Retail strategy expert Luigi Matrone – CEO & Founder of eBusiness Institute – explains why CPG companies should embrace online Marketplaces and use them as a stepping stone towards DtC.
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CPG companies should embrace online Marketplaces
To my mind, online Marketplaces represent the next eCommerce frontier for big Consumer Packaged Goods (CPG) brands.
More than $2 trillion USD was spent in the top 100 Marketplaces in 2019. According to the latest statistics, online Marketplaces account for 57 percent of all global online retail sales. That’s huge.
OK, so some CPG companies have struggled with online Marketplaces. But I actually think that there’s a great opportunity for CPG to start winning immediately if they embrace this form of eCommerce as part of their respective retail strategies.
Read on to learn why.
What are online Marketplaces?
To start with, let’s be clear on a few definitions.
An online Marketplace is an eCommerce store where multiple merchants can sell goods or services to customers.
Online Marketplaces (Alibaba, Etsy, eBay, Tesco and ASOS, to name just a handful) are among the most powerful and disruptive businesses in the world economy.
And retailers like Walmart, Target and Best Buy are now heavily involved with this kind of eCommerce.
A typical online Marketplace is used by a large number of merchants to sell products to online shoppers browsing the website. The online Marketplace maintains the website, invests time and money in attracting potential customers. And it offers a secure shopping and payment process. The seller is responsible for storing and shipping the product(s). The size of the commission generally varies between 5-15 percent.
Although Marketplace is often used as a catch-all term to describe Amazon, Amazon is slightly different in that it offers two distinct options: 1. selling as an Amazon ‘Seller’ and 2. selling as an Amazon ‘Vendor’.
The greatest difference between the two is that:
- Amazon Sellers list, price and market their products themselves as 3rd party sellers
- In the Amazon Vendor model, Amazon provides full-time distribution of a brand’s or manufacturer’s product.
The clearest benefits of becoming an Amazon Seller are:
- the sheer volume of traffic Amazon receives
- control of pricing, marketing and the number of units they want to sell
- access to analytics that help the Seller to understand customer behaviours.
An Amazon Vendor, on the other hand, must be selected and invited by Amazon’s corporate team. Once on board, Amazon sells your products to customers on your behalf. An Amazon Vendor’s products will be listed as ‘sold by Amazon’, which does a great deal to boost shopper trust and confidence in the product. In the Vendor model, Amazon controls pricing, messaging and logistics.
While some CPG companies believe they are already operating in an online Marketplace because they are Amazon Vendors, they are actually using Amazon as a B2B2C retailer.
Direct to Consumer (DtC), meanwhile, is an eCommerce strategy that sees manufacturers sell directly to the public outside of Marketplaces.
During lockdown, for instance, PepsiCo built Snacks.com, a new, end-to-end system that allows consumers to directly order their favourite Frito-Lay products straight to their homes.
DtC bypasses the conventional method of negotiating with a retailer or reseller to get your product on the market.
The advantages of DtC
The most notable advantage of DtC is that it gives brands full control over 1st party customer behaviour data.
1st party data is information directly collected by businesses on their audience, customers and prospects. Declarative 1st party data collected through opt-in forms on a DtC website might include the visitor’s name, email address and country of residence – all information that could help inform a personalised marketing campaign.
Behavioural data is collected on the basis of a visitor’s actions and activities on a DtC website. Google Analytics is the most common tool for analysing this type of data.
These rich insights can be used to power a range of sound business strategies and innovations. And to help match shifting consumer behaviours and improve customer experience, which can result in high volumes of sales and enhanced customer loyalty.
The downsides of DtC for CPG companies
Kudos to the likes of PepsiCo and Kraft for making a success of their recent DtC initiatives.
But most CPG companies haven’t figured out a frictionless way to incorporate a DtC website into their Omnichannel distribution strategy. And they’re afraid to strain the relationships they’ve built with their wholesale and retail partners.
To name just a few, significant challenges that big CPG companies might struggle to overcome when adopting DtC include:
- High operational costs
- Providing great customer service could pose a challenge to a CPG not used to communicating and selling directly to consumers
- CPG brands are used to brand building on their owned channels, but a DtC model requires a different kind of messaging and user experience (UX).
Advantages of Online Marketplaces
Online Marketplaces are ideal for CPG companies looking to take the next significant step in their eCommerce journeys.
The traffic being driven to these online Marketplaces is vast.
Etsy, for instance, has had more than 305 million visitors, with the average visit lasting nearly nine minutes. ASOS has had 235 million visits during June 2020, and 2.3 billion across its platforms in the past year. And the top 10 UK grocery sites received an average of 103.2 million visits per month even before the COVID-19 pandemic. A standalone traditional eCommerce store simply can’t compete with those numbers.
And then there’s the speed to market aspect. An organisation could potentially be selling via an online Marketplace within a day – and a CPG company would only need to pay between 5-15 percent in commission on the products it sells through the platform.
Importantly, online Marketplaces support sellers’ marketing efforts through attracting, nurturing and engaging leads on the heavily visited site.
Other advantages of online Marketplaces are that they provide an additional channel to market and sell your products, engender new opportunities for overseas sales and can be operated around-the-clock 24/7.
What do consumers think of online Marketplaces?
Consumers have made it clear that they prefer to shop at online Marketplaces because of the compelling value propositions they offer.
They’re more convenient and save consumers time because online Marketplaces are one-stop shops for a large number of products. We know that online shoppers love convenience, with a remarkable 97 percent of consumers saying that they have abandoned a purchase because the service wasn’t convenient enough.
Prices are also typically lower because shoppers can explore similar products from competing sellers.
Consumers also like the fact that marketplaces usually offer a great range of services, such as mobile apps, straightforward (secure and trusted) payment options and delivery options.
Why your business should embrace online Marketplaces now
- Better data generation than if selling via an eRetailer.
- Extra revenue (more channels of distribution).
- No need to develop and maintain your own platform, thereby reducing costs and operational headaches.
Online Marketplace challenges to overcome
- Change of mindset to overcome historic issues
Problem – Setting and managing product pricing: if the brand is also the seller, how should they price?
Solution – Change mindset. Managing pricing in a dynamic environment requires new methods, so adopt new processes and apply new internal controls. The prize is too big for big CPG brands not to commit to overcoming payment, tracking, shipping and customer service issues. Adopt new ways to thrive.
- Capability gaps
Problem – Dealing with individual shoppers instead of retail partners; big CPG companies are great planners but may not be used to living in the now and reacting to real-time issues.
Solution – Adapt to create more direct and personal understanding of their shoppers. Hit the target with content and customer service responses that satisfy or impress the customer. Be agile. Develop specialist Marketplace knowledge. Successful sellers possess advanced strategic and tactical understanding – they’ve built toolkits that allow them to automate repetitive tasks, optimise their marketing and measure progress.
And, speaking of capability gaps, have you heard about our H.O.W Capability Building program?
Tailored to the specific needs of your organisation, each H.O.W program uses an action-oriented approach that equips people at every level with the practical skills needed to thrive in the era of digital transformation.
Of particular relevance in the context of the discussion about the pros and cons of online Marketplaces and DtC is our ‘Mastering Online Retailing’ webinar series, which you can learn more about here.
In conclusion – Marketplace is CPG’s best bet for now
COVID-19 has made brands rethink their priorities and rapidly innovate in order to reach customers.
One of these innovations has been the pivot to DtC. And there have been some great success stories.
The appeal of DtC is clear. But there is a real danger in leaping into DtC feet-first – and too many people are piling onto the DtC bandwagon without understanding the risks and low success rate.
Online Marketplaces are a much better way for CPG companies to gain eCommerce share in the short-term.
The risks are low and the success rate high. The advantages are clear: better data generation than if selling via an eRetailer; better margins; extra revenue opportunities; and none of the costs or headaches associated with developing and maintaining your own DtC platform.
I do think that DtC is a great long-term bet. But Marketplace is a fantastic learning ground for CPG companies and eCommerce leaders – and I encourage them to use it as a stepping stone on their journey towards the DtC model.
This article was created and written by Luigi Matrone, CEO & Founder of eBusiness Institute.