The concept of the Mall has been taken to new heights in the Middle East. In Dubai, the Mall of the Emirates, Dubai Mall and Dragon Mart are sprawling concentrations of commerce that sell almost anything. It’s little wonder then, that the concept of an online mall is popular in the region.
One of the pioneers of the Marketplace model of ecommerce in the Middle East is Souq.com. The platform aggreagates buyers and sellers together under a single site – and the result should be better results for both.
Marketplaces are sometimes referred to as ‘Multi-vendor’ sites. There are different models which allow for different levels of autonomy of sellers.
The Pros of Marketplace Ecommerce.
Traffic.
In the offline world, the Mall is a destination. For many customers a mall is more than just for shopping – it is a place to meet friends, eat food and watch films. For merchants, the advantage of a mall is that the traffic is ‘guaranteed’.
An online marketplace offers similar advantages for a merchant. Rather than build a stand-alone website which has to attract its own traffic, a multi-vendor ecommerce site charges ‘rent’ to benefit from the customers attracted by the Mall’s brand.
Infrastructure.
One of the biggest advantages of a marketplace for a retailer who has not done Ecommerce before is that it is a turn-key solution. Most multi-vendor sites provide a payment gateway and in some cases fulfillment capabilities. Added to the marketing benefits above, this allows shops to be selling in a short amount of time with a much reduced investment.
Many online shops begin on a marketplace to test for demand and understand their customers before moving to a standalone store.
The Cons of Marketplace E-commerce.
Competition
The advantage of a Mall for a customer is that they can compare different products in a single place. The downside for a retailer is that there is competition for customers and sales. Consumers are able to compare prices easily and social reputation tools allow them to compare service levels.
Branding
Some multi-vendor platforms allow retailers to have their own ‘store’ in the marketplace. Others centralise traffic around a product that has several suppliers. Creating a name for yourself on a marketplace can be done, but it is not creating yourself as a destination in your own right.
Margin
A marketplace is a trade off. It works just like an offline Mall. The mall takes the risk and makes the investment in the infrastructure. They also invest in bringing traffic to the site. The Mall needs merchants to attract shoppers, but they also need to make their investment back.
As well as setup fees, there are a variety of ongoing fees that a Marketplace may charge a merchant. Monthly fees, advertising charges or a percentage of sales are all common. On one hand, this is marginal cost, on the other hand, if you sell products with low margins, then this model might not work for you.
Cashflow
Depending on the way in which a marketplace collects money from customers, it may take a while for money to be transferred back to the merchant. This is particularly painful if the marketplace supports ‘Cash on Delivery’ (COD).
In the case of Cash on Delivery, the goods are packed and delivered before payment is received. A driver has to bring the money back to either the ‘Mall’ or the supplier and this can create accounting errors and increases risk of fraud or loss.
Getting the Balance Right.
Marketplaces like Amazon and Souq provide the ability to sell online quickly and put your products in front of a large number of customers. This needs to be weighed against trying to build your own brand and sell to your own customers.
Your E-commerce strategy may include both! Many merchants have their own ecommerce website, but sell some or all of their catalog on other channels as well. Think of a fashion brand – they may sell new items and current season products on their own website but sell last-season stock via a marketplace.
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