With a 40% increase in online purchases, industry players are beginning to realize the importance of digital marketplaces in the new normal.

Brands looking to join a digital marketplace require smart decision making and partnership strategy. Global online purchases before COVID-19 generated over $2 trillion through digital marketplaces. From apparel to very niche markets, consumers are continuously searching to purchase online with over 60% of stores based in the United States. As industries continue to adapt to an online environment, they must strategize around their competition and begin to join forces to successfully access their full consumer base. McKinsey’s Moving Past Friend or Foe: How To Win With Digital Marketplaces walks us through the core characteristics of digital marketplaces today and what retailers must do to prepare and thrive in one.

A Moldable Digital Marketplace

Though digital marketplaces have been the buzz for the past several years, many brands are struggling to understand if and how to create a successful partnership with them. Both small and large marketplaces all have their trade-offs, but there are several characteristics that define the services they all have to offer along with core-characteristics that make them attractive to online brands. McKinsey’s Moving Past Friend or Foe: How To Win With Digital Marketplaces lists the forces shaping present-day digital marketplaces and their growth during the transition into the digital environment.

• Shifting Market Dynamics: It’s all about personalization and consumer-specific experiences. McKinsey states that this turn in consumer behavior creates an emergence to provide these services and stay in touch with current and potential customers. Without this, brands are destined to fall behind and lose their connection in niche marketplaces.
• Marketplace Consolidation: It’s getting competitive out there, and the digital space is getting filled up every minute in every industry. More and more industry players are targeting similar consumer groups by investing in or acquiring marketplaces that are most similar to what they offer to consumers. Why compete, when you can join forces and target the same consumer groups together?
• More Value-Added Service Offerings: Digital marketplaces are growing, and now it is time to value the seller just as much as the consumer. Targeting both means they must have a differentiated value proposition for both parties in order to increase scale and stay on top of their own competition. This means additional support and offering value added services to attract and maintain sellers while generating revenue from the additional effort they are placing.
• Supporting Ecosystem of Tech Enablement: As retailers search for digital marketplaces in order to stay on top of their competition, these marketplaces must constantly update their technological bandwidth to remain relevant and attractive to sellers. Features like payments, security and improved “shopability” are now required for all marketplaces to differentiate themselves through vertical integrations.

How Brands Are Making Marketplaces Their Own

Marketplaces provide new channels for distribution and acquiring potential customers. Each brand must lay out their objectives in order to fully take advantage of their marketplaces and make smart decisions. These objectives can range from the purpose of entering a marketplace to whether or not it’s operationally feasible to handle the trade-offs of being a part of one. Brands can find marketplaces that either fit their current customer base or have the ability to expand into new ones. They can also decide on how to and how much they would like to interact with these end consumers.

Operational trade-offs almost always center around surrendering some degree of control to the provider. This can touch how price is performing with the current marketplace compared to how much a brand is currently selling their products for. Marketing and branding may have to change along with how a retail fulfills their orders. Especially with the new standard of speedy and convenient delivery, marketplaces must work with their sellers to choose the best type of fulfillment for their goods.

What Defines Success In A Marketplace

McKinsey starts off the road to success in a marketplace with a brand’s operational model. It boils down to making smart decisions centered around day-to-day operating activities and managing multiple partnerships to generate a streamlined process for the end customer. Brands who join marketplaces are creating roles centered around this – from e-commerce marketplace managers to marketplace-specific merchants. This line of work is more specialized compared to traditional account-management structures. Out of all industries, apparel is honing in on digital marketplaces faster than ever. Companies such as Anthropologie, Madewell and Urban Outfitters have already launched proprietary marketplaces and are looking to join forces with many other brands alike. If all goes well, according to McKinsey, brands, marketplaces and consumers should experience a three-way win. It’s a classic spread of value if brands are able to successfully access and thrive in a massive consumer base.

The operational success of retailers engaging in digital marketplaces all stem from developing the right objectives and being able to remain flexible as industries continue to evolve. We’ll see how many different retailers approach the marketplace arena and where it can possibly take them. The amount of opportunities brands can gain through marketplaces are endless as long they are able to play their cards right.

Source

McKinsey and Company. 06/18/20. Moving Past Friend or Foe: How To Win With Digital Marketplaces.