AirBnB, Amazon Marketplace, and even Otto: top marketplace platforms are springing up like mushrooms. Some are already sensing the next shift in retail. And according to my theory, they’re right about that. Because the enablers not only bring price transparency and service promises for customers, they also enable them. And mostly randomly! Anyone can take part, but not everyone can pass. Has the good old online shop had its day?
A brief explanation of terms: What are the differences anyway?
At first glance, it is quite complicated to clearly separate the terms. This is mainly because shop systems and marketplace platforms are often referred to as “(sales) platforms”. A social commerce offering can also be a platform.
Ultimately, this term describes an offer that provides a service for many participants. Only when many participate will a functioning platform emerge. This means that a marketplace can be a platform, but not all platforms are marketplaces.
Platforms are seen as the next big shift in retail. On the one hand, “platformization” reinforces longer-standing tendencies, such as growing price transparency. On the other hand, they change the way people shop again.
Meanwhile, platform operators are increasingly becoming service providers, partly for the competition. This brings with it unusual challenges for companies that have previously been active in more traditional business areas.
Online retailers, brands, and manufacturers are currently faced with the big question of how they want to be represented online. The decision as to whether an independent shop or a platform is better is no longer only relevant for start-ups.
Independent online shops: a business model in crisis?
The basics of e-commerce are standalone online stores. They were among the earliest e-commerce offerings and have long been the extension of retail and brands to the web. Independent online shops are still in demand today. Traditionally, the business model consists of a margin between the purchase and sales price. Like local branches, online shops have to calculate accordingly, but can often offer lower prices due to the lower or no costs for rent and staff.
Online marketplace platforms are seen as the opposite of classic retail. This is coming under increasing pressure from e-commerce, and the corona pandemic is increasing this pressure. Many companies are therefore trying hybrid models. For example, the online retailer Cyberport has opened branches and Douglas is increasingly selling its products on the Internet. Will this be the shopping of the future? Many doubt that.
There are currently two ways to be successful with an online shop: One is to strengthen the brand and occupy a niche. The other way is through price wars and search engine advertising. Many shop operators combine both. Either way: Helping a new online shop to be successful requires a concept and strategy.
Last but not least, price pressure is a problem for online shops, even if it is even more pronounced on marketplace platforms. To set themselves apart from the competition and reduce price sensitivity, more and more shops are working with a comprehensive range of advice and offering services that go beyond the standard. Strategies like content marketing helps builds trust and branding.
Marketplace Platforms as a future model
The platform model as a guarantee of success in e-commerce has not just been discussed since yesterday. One of the top famous marketplaces is Amazon, although it is not only active as a marketplace.
The shipping giant now only generates around half of its sales with its own sales. The US group makes up the other half with services. Around a sixth of revenue comes from fees paid to other sellers operating on the marketplace.
The fact that it is worthwhile for Amazon to work as a neutral provider with sellers and vendors may only become clear at second glance: Amazon can use this to significantly expand its product range without taking any financial risk itself. The biggest risk for Amazon is providing storage capacity and logistics. And there’s more: Amazon can use its data to see which products are worth including in its range or even producing under its own brand.
Sellers benefit too
Amazon is worthwhile for sellers because of its enormous reach. For every euro that is spent in Germany via e-commerce, 48 cents end up with the US company. Amazon has become one of the largest product search engines in the world and some customers no longer look elsewhere because they can find everything on Amazon.
In addition, retailers can even use Amazon’s warehousing and logistics. Amazon has achieved its supremacy in part by making a name for itself as a fast and reliable mail-order company. Anyone who sells via the Marketplace and sends their goods to one of Amazon’s warehouses can deliver at Prime conditions without any further effort.
This model is exciting for new retailers and companies: low initial investment, no marketing costs, and enormous reach. Participation in the Marketplace is worthwhile for manufacturers in particular, despite high commissions of up to 20%.
Marketplaces are not only positive
But marketplaces have a major disadvantage for sellers: They increase price pressure through transparency. A large marketplace is often also a kind of price search engine. As soon as several providers offer the same product, they compete. If, as is the case with Amazon Warehouse, most retailers ship with the same logistics, only the price remains as a distinguishing criterion for or against a provider. The price pressure is correspondingly strong.
Although dealers on marketplace platforms do not sell anonymously, it is still almost impossible to strengthen your own brand or offer additional services. On the contrary, hardly anyone remembers which retailer they bought something from: the platform name, on the other hand, is remembered as an umbrella term. Accordingly, nobody gives a recommendation for the actual shop, but for eBay, Amazon Marketplace, Otto, or real. That’s where customer retention takes place.
The shift is inevitable and is putting Europe’s economy under pressure
Everything flows to the marketplace platforms. In the short to medium term, significant increases in sales can be achieved with low initial investments. But this continues a development that began years ago with digitization. However, the question of how e-commerce will develop in the future could go far beyond the question of “platforms or online shops?”.
After all, e-commerce is increasingly being shaped by globalization. More and more Asian suppliers, some of whom are manufacturers, are selling directly to the end consumer via marketplace platforms – at prices that no German retailer can even begin to match. Internationally active companies make it possible for manufacturers and dealers to gain access to other markets without knowing the language and cultural characteristics – and without having to make large investments.
Using cheap labor in China could get in the way of the western economy in the long term: After jobs and know-how were relocated abroad, e-commerce may now follow – then the value creation would take place entirely on another continent.
And most countries also miss out on billions in taxes. At least as long as there are such so-called “enablers” – and nothing else are platforms – and largely unprotected markets, this development will not be stopped.
The German trade has to put up with the question of what added value it creates that justifies higher prices. If I sell the same balloons at a significantly higher price than my Chinese colleague via the Amazon marketplace without any marketing, consulting, or other services, it may be the course of capitalism that I will be pushed out of the market.
Everything pushes towards being a platform or at least being able to participate in it. Accordingly, the price pressure will continue to increase and the profit margins, especially on marketplace platforms, will become smaller and smaller. For some traders, the platform could become a dead end. However, the marketplace platforms themselves continue to function.
Is there a way out of this development for retailers?
I think, from a social point of view, this development will continue. It seems like all modern-oriented companies are striving towards the platform. The advantages for all retailers who have failed to secure a corresponding market share via their online shop (or are gradually losing it) cannot be dismissed out of hand. Accordingly, it is only understandable that these models continue and that there are many participants who ensure that they work.
But of course, there will be companies that will go a different route and continue to be successful despite the David versus Goliath situation that already exists.
According to my theory, the key to success is that companies set incentives that don’t just work on price. Fortunately, when making a purchase decision, it is not just the purchase price that is decisive. Customers pay particular attention to product quality, easy returns, customer reviews, and easy check-out features.
Accordingly, online shops pay particular attention to standing for quality and making shopping as easy and risk-free as possible. As a result, the following characteristics are essential for the success of an online retailer: Trust and reputation through high product quality and a good user experience. Branding must not be neglected, because not only trust is important, but also sympathy.
At the same time, retailers and manufacturers may have to say goodbye to classic e-commerce models. Especially in the premium area, some new developments show which sales factors can be successful. For example, Vaund presents products from various manufacturers, lets customers test them and, thanks to trained employees, gives them the best possible advice. The manufacturers pay Vaund for it. It is sold on-site, online, or from any other provider. Because Vaund is not dependent on sales, the advice is more objective. The idea is not completely new, but the start-up has been successfully implementing it so far despite the pandemic.
How do online shops have a future?
I believe that online shops will accompany us in the future, despite platforms and marketplaces. Because in contrast to marketplaces and the like, they have the opportunity to be individuals and to assert themselves on the market through other incentives than the price.
On top marketplace platforms, on the other hand, the options for self-presentation are usually significantly limited. What I don’t believe is that run-of-the-mill online shops can be successful in the long run. The competition on marketplaces is too strong for that. If you don’t present anything special, don’t reflect the lifestyle of your target group, and aren’t a brand, you won’t be able to stand up to the ever-increasing pressure from direct sellers and dropshippers in the long run.
Better advice is a sign of quality and a reason to buy
The knowledge that online shop owners have about their own goods is a great advantage over direct sellers and dropshippers. But retailers have to use this knowledge and use it to differentiate themselves from other, faceless competitors. This is the only way they can succeed in offering added value, which then also ensures that customers buy from them and not elsewhere. You need to convince people with your online presence that your service is worth paying extra for. Otherwise, customers will not buy there but will take advantage of the cheaper offer in the marketplace.
Good advice is crucial to ensure that customers buy certain products and visit a special online shop for them. The modern seller is increasingly turning into an influencer who is extremely knowledgeable in the field and provides advice as independently as possible – or at least is perceived as such. Retailers should take the opportunity to work with influencers and not just leave this field to the manufacturers.
Realize more services
It is also important to offer more than just the goods. Online shopping is also gaining market share against brick-and-mortar retail because people are comfortable. Accordingly, it can make sense to link services with the goods offered and thus satisfy this need. Who knows that a handyman is coming to him, pays more for the bathroom fixture? If you buy an expensive coffee machine, you will be happy about the maintenance contract and the introductory lesson from a barista.
It is no coincidence that Dell also generates its sales through service packages with remote maintenance. Many manufacturers have already recognized this trend, but only a few online shops have. But the platform providers are not sleeping. If you have a good idea, you should push ahead with its implementation. Customization is another important keyword in this area that could make online shops think twice.
Two birds with one stone: Is social commerce the better marketplace?
An interesting variety of marketplaces are the shopping offers on social networks. Providers like Instagram and Facebook even allow users to pay via the platform. They present articles in collections and use algorithms to suggest them to users who are interested in them.
This turns social networks into a shopping mile where the user strolls through different shops and is inspired by product photos. Some of these shopping offers even work via VR.
Social commerce in this form fulfills similar functions as marketplaces. Social networks make it possible to sell products in an uncomplicated way and to benefit from the large reach – but much less anonymously than is the case with many other marketplaces.
Because the social functions are largely retained. Users can follow shops, like collections, and benefit from loyalty programs. In this way, marketplaces and social media come together and, to a lesser extent, the advantages of both are combined. After all, branding and increasing awareness as well as improved customer loyalty are still possible in this way. At the same time, social networks function as enablers, giving shops more reach and taking over some of the processing.
Of course, part of the online shop’s work also has an impact on the social network. But not to the same extent as simple marketplaces do. This is because brands are strongly represented on many social networks and they have always been part of the user experience. Users follow them on purpose to find out what’s new. Accordingly, the company remains in the foreground.
This form of e-commerce also has disadvantages. Retailers who focus on social networks make themselves heavily dependent on the respective provider. In addition, social commerce has so far been particularly well suited for products that focus on lifestyle and the visual.
Of course, it would make sense if social networks realized further advantages of brick-and-mortar retail over time. Everyone would benefit from an expanded range of advice and simple VR implementations – at least except stationary retailers that are not adaptable.
Conclusion: Online shops are dead, long live the online shop!
Time will tell whether online shops and retailers can actually hold their own against marketplace platforms. The price is often the decisive argument for a purchase decision. If you can’t keep up here, you’ll have a hard time standing up to the competition.
However, tactics and strategies that make interested parties less price-sensitive then help. Building a brand, especially in the premium area, or a special service offer are the concepts that successful companies use most often. But both are only possible to a limited extent via marketplaces.
Therefore, it is likely that online shops will be with us for a while. Many traders are versatile and customer-oriented enough to compete against marketplaces. And more importantly: There are many ideas that nobody has implemented across the board so far that will save the independent online shop. Possibly not always in its currently known form from the product list and shopping cart, but definitely in a modified form. I’m almost sure of that.
It is exciting that social commerce providers such as the Facebook shop system including WhatsApp and Instagram or Pinterest enable the missing branding of marketplaces. Here customers are addressed more emotionally and customer loyalty can be supported by social media marketing. While a marketplace offers customers the best price, they buy via Facebook and Co. from the well-known company that they like best. But the options there are still limited, and the shopping functions are often not rolled out for everyone. So social networks are lagging behind, but could soon be a good alternative.