A growing trend in retail and e-commerce is the adoption of a multi vendor marketplace by established brands and retailers. This powerful business model connects retailers with third-party vendors to extend their aisle while offering customers a better overall experience with the brand. In this post, we’ll dissect everything you need to know about multi vendor marketplaces.
What is a Multi Vendor Marketplace?
A multi vendor marketplace is an ecommerce site that hosts third-party product vendors/suppliers on a singular platform. The owner of the marketplace traditionally manages the site while the third-party vendors handle product listings and order fulfillment.
Consumers can purchase products on the marketplace. When an order is placed, the third-party vendor will process the order and ship it directly to the end customer. In most multi vendor marketplaces, the owner of the marketplace gets a commission for every sale on the platform.
Simply put, multi vendor marketplaces connect multiple sellers to buyers. For vendors, there is an opportunity to get their products in front of engaged shoppers. Marketplace owners benefit from third-party vendors bringing new product lines that attract new customers and help re-engage existing ones. From a consumer standpoint, multi vendor marketplaces make shopping simpler by offering a wide product selection under the umbrella of one site.
Popular examples of a multi vendor marketplace are Amazon & eBay. Both host a substantial product catalog supplied by hundreds and thousands of third-party product vendors. Amazon has stated that its third-party sellers make up a larger share of sales on Amazon’s marketplace than Amazon itself. In 2018 alone third-party sellers on Amazon’s marketplace generated $160 billion compared to only $117 billion for Amazon’s first-party retailers.
Pros of Adopting a Multi Vendor Marketplace
Perhaps the greatest benefit of a multi vendor marketplace is the ability to extend your catalog with high quality products from third-party vendors. Simply adding more SKUs to an ecommerce site is not a guarantee of increased sales, but curated, vetted product lines from trusted third-party vendors can serve as complementary additions to your current catalog.
Multi vendor marketplaces offer a plethora of opportunities that allow retailers to generate significant revenue from streams other than traditional product sales. Outside of the commission fee mentioned earlier, many owners of multi vendor marketplaces collect revenue a number of different ways including:
- Membership fees – eBay charges as little as $4.95/mo and as much as $2,999.95 for vendors on their marketplace. There are both advantages and disadvantages to charging membership fees for your marketplace.
- Listing fees – Etsy has a $0.20 fee for each listing uploaded to their marketplace. It may not seem like much in small quantities, but listing fees can become a serious revenue generator with volume.
- Sponsored placements – In the first quarter of 2019, Amazon reported $2.7 billion in revenue generated from its advertising business. By driving a vast amount of traffic and sales to its marketplace, Amazon is able to generate revenue by offering premium listings and ad space to its sellers.
Less Risk & Investment
A multi vendor marketplace model offers substantially less risk and investment than a traditional retail or ecommerce business. Partnering with third-party vendors eliminates the need for you to purchase inventory upfront and risk ending up with dead stock. Beyond inventory, much of the fulfillment process is offloaded on the third-party vendors who deliver the product to your customer.
On average, It can cost 5x more to acquire new customers than to re-engage current ones. Launching new product lines, categories, and brands through a multi vendor marketplace are excellent ways to bring your established customer base back to your site for more purchases. Additionally, upselling and cross selling products from third-party vendors can increase the average order value of your business.
Cons of Adopting a Multi Vendor Marketplace
Operating a multi vendor marketplace will require an investment of time and effort. Every vendor you add is essentially a business partner to you and will need dedicated support to address any issues or concerns that arise. As your business grows, you’ll need to leverage software solutions to not only manage your vendors, but their listings as well.
Another potential downside to adopting a multi vendor marketplace is the loss of control in certain aspects of the business. For example, you control the entire fulfillment process when fulfilling orders for products you inventory or manufacture. However, in a marketplace model this responsibility falls upon your vendors. You won’t have much control over an order shipped late or a damaged product being delivered.
Lack of control over product listings can become an issue as well. Amazon and Wal-Mart have faced backlash from the public in the past for unsavory product listings on their respective marketplaces. As the owner of the multi vendor marketplace, you will be responsible for any listings published by a third-party vendor on your site.
Onboarding vendors, managing listings, and syncing orders are all tasks that will be necessary to start and grow a multi vendor marketplace. These tasks may seem simple early on, but they will quickly become too time consuming as you scale. Imagine trying to onboard 10 new vendors who each carry hundreds of SKUs. Without a solution that streamlines the process for you and the vendor, it will be difficult to grow your marketplace.
General vs Speciality Marketplaces
General Multi Vendor Marketplace
eBay and Amazon are two of the largest multi vendor marketplaces on the planet, but they only represent a single type of marketplace. In ecommerce, multi vendor marketplaces typically fall under one of two categories – general marketplace and specialty marketplace.
Amazon and eBay are considered general marketplaces, as their catalog is not limited to a specific niche, category, or industry. Many refer to Amazon as the “everything store” due to its vast product catalog covering almost every category imaginable. This can prove to be an effective strategy for retailers as it offers a larger audience of consumers and vendors than a specialty marketplace would.
Specialty Multi Vendor Marketplace
Alternatively, many retailers have adopted specialty marketplaces where the owners curate third-party vendors and products in specific industries and niches. A great example of a specialty marketplace is Wayfair, who specializes in homegoods and products for the home. While you may find batteries and dog food all coming from the same seller on Amazon, Wayfair focuses on home products. This allows for a more targeted marketing effort while making Wayfair knows as the “home store” rather than the “everything store.”
The specialty marketplace strategy is effective for retailers looking to establish their brand in a specific domain. As mentioned earlier, Wayfair is an excellent example of this. Rather than selling virtually everything in one place, similar to Amazon, Wayfair has established their brand at the top of the home goods category by curating a number of third-party vendors for their home goods marketplace – effectively “owning” the home goods category. This has allowed Wayfair to strategically claim a significant share in the home goods market from a retail perspective as their vast product catalog and category-focused approach to partnering with vendors is fueled by their multi vendor marketplace.
What to Consider Before Starting a Multi Vendor Marketplace
Vendor Management – When starting a marketplace, you’ll need to determine how you will onboard new vendors onto your marketplace. How will they register? Where will they upload product data? Can you support over 100 vendors at one time? Look for multi vendor marketplace solutions that can meet you and your vendor’s needs.
Listing Management – Think about how you will manage listings uploaded by vendors. As mentioned earlier, listing management can quickly become impossible as you scale unless a system is in place to easily manage listings. This includes editing and deleting active listings as well as maintaining real-time inventory counts.
Pricing Structure – Determine how you will charge third-party vendors within your marketplace. Will you charge a listing fee? A membership fee? What will be your commission rate? These are all questions you’ll need to answer. Having a solution that can support your pricing structure natively is preferable in most cases.
Expectations – What will you expect from your third-party vendors? What should they expect from you? Be sure to set standards and expectations for order fulfillment, communication, and support for the vendors you’ll be working with and your multi vendor marketplace all together.
The multi vendor marketplace model is a great catalyst for retailers looking to extend their digital aisle, re-engage customers, increase customer lifetime value, or conduct merchandising experiments. A combination of revenue potential and reduced risk make it an attractive model for new and established brands alike. However, it can only be successful with the right vendors, products, and software. The F13 Works multi vendor marketplace software offers retailers at any size a streamlined solution to onboard vendors, manage listings, and sync orders seamlessly and at scale.
Ready to take the first step to building your marketplace? Let’s talk.