CFO World

The rise of online retail marketplaces and what they mean for brands

We investigate how growing numbers of marketplaces, such as Amazon, eBay and Catch Group, could help as well as hinder Australian retailers

The impending arrival of Amazon on Australian shores has left many brands and retailers scrambling to implement a response.

While competition is capturing the headlines, it’s the way in which Amazon will serve the market that arguably offers the biggest industry shake-up and reshape how consumers access products and services for brands and retailers alike.

Amazon’s initial foray will most likely be based on its marketplace offering, allowing other brands and resellers to directly reach Amazon’s audience. It is a capability that will – at least initially – be familiar to what many retailers already experience through marketplaces such as eBay, Alibaba’s Tmall, and the recently launched local offering from Catch Group.

Online marketplaces, once the repositories for distressed inventories and run-out sales, now represent a legitimate channel to market. According to Digital Commerce 360’s 2017 Online Marketplaces Report, US$1.09 trillion worth of goods were sold on the world’s largest 18 marketplaces in 2016, accounting for 44 per cent of all ecommerce actually globally.

But with most marketplaces open to all players, how can any brand or retailer ensure they maintain their market position without becoming trapped in a race to the bottom on price?

Following the consumer

Ecommerce service provider, ChannelAdvisor, has worked with numerous brands to build sales through online marketplaces. Managing director for Australia, Simon Clarkson, says consolidation around a smaller number of ecommerce services is reflective of general consumer behaviour.

“People average about 33 apps on their phone, and 80 per cent of their time is spent on three of those apps,” Clarkson says. “That is creating a number of challenges for retailers and brands, such as ‘how do I make sure I am showing up on someone’s phone, and how do they find my brand and my product?’”

As consumers increasingly congregate around marketplaces, the market in turn has responded with a proliferation of these ecosystems. Australian ecommerce company for example, Catch Group, recently launched its own marketplace, offering 1500 products from a dozen suppliers to complement its Catch of the Day offering.

Catch Group co-founder, Gabby Leibovich, says the company is being careful to ensure the brands it brings on meet strict requirements.

“Our warehouse can only handle about 30,000 or 40,000 unique products, and many of them we don’t want or cannot carry, like bulky goods,” Leibovich says.  “We will only accept those that are reputable enough, have great prices, can ship, and provide customer service. We really can’t afford to lose our DNA, so don’t expect this to be another eBay – just the opposite.”

Leibovich says brands and retailers have to accept marketplaces as an inevitable component of the retail landscape.

“Australia is in its infancy when it comes to marketplaces,” he says. “In Europe right now, you have about 300 marketplaces, and the same goes for Asia. Every brand and supplier is on every one of them. And why wouldn’t they be there? The consumer is there.”

The proliferation of marketplaces is not being left unchallenged by the original and dominant player, eBay, which boasts 11 million monthly shoppers in Australia. Chief marketing officer, Tim MacKinnon, spent much of the last four years recruiting major retailers on to the platform, and now boasts 80 out of Australia’s top 100, backed by 35,000 additional businesses selling through the platform.

“If you are a retail CMO now, it is a no-brainer decision to have a marketplace as one of your channels,” he says. “It is not an ‘either/or’. It is not that you stop investing in driving people back to your own destination, but you have to also be where they are.

“Part of that job as a retailer is trying to influence that customer to developer a relationship with you and come back to your properties.”

MacKinnon says eBay has no intention of owning the relationship with the consumer itself, making it markedly different to other players. This means eBay is happy to offer fulfilment options that take buyers back the retailer’s physical properties.

“We have driven over a million customers into the stores of Australian retailers,” Mackinnon continues. “We are very comfortable with our product being in Google search results. Amazon isn’t, and plays at being the destination. But we see ourselves as a partner in the ecosystem, and we’re happy to be wherever the customer is and help our retailers put their products wherever customers are.”

This stance has also seen eBay begin showing the attributes of an agency, by working with brands to create bespoke marketing campaigns.

“We can target that campaign to particular segments of customers they are interested in,” MacKinnon says. “We have our own media to run a full campaign, in a way they can’t do with Google or any other partner.

“We are not seeking to disrupt agencies, but we can play a role in helping retailers do paid search and social, because we have this incredible first-party data. We can follow customers on their shopping journey outside of eBay and help our brands target customers they are interested in speaking to.”

MacKinnon says access to a consolidated technology platform with these capabilities is what makes marketplaces so attractive.

“One of the things retailers get through a marketplace is access to technology that they can’t necessarily develop themselves,” he says. “For the 35,000 Australian small businesses that sell through eBay, that is as basic as having a mobile phone app: There is no way they could build an app themselves or be big enough to get people to download it and have that app on their first screen.”

Clarkson agrees one of the advantages of mature marketplaces is they can consolidate investments in technology in ways few retailers could achieve on their own.

“Marketplaces are very forward-looking around the way consumers are actually looking to buy, whether that is through mobile, computers or even through things like messaging,” he says. “It is within their interest to make sure they can connect the brands and retailers relying on them through to those consumers, however they may be searching.”

Fighting on fulfilment

In some ways, the emergence of online marketplaces resembles the emergence of shopping malls many years earlier. It’s a parallel not lost on John Batistich. In his nine years with Westfield (including five as director of marketing and digital for Scentre Group), he assisted in the global growth of Westfield Shopping Centres.

Batistich now devotes much of his time to helping retailers understand the impact of Amazon’s arrival, and their need to operate in a marketplace-driven economy. One of the first steps he advises any brand to take is to improve fulfilment experience for customers, regardless of whether they are partnering or competing with Amazon.

“Amazon’s core capability is delivering goods fast and cheaply, and Australia’s fulfilment model is broken,” Batistich says. “In Australia, typically it costs you $10, is delivered in three to five days, and then almost half of those deliveries do not get to your home when you are there and require a second delivery.”

Fulfilment is often raised as one of the key drivers of Amazon’s success – and is a key question regarding the composition of its entry into Australia.

According to eBay’s MacKinnon, fulfilment is one of the critical factors in determining whether a brand is successful through a marketplace, as it can greatly influence customer ratings. Hence eBay has introduced a guaranteed delivery option, as well as a new returns option with ParcelPoint that will even allow goods to be picked up and returned from the consumer’s home. It’s also been experimenting with free returns.

Even the duration of a returns policy can have a significant impact. “We have shown there is a very strong relationship between the return policy you have and conversion,” MacKinnon says.

“When you go from 14 to 30 days, it is a 5 per cent conversion uplift, and from 30 to 60 is another 6 or 7 points. It is a significant factor.”

For many retailers and brands keen to maintain control over both customer experience and pricing, selling through a marketplace can strip away many of the controls they experience through their own channels.

Up next: What marketplaces could do to price points

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Price point

But the critical concern is their ability to maintain pricing. MacKinnon says this concern is not insurmountable, as attested by the presence within eBay of numerous price-sensitive brands.

“Of the top 100 retailer that sell on eBay, they are very successful without having to change their prices,” MacKinnon says. “But it’s a valid question, regardless of whether you are on a marketplace or not. Consumers are doing price comparison at the moment anyway, through Google or other sites, and this only going to get worse as Amazon enters the market.

“It is no secret Amazon scrapes millions of prices every day, so something retailers are going to have to accept is that the frequency of price changes they need to make needs to change.”

CEO of Brisbane-based ecommerce solutions company Neto, Ryan Murtagh, offers a number of pieces of advices for brands and retailers to ensure they don’t get caught in a race to the bottom on price.

“Many of our clients sell the exact same product as competitors on marketplaces like eBay and Amazon,” he says. “It isn’t all about price, it is about determining where you are going to focus your energy to deliver the best possible customer experience, and also where you can really start to optimise your product listings on these marketplaces to get the most relevant traffic.”

Murtagh agrees fulfilment is possibly the most important factor, as this can impact eBay ratings, or whether a product appears in Amazon’s ‘Buy Box’.

“Sales velocity and conversion rates and history are really important factors in where you rank on those marketplaces,” he says. “So too is optimising your listing form a keyword perspective, so that people can find your product, and then making sure your images, your buy points, and your actual description are unique and optimised. Copying and pasting from the manufacturer’s website is a thing of the past.

“And you need to ensure that you always have stock and your listings aren’t coming down, because that also affects your overall sales velocity.”

Another option is to spend your way to prominence through promoted paid listings. “It is probably not a long-term strategy, but it is something that can get you that ‘buy’ position early on, and then you can rely on the organic growth of that listing through customer reviews and fulfilment,” Murtagh says.

While price ultimately still plays a key role in consumer decision making, Murtagh says there are numerous tools now available to ensure prices are not set below market expectations, including Amazon’s own automatic pricing engine.

“It can adjust your pricing to help keep you in that Buy Box position,” he says.

Ultimately however, working through a marketplace also means the marketplace operator still has access to that data, and different marketplaces have different perspectives on how they use it.

“You only have to track the sales history of SKUs across Amazon to see that as a SKU becomes popular, Amazon either moves it into fulfilment by Amazon, or an Amazon-owned stock item,” Murtagh says. “That is a big concern.”

Batistich agrees a key difference between Amazon and other marketplace operators is how they use data. For this reason, he says it is vital brands and retailers retain their own online presence in addition to their representation through marketplaces.

“We know that whoever has all the data is ultimately going to win, because the data about intent and purchase behaviour will inform personalisation,” Batisitich says. “So there is no question that Myer and David Jones have to do their own experiences digitally, and build direct personal relationships with their shoppers.”

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