We hear it all the time:
“Won’t creating a third-party Marketplace only take away from my existing online sales?”The threat of cannibalization is a common fear among online retailers when they are considering a Marketplace offering. In the world of ecommerce, competition is just a click away and customers behave accordingly: they search, compare and then choose.
These online shoppers are looking for a Marketplace filled with the widest variety of options. Even as a platform for your competition to fulfill a sale, your Marketplace allows you to supply the right offer at the right price - keys to earning the repeat business and loyalty of online shoppers.
After all, there’s an age-old saying that goes, “100% of nothing is still nothing.”
As a retailer, if you do not carry a certain product, there is a 100% chance you will not get revenue for that product. Some revenue, even from a competitive sale on your platform, is better than no revenue.
What about my brick-and-mortar sales?
This fear is felt even stronger among brick-and-mortar retailers, who worry that creating an online Marketplace will siphon sales away from their stores.
However, the converse is true.
Data from PwC shows that shoppers actually spend more with their favorite multichannel retailers. You can digitize your brick and mortar concept, and scale across more channels. When you are able to offer great product selection everywhere your buyers want to shop, this in turn creates the holy grail of retail: highly loyal and engaged shoppers.
It’s not about cannibalization - it’s about synergy.
Customers want choice, good quality of service and fair prices. At Mirakl, we have helped hundreds of companies set up their Mirakl Marketplaces to great success and scale. Our experience has proved that a Marketplace does not cannibalize online sales, it actually creates synergies that boost them.
Consider that by 2018, more than 50% of ecommerce growth will be driven by Marketplaces.
Mind your margins.
It is also important to analyze margin against commissions. Operators of a vibrant Marketplace can strengthen their brand by offering customers all the products they expect– at the best price– without sacrificing margins. A marketplace product is always profitable: regardless of its price or sales volume, you will still receive a fixed commission equivalent to the net margin.
If the Marketplace commission is higher than retained net margin, a Marketplace sale makes economical sense. Even if margin is higher than Marketplace commissions, it is important to look at the bottom line P&L.
Can you turn your fear of cannibalization into optimism for future growth?
Written by Barry Murphy
Barry Murphy is the Director of Content and Product Marketing at Mirakl. In this role, Barry leads the alignment of Mirakl's offerings to market needs for the next generation of online commerce. Barry previously ran product marketing organizations for X1 and Mimosa Systems (now part of HPE). Barry also had a highly successful stint as Principal Analyst at Forrester Research. Barry received a B.S. from the State University of New York at Binghamton and an M.B.A from the University of Notre Dame.