Marketplace Best Practices

Marketplace Best Practices to Help You Compete, Succeed, and Grow

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Head of Marketing
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Ecommerce stores have put a lot of time and effort into making shopping online fun, efficient, and convenient. But what does it take for the products we order to make it from our computer screen to our front door?

As consumers become increasingly accustomed to vast product selections, competitive pricing, competitive shipping rates and time frames, and up to the minute delivery updates, online marketplaces are forced to meet the standards set by single vendor ecommerce experiences. Niklas Halusa, Co-Founder and CEO of Nautical Commerce, sat down with Ryan Lee, Nautical's Co-Founder and Advisor, to address marketplace best practices that help you succeed and grow. In case you missed it, this article reviews insights from their conversation.

First, What's Involved in a Marketplace?

To set the stage for success, we first have to define a marketplace. A marketplace is not just an ecommerce platform, where the goal is to remove the friction to buy to enhance user experience. But instead, a platform where the friction to sell must also be removed — this is where the invisible comes in. Marketplaces have to ensure that consumers have an easy, user-friendly experience full of product options and quick payment and delivery features. 

Marketplace platforms are complex ecosystems that operate at the intersection of three realms — fintech, logistics and commerce. You cannot fully service the marketplace model without combining all three elements.

The truth is, most of us don’t think about the invisible. The behind the scenes of how our products manage to make it to us within 24 hours, or how our payments make their way seamlessly to the right place, or even the shipping updates we receive up until our product hits our front door. But these invisible operations are what make or break a marketplace. 

5 Marketplace Best Practices

Successful marketplaces become and remain successful by adhering to a set of best practices. Here are 5 essential factors to consider.

1. Nailing the Customer Experience

Although this one may seem obvious, it needs to be stated. Some marketplace operators gloss over the customer experience because of the complexities of managing multiple sellers. But you must remember the core job of a marketplace is to aggregate demand, and in doing so, attract more sellers. Marketplaces must invest heavily on the invisible, the back office functions and capabilities that ensure seamless experiences, including exception management. 

When we think about successful marketplaces, we think of the everyday marketplace, Amazon. Amazon has truly productized the invisible. Their focus on conditioning consumers psychologically to expect fast, free shipping is where they have concentrated their time and effort, and from a product perspective — they have nailed it. 

Consumers keep going back to Amazon not just because they have a massive stock of items that range from flip flops to laptops, but because they have made it easy for us to buy from them. Their success in large part doesn’t just come from the products they sell directly to consumers, but from the fact that they can get something to a consumer quickly. Ultimately, Amazon is selling trust to their customers. 

Marketplace giants have effectively set the standard for the entire market. Consumers expect all marketplaces to function similarly, however, most have a hard time living up to these standards because not all marketplaces have the control that Amazon has over every aspect of the commerce experience. 

Effectively managing to influence all sellers or vendors in your ecosystem to fulfill orders quickly, providing high-quality products, images, metadata, and inventory information allows marketplaces to provide a quality experience that allows them to compete in the marketplace. 

2. Removing the Friction to Sell

As more and more marketplaces pop up, sellers have more options on where to place their products. Therefore, appealing to sellers to come and join your marketplace creates an added challenge. As a marketplace operator, you need to ensure you are doing everything you can to remove the friction to sell on your marketplace. 

There are two factors in removing the friction to sell: 1. Ensuring that a marketplace has enough demand, and 2. focusing on making the amount of effort exerted by sellers less than the value they get in return. 

Enticing sellers to give up commissions requires nailing the onboarding experience, making it extremely easy for sellers to provide you with the information that you need for the marketplace and ensuring as little business process management as possible. 

Additionally, ensuring sellers don’t have to do anything new — work in the systems they are used to and in ways they know how helps to remove the friction to sell. 

Commissions paid to marketplaces have to be worth the expense. The marketplace has to aggregate demand and be worth what Ryan Lee calls, “the tax to participate in the ecosystem.” When the overhead isn’t justifiable, sellers tend to migrate toward marketplace giants. Removing the friction to sell and creating connectivity, and syndicating a seller’s catalog across different marketplaces is essential to getting them to participate in the marketplace. 

3. Curating Your Catalog

Throughout the history of marketplaces, there has been a great unbundling. Out of Craigslist and eBay came more curated marketplaces like Etsy and Wayfair. Competing with the marketplace giants of today means curating your marketplace catalogs and finding a niche that resonates with consumers as well as prospective suppliers and sellers. 

StockX is a marketplace that nails product curation. They started off selling sneakers, and have been able to expand into the broader category of streetwear. StockX understood the psychographic profile of their early customers and delivered a shopping experience and catalog specific to their wants and needs. By doing so, they have out-competed other platforms providing the same products. 

Curating the catalog doesn’t necessarily mean not departing from a specific product, but rather, adding verticals that might complement the existing product line over time.

This may be hard to believe, but Amazon itself started off solely selling books. If you are just now launching your marketplace, rest assured that you can start off small, find your niche, and grow from there. 

4. Not Underinvesting in Fintech

Marketplaces should not underinvest in fintech. Marketplaces are employers responsible for disbursing payments to a variety of vendors, and this creates a level of complexity that doesn’t exist in traditional commerce. 

Because of this disbursement responsibility, there is a spotlight on compliance and regulation. Marketplaces are ultimately the merchant of record for any transaction that happens on the marketplace. That means the marketplace needs to perform due diligence and vet every single one of the vendors on their platform to ensure they are operating within the marketplace rules and broader legislation. Otherwise, marketplaces may face financial crime penalties that could potentially put their business under. In 2019 alone, governments worldwide issued more than $8 billion in financial crime penalties against organizations that did not meet their compliance obligations.

5. Being Thoughtful About Technology

The final best practice for marketplace operators is being thoughtful about what technology they use to support their marketplace. Recognizing what technology can do for you, and what trade offs you take is important. Additionally, technology should be a forward-thinking exercise. It isn’t always about what technology can do right now, but what it will unlock for you over time.

Some marketplace operators believe that they need to write all their own code in order to compete. But marketplaces grow because of their ability to execute sales, not because of their ability to build IP software. When businesses start to write code, they start incurring debt. Custom code requires tremendous overhead. Changing regulations, PCI compliance, privacy rules, and orchestration requirements all require increased spending, and upkeep. It's not about build versus buy. It's about building and buying. Build what is unique to your marketplace experience and leave the undifferentiated heavy lifting to a multi-vendor platform. Selecting the right platform is the best way to become successful, but it needs to benefit the democratization of the work to stay compliant and remain cutting edge. 

Ryan Lee reiterates:

“Building your own technology is not the secret sauce of the marketplace. The secret sauce is the invisible — its operational efficiency.” 

Selecting a multi-vendor marketplace platform that is flexible and agile enough to route transactions through each step in order to successfully service your customer base and create an ideal customer experience is the best thing businesses can do. 

Marketplace Best Practices Make All the Difference

So why are marketplace best practices so important? Following them can mean the difference between attracting sellers and consumers, standing out among competitors, survivability and long-term growth, or becoming one of the many marketplaces that few people miss when they are gone. 

If you’d like to speak with a marketplace expert about launching or scaling your online marketplace, reach out to the Nautical team today! 

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