Countering a Challenging Retail Environment With Marketplaces
The retail environment has changed dramatically over the last few years. Not only did the pandemic create changes in consumer behavior and supply chain challenges, it caused huge cost increases across the board in freight, material, labor, and other sectors. Rising costs have led to levels of inflation that haven’t been seen in decades. This squeezing is putting downward pressure on margins not seen in nearly a generation. And now, monetary policy intended to curtail inflation is impacting consumer spending and access to capital for businesses. This is causing everyone to scramble in terms of how to respond.
Few businesses possess the power to raise prices and not impact sales volumes. As such, brands are looking to counter margin compression with more aggressive growth targets to try to close the gap with volume. As a brand, you may be wondering what you have in your toolbox to address this growth challenge. In this article, we’ll explore how to use a marketplace strategy for power growth, how to engage marketplaces at scale, and how to think about optimizing your placement on the Digital Shelf in 2023 and into the future.
How Should You Respond to this Retail Environment as a Brand?
With the current inflationary environment and with seemingly everyone raising prices, the first thing you might feel as a brand is that you have pricing power. That's true to an extent. While you could try to raise your prices, this is not necessarily the best answer. For example, Amazon recently placed a 5% surcharge on merchants due to an increase in freight costs. Your pricing power is limited because of what your retail partners and your customers will accept, and how your competitors respond. If you raise your prices too much, sales volumes will drop and you’ll lose market share.
Next, you might try forms of “merchandising innovation.” You may consider launching new products or tapping into new markets, or adjusting your existing products, but making new products or adjusting manufacturing lines on existing offerings takes time, and is expensive. Bringing a product to market involves many costs, such as marketing and getting retailers to take an inventory position. For all these reasons, innovation is not likely to help you in the near term.
What is a Marketplace (and How do I Scale it)?
At this point, you may be wondering, “What is something I can do today?” So let’s turn our attention to how you can leverage marketplaces to expand your share to address these challenges.
For the purposes of this article, a marketplace is a digital platform where vendors can come together to sell their products (or services) to the marketplace’s customers. It’s usually the responsibility of the marketplace owner to ensure the right customers and the right vendors are in place to drive sales. marketplaces earn a commission from each sale. This is contrary to an “online store”, which is a single store where a retailer is selling an assortment directly fulfilled by them and drop-shipped inventory.
Generally, most marketplaces do not own the inventory their platform sells, but many do both (like Amazon.com, 1P and 3P). Check out this resource to learn how brands can grow commerce by maximizing the value of Amazon.
Expand Your Partners
Theoretically, engaging with marketplaces is one of the more obvious ways you can expand sales. This is accomplished by expanding the number of addressable customers. It’s important to note that each marketplace and retailer faces its own challenges and complexities. For example, each one is likely going to have its own proprietary requirements (data, technology, product experience, etc). Adding marketplaces can become pretty expensive and presents scaling and other challenges.
To get to the bottom of this, start by asking these two questions:
- How do you decide which marketplaces partner with?
- In what ways can you mitigate the expense and effort you’ll need to engage in these eCommerce channels?
Create a Shortlist
- What results are you looking to achieve (and what is realistic)? It’s important to set out realistic business goals to guide your marketplace search. Next, work with the business to align on measurable objectives.
- What can your organization handle? Be honest with yourself about the maturity level of your organization. Building a successful marketplace channel takes resources and commitment. Do you have the foundational elements in place to execute against this strategy (PIM, logistics, merchandising, etc.)?
- Who are your customers? Knowing who you are targeting will allow you to help assess whether the marketplace is “fit-for-use”. You want to ensure your target audience overlaps with who the marketplaces are attracting.
- Where are your competitors? It can be helpful to know where your competitors are placing their products. It may be a clue to where the market opportunities are.
Once you have a handle on these aspects, start compiling a short list of target marketplaces. You may also want to search for commercial retailer research organizations that could provide context as to where to focus.
From there, make sure you perform due diligence on any requirements of the platforms or relevant terms and conditions that can affect operations of the viability of a potential partnership.
Choose a Platform
Next, make the process of expanding your market share easier by using a platform that supports your operations. There are a number of platforms that can assist. You’ll almost certainly need a PIM in place (i.e. Akeneo, inriver, Stibo, Salsify, etc.), but you should also seriously consider Product Syndication tools, like Channel Advisor, Productsup, Syndigo, and Salsify, to name a few. These platforms automate the process of aggregating, transforming, and syndicating your product content to your marketplace (and retail) partners. Be sure to check with your partners as they may have requirements (e.g., using a GDSN datapool) or have preferred tools (or exclusive relationships) for product onboarding that you’ll need to consider. They are all different products, but in general they try to solve similar problems.
Marketplace Onboarding with the Product Syndication Platform
Once you have selected a marketplace partner, you’ll start onboarding products into the platform. While it’s ideal to leverage the capabilities of your syndication platform to start, it’s more likely you will start with manually onboarding a few products to get going. Make a plan that addresses how you’ll use the syndication tool will make it easier on yourself. If your tool has native channel syndication (e.g., Amazon, Walmart, etc.), you should start with these as the overhead and cost of using native versus custom is much lower and takes less time.
Watch our on-demand webinar to find out how to maximize your revenues and reduce operating costs through marketplace syndication.
Is this a silver bullet? Nope. The issues currently facing retailers and manufacturers in the B2C space are complex and will require a multi-pronged and adaptive approach to be successful. Even with this strategy there are many things out of your control. Are your partners even open to new vendors? Will they be interested in onboarding your products into their assortment? Are your logistics and fulfillment systems able to handle additional demand? So this might not be a tomorrow solution, but what it will do is put in the foundation for the strategy to start seeing tangible results within the next few quarters.
No one could have predicted the extraordinary shifts we’ve seen in the retail and economic environment recently, let alone be prepared to take this disruption in stride. Many retailers are desperate to find actionable ways to start tackling these challenges. Marketplaces have become valuable channels for growth for many B2C brands over the years and if you haven’t considered them before, now's a great time to start.
To learn more about winning on the digital shelf, check out this resource.