Source: kroger.com
Will a third-party marketplace step up and give Amazon a run for its money?
A new survey of over 1,000 U.S. brands finds online marketplaces to be their strongest growth opportunity, although some are looking for options beyond Amazon.com.
The survey from Feedvisor, an Amazon repricing platform, found 53 percent believe e-marketplaces are their greatest source of opportunity, up from 43 percent last year. That’s followed by mobile/app commerce (47 percent) and social media marketing (44 percent) — both of which outpaced e-marketplaces the prior year.
“From a consumer’s standpoint, e-marketplaces offer a more convenient shopping experience to discover, compare, and purchase products from an array of brands on a single platform,” the study states.
Beyond consumer appeal, their growth is being driven by retailers, such as Kroger, launching their own online marketplaces.
The Feedvisor survey found 18 percent of brands surveyed are selling on Walmart’s marketplace. Asked about expansion, 21 percent said they would consider expanding to Kroger, outpacing others including Instacart, 17 percent; Target, 16 percent; and Walmart, 13 percent. Twenty-seven percent would consider expanding to Google Shopping.
However, the survey showed Amazon dominates online marketplaces in the U.S.:
- Seventy-eight percent of respondents are currently selling on Amazon’s marketplace, up from 55 percent last year;
- For 47 percent of brands with an Amazon presence, the platform represents more than half of their company’s overall e-commerce sales, up from 42 percent the prior year;
- Sixty-one percent of brands on Amazon have seen their overall revenue increase by up to 30 percent in 2020 due to the pandemic.
Amazon marketplace’s strengths include its reach, given its daily traffic, extensive product assortment, fulfillment infrastructure, customer analytics and marketing services.
The top reasons to sell on Amazon (either directly or third-party) were found to be new customer acquisition, increased sales volume, market share, access to customer insights and analytics, and generating brand awareness — all cited by at least 88 percent of respondents. Sixty-percent of brands put their most popular products on Amazon.
The top reason to leverage e-marketplaces aside from Amazon is to build brand awareness, cited by 57 percent; followed by driving sales, 52 percent; and product liquidation, 43 percent.
Discussion Questions
DISCUSSION QUESTIONS: How much of an uphill battle do retailers face competing against Amazon with their own online marketplaces? Which advantages (reach, product range, fulfillment capabilities, shopper analytics, advertising tools, etc.) will be the hardest versus the easiest to compete against?
Poll
BrainTrust
I would definitely say that most retailers launching a new marketplace are not trying to compete with Amazon directly. They are trying to launch something to expand their supply that stays true to their brand.
If you can:
and you have:
then you are a good candidate to launch a marketplace and be successful. I see too many retailers launching marketplaces without enough traffic to justify the effort and expense.
I’ve been cautioning against the coming “marketplace mayhem” for a couple of years and it is now upon us. Retailers have to be careful here because if marketplaces continue to proliferate, eventually everyone will be selling the same categories and brands and no one stands for anything. Then it’s a race to the bottom on price. Amazon has underscored the perils of being a category killer. Swinging too far to the other side of the spectrum is just as problematic. Retailers like Best Buy, and to some degree Target, have been more selective and deliberate in building out their marketplaces. As tempting as it is to go hog wild once online platforms are constructed, others would be wise to follow their example.
Forming a brand new marketplace to complete with Amazon is possible but not likely and not advisable. However there is opportunity for retailers to sell through other major retailers’ marketplaces, if preferred agreements can be reached. It would take some major problem within Amazon, and a long time, before another similar marketplace could take hold of the online retail marketplace.
Do most retailers have the margin to support that?
Excellent question which I cannot answer because I do not know the numbers, but probably not…
It’s very hard to displace a champion. I know there are companies creating roll-ups of marketplace retailers. Theoretically, that gives them more “buying power” so they can go to Amazon, other marketplaces or just start their own. I know that valuations for marketplace roll-ups are very high. So someone clearly thinks there’s a change a’coming.
But it’s very hard to displace a champion.
Retailers need to compete with Amazon on their strengths and not simply copy Amazon. They have local stores that can be used for collection and returns, have visibility on the high street and, most importantly, staff in stores who can help represent their brand and provide exceptional customer service. Amazon does not have that capability. It is in the hands of delivery drivers who do not even speak to the customers. Retailers really do need to use this precious resource and competitive edge to build their marketplaces and show online retailers that they can benefit from these strengths.
You are making a great point Andrew. Retailers need to design their marketplace strategy with their customers in mind, not with Amazon in mind. A retailer that has carved out a differentiated market position attracts different customers with different needs and expectations on their marketplace – which makes some vendors more successful on this retailer’s marketplace than on Amazon. This in turn will drive a virtuous circle of innovation on the vendor side to better serve the needs of the retailer’s customers. In the end, the rules of the game have not changed; they have simply been transferred online.
Displacing Amazon? Extremely difficult, if not impossible. Differentiating from Amazon? That’s a much easier task, and should be the only reason to attempt it. Otherwise, it’s a race to the bottom. And Amazon already owns the bottom.
Today’s instant poll asks which advantages (reach, product range, fulfillment capabilities, shopper analytics, advertising tools, etc.) will be the hardest versus the easiest to compete against. Hard question. I picked “reach” because I believe it best defines critical mass. By that definition, Amazon will be hard to touch.
If I am a retailer not named Walmart or Target, I take advantage of who gives me the most reach and whose resources give me the best customer. After Amazon, I join as many others as I can. Several weeks ago we wrote about Amazon upgrading tools for their marketplace participants. It’s not surprising that, of all the Amazon silos, marketplace generates the highest ROI.
Amazon is like Kleenex. It is a brand name that has morphed into becoming the generic term for online marketplaces. For any single retailer to effectively compete will be a very steep uphill battle. Amazon has had years to hone its offer. Everything from the order process to the growing of its own delivery fleet of planes and trucks.
It’s really “all of the above” for Amazon at this point. Speed, convenience, price, deep consumer data, trust, verticality, scale — I mean, you”d be better off going niche in terms of a marketplace, like a sneakers market or cycling, but the time for taking on the 900 pound gorilla en masse has long since passed.
E-commerce is no longer an add-on, it’s the beating heart of the retail business model, making new marketplace platforms a major growth area in the retail industry. Retailers are pulling away from the high costs extracted by third parties like Amazon and are actively seeking other alternatives. Brands and retailers want more control over their profit margins, and over the end-to-end customer experience. It’s hard to build brand loyalty with your customer when their products arrive wrapped in Amazon logos. A new breed of third-party marketplaces is already taking shape, such as Walmart in the U.S., or Centennial Shopping Centers in Canada that offer a more integrated partnership with brands and retailers and include something Amazon doesn’t currently offer – a physical store channel, which is an essential component in making e-commerce profitable. Amazon is about to feel the heat of competition.
Sorry – Amazon Rules. It will only get to be more so the case because they have the resources and will continue to conquer. Their mission – “to help consumers find, discover and buy anything, and empower businesses and content creators to maximize their success” is something they take seriously. Be Afraid. Be very afraid.
This question should not be about whether retailers should create their own marketplaces, but how they must prepare to compete in marketplaces. The growth of super apps and marketplaces is unstoppable – and there will certainly be many alternatives to Amazon. In fact outside North America, Amazon is often a small player.
Marketplaces are important because that is where customers find the greatest convenience and value – so they will continue to spend much of their time in marketplaces. Of course, each marketplace is different and provides the brand with different tools to differentiate itself. Learning how to stand out in many marketplaces at the same time, and collaborate with other marketplace stakeholders must be a top priority.
Of course, this is where headless commerce and headless loyalty platforms come in. In an API economy, brands need the agility to engage customers based on the parameters enabled by each marketplace – and legacy systems simply don´t allow rapid innovation or adaptation to many scenarios.
The secret to building a successful marketplace today is finding the white space where Amazon isn’t seen as the category killer or go-to shopper destination. Otherwise, you’re just trying to beat Amazon at their own game – being an everything store – and ultimately the only outcome for that is a battle over price when everyone sells the same products. And we all know (thanks to Seth Godin) the problem with competing on price – it turns into a race to the bottom, and you might end up winning, or worse, come in second. Much like being a retailer in the ’90s was about trying to beat Walmart – you can’t beat them on their own turf because it’s too late to scale. You have to compete on something different. A bit like what Amazon did to Walmart with e-commerce.
Best Buy and Target are doing the right thing – rather than opening up their marketplace to anyone, they’re being selective to have the right product mix. Walmart is looking to Shopify and Big Commerce sellers to fill out their marketplace with smaller sellers that are more likely to carry unique products as well.
If I were making predictions, I’d lookout for the e-commerce platform players (Shopify, Big Commerce, etc.) partnering with Instacart and/or other local delivery services, plus Etsy to build out and scale a distribution network that could power a marketplace of small, unique brands and products that even Amazon doesn’t have available. If you’re not one of those, then this isn’t the model you should be pursuing.
Isn’t the marketplace competition already here and we just call them Walmart and Target? Look at their investments with Walmart adding Shopify, BigCommerce and others to add thousands of vendors, but highly curated ones.
In the “old days,” specialty stores had a very vibrant role alongside the big, all powerful (we thought then) department stores. In the “new days” it seems to me the same opportunity exists for specialty marketplaces alongside Amazon. Maybe Lee Peterson said it best simply by saying “going niche.” Focus. Curation. It’s kind of like going to the library. Somewhere in that big building full of books is the exact subject I really want to focus on. How is that journey best simplified?
The challenge for retailers wanting to get into the online marketplace is that Amazon has made the rules and set customer expectations. The best other retailers can do is meet those expectations, but then Amazon has the ability and willingness to change them at will.
Amazon is clearly the #1 marketplace. Competitors would be wise to establish their own unique brand value that sets them apart as a destination for both sellers and buyers as opposed to asking on the giant directly.
Differentiate or perish. It’s pretty simple. Though I would say most marketplaces are not just trying to ape Amazon at this stage. Even eBay stopped this although only in the last 5 years.
A community can have more than one successful shopping center, so why not have more than one successful online marketplace? Amazon has a huge head start in tech and online traffic, but it can treat its most successful sellers badly — often knocking off popular innovative products with own-label versions. Its assortment is vast, but it still has many surprising holes (based on my own experience) and its curation is not always on target.
Large retailers perceive an opportunity to leverage their existing traffic by inviting other sellers to their own hosted marketplaces. Tenant sellers augment store assortments with a “long tail,” while the host retailers provide findability, infrastructure, tech and fulfillment knowhow — all capabilities big retailers need to advance for their own e-commerce initiatives anyway.
Marketplaces are not a remedy for out-of-stock problems (sorry, Mr. Watson), but they can enhance shopper relationships across many other dimensions. Competition among marketplace operators is a good thing — I foresee deal terms and support will be important aspects of this.
I also push back on the notion that marketplaces will be primarily engines for price competition. Of course competitive price optimization will be a core skill set, but with KVI prices more or less at parity, the real competition for share of shopper will come down to experience, service quality and loyalty to the parent brand — not to mention convenient store order pickup. Here is where Walmart, Target and Kroger have plenty of running room versus Amazon.com.
Retailers are looking to expand assortment and expand their brand, not compete on price and fulfillment when it comes to online marketplaces. From a competition with Amazon standpoint, retailers are more interested in offering customers a curated experience of their store, service, and unique product set. The pure merchandiser who only buys and sells with no added value is unsustainable. The marketplace can serve as an immense value-add, but less so if it’s generic. The marketplace play on customer personalization and store culture plays more to customer loyalty than new customer acquisition — which almost always costs more.
IMO, new marketplaces that challenge AMZ will not come from retailers, because AMZ is a retailer too and compete with their vendors.
AMZ has issues with sellers’ trust (because they care more about consumers), so true challengers should have a more balanced approach and be just a platform, which is not the case for a marketplace that is run by a retailer.
Retailer marketplaces arw more likely to be niche ventures.