data cost.
- Low set up and running cost compared to offline outlets (saving on rent/electricity/staff/marketing etc.).
- Faster scalability of product offering/exposure to wide geographies and time-zones.
- Improved product selection/quality control/inventory management with built-in feedback/reporting system.
- More competition due to easy comparability with other similar products.
- In the absence of direct interaction, winning customer trust could be difficult.
Now that you are aware of the options available with you and the advantages and limitations that you may face, let’s learn the operational side of setting up your online marketplace.
How to create an online marketplace
- Market research: Studying the target market is the first step in setting up any marketplace. Knowing the users including their social and financial profile, their needs and the corresponding services they are looking for along with the size and volume of the market can help determine the contours and scale of the system to be put in place.
Next, study the competition including their prevailing market trends and practices as well as their strengths and weaknesses to explore creating a niche place in the market. For an online marketplace, the role of sellers or vendors is crucial. It is important to explore and identify appropriate sellers at this stage itself to ensure a steady supply line and smooth flow of revenue.
- Choosing a viable business model: Viability of business models is crucial for a profitable venture. Generally, the sources of revenue for the platform are:
- Signup fee: An upfront flat charge from sellers signing up on the platform.
- Subscription: Collected from the sellers on a recurring basis, usually per month.
- Listing fee: Recovered on listing of new items for sale or after the product is sold.
- Selling fee: Charged each time sellers execute a new order on the platform.
There are other models also in vogue to maximize revenue by providing advertising/marketing support/services to sellers in the form of featured stores and sponsored products. You need to make sure that the fees/charges are commensurate with the sellers’ sales/profit to facilitate smooth collection.
- Planning marketplace operations: The key operating challenges at a marketplace involve:
- Managing sellers: Devising unique value propositions to convince them to join the platform and create a streamlined sign-up process.
- Managing products: Develop processes to facilitate the listing of items to be sold by sellers.
- Payment processing: Create marketplace payment gateways for customers to make payment for their purchases and preferably integrate the system with various payment flows between the platform and the sellers.
- Managing logistics: Generally, shipping is managed by sellers. But the platform needs to create systems to ensure uniformity in rules for delivery charges and a system for tracking of orders.
- Order management: Create a system for buyers to select products, place orders, quickly notify sellers of new orders for processing and dispatch and keep buyers regularly informed of the order’s status–subsequently also manage return /replacement and refund, if any.
The online marketplace’s basic objective is to connect buyers and sellers and generate revenue to keep the business going. To turn the marketplace into a sustainable business, create systems for post-transaction communication like collecting reviews and building trust amongst the platform, the customers and the sellers.