What is a marketplace and how does it work?

Contemporary businesses can use many distribution channels to offer goods in the local and global market. One of them is the so-called marketplace, which has been gradually taking over various areas of retail for several years now. How do they differ from traditional online stores and auction platforms? What are the principles on which they operate? You will find the answers to these questions below.

What is a marketplace?

It is an online platform that enables sales by multiple businesses from various industries. It can be compared to a stock exchange, where you can find many competitive offers in one place and choose the best one. The main advantage from the customer's perspective is that instead of navigating the inventory of hundreds of stores, on a marketplace, they can find numerous products that meet their expectations. Thanks to advanced search engines and categorization, they can quickly select offers and complete transactions by paying a total amount for purchases from different sellers. This is an incredibly convenient solution that constitutes the main benefit of shopping on such platforms. For entrepreneurs, selling through one or multiple marketplaces means, among other things, the opportunity to:

Reach a significantly larger number of potential customers

Increase brand awareness and recognition with low financial outlays on promotion

Utilize professional marketing tools.

Presence on an e-commerce platform is often the only chance for small businesses to establish a presence in consumers’ minds and expand their reach.

How do marketplaces operate?

The vast majority of websites offer space for listing offers and handling payments. Businesses prepare product photos and descriptions and set prices including the platform's commission. They also handle order fulfillment. The portal is merely an intermediary facilitating the transaction. In this area, Amazon stands out significantly, which, besides the classic Fulfillment by Merchant (FBM) model, also allows for storing goods in its own logistics centers. Under Fulfillment by Amazon (FBA), their employees also prepare shipments. How are payments for such services structured? Most often, online sales platforms charge a monthly subscription fee and a commission on sales. In the case of using additional services (e.g., logistics or marketing), the entrepreneur must account for higher costs. However, this is definitely a low cost for the chance to reach millions of customers nationally and worldwide.

Online store vs. marketplace - key differences

The biggest challenge for online store owners is promoting their website to appear on the first page of search results in popular browsers. In most industries, such efforts require very large financial outlays, as there is strong competition in the market that has previously invested considerable time and money to enhance visibility online. A marketplace, on the other hand, is a place that offers the opportunity for promotion for a fraction of that cost. Despite many businesses with similar or identical inventory using it, everyone can find their own place there. What determines success on such a platform? Important factors influencing success include:

Prudent pricing strategy - lower prices at first to secure initial orders and new customers

Promotional activities - advertisements on the main site or in a specific department, participation in promotional campaigns (e.g., Black Friday)

Well-prepared product pages - professional photos, comprehensive descriptions.

Thanks to this, sales can begin from the first day, whereas, for an online store, one might wait weeks for orders if the site is poorly positioned.

Benefits of selling on a marketplace

Millions of people worldwide use sales platforms every day. In 2021, global revenues in the online e-commerce industry reached $7.72 trillion. This indicates that the online sales market is massive, and statistical data confirm that it continues to grow year on year. Being present on one or multiple marketplaces provides businesses with significant opportunities for development. The most important benefits of trading through online platforms are:

The possibility of acquiring new customers

Lower promotion costs compared to marketing expenses for their own store

Increased brand recognition

Expanding the reach of the offer

Building trust in the company and its products

Better positioning.

Large marketplaces have tools unavailable to small and medium enterprises. Therefore, the decision to start selling in such an e-commerce channel is a unique opportunity for growth for them. There are tools available for integrating their own stores with sales platforms, making it much easier to manage inventory and logistics processes.

Marketplace - is it worth starting to sell on an e-commerce platform?

Sales platforms are excellent sales channels for manufacturers and distributors who:

Want to achieve revenue growth

Increase the scale of operation

Achieve higher efficiency and profitability

Promote their brand in local and foreign markets.

Starting to sell on any marketplace will most likely quickly lead to an increase in the number of orders and repeat customers. In niche sectors, listings on Amazon, Allegro.pl, or eBay allow for showcasing an innovative product to a broader audience of potential buyers. In the case of popular products, such as branded clothing, revenues from the e-commerce channel can quickly exceed those from the online store. The decision to enter sales platforms should be made on an individual basis considering the specifics of the industry, previous sales volume, and other important factors.

Happy Selling

Amata Borys-Chudek

Go2Market Crew