Marketplaces – The Past, Present and Future of Retailing by Mikko Hänninen

In this article, Commerce 8’s guest, one of the top marketplace experts in the Nordics, Mikko Hänninen, explains why marketplaces have fundamentally changed the retail sector and why every brand should consider utilizing marketplaces.

By Toni Kallio | 9 June 2020

Today the global retail sector is increasingly dominated by marketplaces, such as Amazon, Alibaba, eBay, Rakuten and Wish, that serve as active digital intermediaries that connect customers and third-party sellers together globally, and across borders. The largest retailer is thus no longer the one that has the largest network of stores, but rather the one that intermediates the largest number of transactions between customers and sellers. In 2019, Alibaba, for example, intermediated over $800 billion worth of transactions, making it by far the largest retailer in the world in terms of gross-merchandise value (GMV).

The competitive advantage of marketplaces comes from their ability to aggregate supply and demand-side data, as well as merchandise, logistics, customer service, and payment information, to create more harmonized and personalized customer experience across their digital ecosystem. This business model is scalable globally, and increasingly encompasses a combination of both physical and digital touchpoints with customers (e.g. Amazon’s and Whole Foods, or Alibaba and Hema). In the US, Amazon now accounts for around half of all online sales, while in China Alibaba is the supreme market leader in ecommerce.

Customers benefit from the marketplace through a large selection, and generally low prices, while sellers benefit from the access to a large, global customer base, and the generally low barriers of entry to start selling on marketplaces. This means that these marketplaces are used by an increasing number of dedicated online retailers, as well as a number of multinational brands and suppliers that use the marketplace as an additional marketing and sales channel. Valentino, Versace, Isabel Marant, Coach, Bottega Veneta, Givenchy, and Burberry are some examples of of the many luxury brands that sell on Alibaba Tmall, the leading Chinese marketplace.

The growing popularity of marketplaces, therefore, has fundamentally changed the retail sector. Retailers have traditionally competed primarily with prices, location and selection, but now through digitalization creating concepts and services that add value to customers has especially become a source of competitive advantage, as targeting individual customers has become more cost-effective through digital channels and tools. Indeed, store location is no longer as important as it was before, as in many large cities’ marketplaces can deliver products to customers within the hour, or two, from receiving the order. Here, marketplaces have now created their value promise around low prices, large selections and convenience, combined with the speed of receiving the product, the ability to shop whenever and where-ever, and to try and return unwanted products at the customers leisure.

Reaching global customers has never been this easy and cost-efficient

So, what does this mean for brands and suppliers? Traditionally the sales process with retailers was lengthy, and the decision to launch in a new market was not only risky, but also costly, and something that required careful investments in local marketing and a dedicated salesforce. Marketplaces, however, essentially now enable sellers with only just a few clicks to set-up an online store and reach a global customer base. Market entry and expansion decisions can, therefore, be made more easily, especially as many agencies now deal exclusively with the problems and hurdles related to setting up on a specific marketplace. Reaching global customers has never been this easy and cost-efficient.

On marketplaces like Amazon, sellers can conveniently choose which specific marketplaces their products are sold on, while many others automatically cater to a global customer base. At the same time, the marketplace provides a host of tools and services to make the use of the marketplace as easy as possible. For example, Amazon provides services such as Fulfillment by Amazon which means that products are stored and shipped from Amazon’s own warehouses, without the need for a seller to handle the actual delivery of products. Sellers only pay the marketplace a commission for the items that are sold, in addition for the use of optional services such as fulfillment services, which reduces the risk for sellers that products are undersold or do not appeal to a specific market after all.

Thus, to put it simply, marketplaces are the past, present and future of retailing. By selling on marketplaces, suppliers and brands can reach a global customer base, fast and cost-effectively, while also serving as a great channel to test new markets, and also raise brand awareness. For example, by selling a limited selection of products on marketplaces, sellers can raise their brand awareness, and direct customers to their own differentiated marketing and sales channels for future purchases in the long-term. Hopefully more brands and suppliers will realize the benefits that marketplaces can bring and make the leap towards reaching a truly global customer base through these digital intermediaries.

 

About the author

Mikko Hänninen (D.Sc) is a post-doctoral researcher at the Aalto University School of Business, and from August onwards, Assistant Professor in Service/Retail Operations at the University of Nottingham Business School. Much of his research has concentrated on understanding the opportunities and challenges provided by new digital business models and services, particularly through technological innovation and the platform economy. Mikko has worked with numerous companies in his research from startups to large multinational companies both in Finland and abroad. You can read more about his research and work at www.mikkohanninen.com

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