There's no stopping the surge in eCommerce growth; a trend perpetually driven forward thanks in part to the rise of the marketplace model. But despite this clear shift, some companies still remain hesitant, worried that an online marketplace will only result in market cannibalization. However, by buying into this myth, many businesses are leaving a valuable opportunity on the table.
Before diving any deeper, it’s important to first define “market cannibalization.” The term describes a loss in sales following a company’s introduction of a new product or service that supplants one of its own. Rather than increasing their market share, the item instead pulls from the same customer base as an existing one.
For online marketplaces specifically, the common concern is that adding external products will introduce unwanted competition and take away sales from retailer-owned inventory. However, the truth of the matter is, by working with trusted third-party sellers to expand your assortment, you can address the real threat to your sales: If your website doesn’t have exactly what customers are looking for, they’ll simply move on to one which does.
"When you're on the web, you are one click away from another website,” explains Laurent Thoumine, Managing Director Head of Retail in Europe and Consumer Goods in France & Benelux, Accenture. “A marketplace allows you to become the single entry point for a wide range of customers and collect vital data. You’re then able to leverage this data to optimize the experience and develop new products and services."
According to the Enterprise Marketplace Index, the largest compendium of third-party marketplace insights, in 2020, Mirakl-powered Marketplaces increased gross merchandise value (GMV) per seller by 24%, while at the same time growing their overall seller network by 46%. The increase in sellers, and the GMV per seller growth, delivered 81% marketplace GMV growth – proving sellers do not cannibalize one another’s growth but rather create new opportunities for them.
Pivoting from myth to opportunity
With an online marketplace, you have the technology to give customers an endless aisle that’s efficient, easy to navigate, and delivers exactly what they want - all without compromising your brand identity. Using these advantages of the marketplace model, you’re able to keep customers loyal and coming back to you for all their needs.
From good to best
Customer trends and shopping habits change too fast for one company to be the best in everything. But with the marketplace model, you have the agility and flexibility to expand your selection and deliver what shoppers are looking for.
Decathlon, the world leader in sports equipment, has built a robust and extensive collection of private labels. In fact, prior to launching a marketplace almost 90% of their business came from these internal brands. While many customers were able to find exactly what they needed, Decathlon wasn’t able to deliver on every search result. On certain occasions, customers would head to the site with a specific product in mind, only to find it missing from the catalog - whether that was due to Decathlon not carrying the item, it being out of stock, or just not having the exact color and size the customer was looking for.
With their marketplace launch in 2020, Decathlon opened its online store to a host of vetted, high-quality sellers - many of which were local partners - to widen their offerings and better fulfill their brand promise with buyers. Utilizing this seller influx, they’ve been able to not only introduce new categories but also expand existing ones. Ultimately Decathlon has enjoyed a growing customer base through this improvement of offers, range, and price.
"You can't be the best everywhere. That is why the marketplace is a fantastic tool to help us complement our assortment and move from good to best," adds Charles-Emmanuel Nelis, Head of Digital, Decathlon. "We’re partnering with the best in the world to be able to always say ‘yes’ to our customers."
Gateway to an entire ecosystem
Four years ago, Conrad Electronic, a premier electronics, and technology retailer had a vision: To be the “one-stop shop” for all their customers’ needs. While they knew where they wanted to end up, they had an uphill climb to get there. After a century of innovation, Conrad enjoyed a catalog of more than 800,000 products and services. While extensive, an internal study revealed they needed millions of new products to cover all of their customers’ core needs.
With the online marketplace platform, Conrad seized the opportunity to be the entry point for an entire ecosystem of trusted electronics and technology sellers. Today they offer more than 6 million products and services (and counting), without having diminished the quality and reliability they’re known for. "We have not cannibalized our own business, but what we have done is gained significant relevance with our customers in the process," says Ralf Bühler, CEO, Conrad Electronic. "Even with this success we know we still have a long way to go to reach the full potential of the marketplace opportunity."
Through this effort, Conrad has more than doubled their marketplace's business every year, one year after the other, and has seen more than 50% of their online transactions become mixed transactions (consisting of a Conrad item and a marketplace item). While impressive, Conrad believes they’ve still only scratched the surface when it comes to onboarding new sellers, products, and services.
Impacting the entire business
Adding additional sellers through a marketplace model carries several advantages beyond just extending the online catalog. Rather than cannibalizing sales, online marketplaces have been shown to increase average online order size by 15% and improve in-store foot traffic – leading to an uptick in sales of $140 million over three years. For a full report analyzing the return on investment of implementing a Mirakl-powered Marketplace be sure to read the Total Economic Impact Study conducted by Forrester Consulting.
The marketplace is also a great way to improve search engine optimization (SEO), leading to increased site rankings on relevant searches. For La Redoute, a French eCommerce leader in fashion and home decoration, they found the additional keywords, descriptions, and brand names that have come via their online marketplace has given them a competitive boost in the battle for online traffic acquisition. "We have a big opportunity to attract new customers by using the marketplace to rank higher in SEO,” explained Philippe Berlan, Deputy Managing Director, La Redoute. “It's important to have this enrichment in the competitive battle of online traffic acquisition."
They aren’t alone: On average, marketplaces have been shown to increase results from search engine marketing (like SEO) worth $5.2 million.
Capitalizing on missed possibilities
Pushing past the myth of cannibalization allows businesses to see the true opportunity of the marketplace model. This includes quickly scaling to add products or services you previously didn’t have. Here’s a quick exercise to see the financial value of missed sales.
Pull up your company’s ten most searched for items you don’t have a product for or are currently out of stock. Then, take these items and multiply them by the average conversion rate of your website. The number you’re left with is what you would have made had you had an offering, known as the financial value of missed sales.
While it’s important to explore this missed financial value, it’s not the sole benefit of an online marketplace. The platform also allows you to better meet your buyers’ needs, develop an ecosystem of products and services, improve SEO, and be the “one-stop shop” your customers are looking for. Where others might hesitate, Platform Pioneers are taking advantage of opportunities just like this to expand their customer base, improve loyalty, and enhance the overall online shopping experience.
Written by Luca Cassina
Luca leads Mirakl’s Customer Success team for the EMEA region and has more than 20 years of experience in retail, ecommerce, and digital payments. Previously, he ran the Fashion Marketplace at Amazon Europe and held various senior leadership roles at PayPal, including serving as Managing Director Western Europe and as General Manager Northern, Central and Eastern Europe. Previously he was the Country Manager Switzerland at Schibsted Classified Media and the Founder and CEO at TalentManager.com.