Marketplace jungle: platform strategy, but spot-on!

For Amazon, Ebay, Zalando and Co. the evolution into a marketplace opened up the way to the desired sales volume. What was considered as supreme discipline at that time, has now arrived in the mainstream. Following Douglas, Engelhorn and KaDeWe, H&M recently announced a fundamental further development of its business model in the direction of a marketplace and platform. At first glance, the reasons for the marketplace business seem promising: Retailers offer their customers a larger product portfolio, thus supplementing their revenues with sales fees and utilizing their logistics structures to full capacity. But not every brand or retailer has the potential to become a marketplace and a successful platform. However, that is not necessary, because a successful platform strategy can also work differently.

The first steps in the platform business
Many brands and e-commerce retailers are making the leap into the platform business by using existing marketplaces such as Ebay and Amazon. Retailers quickly reach a broad target group and can profit from the massive reach quickly and without much effort. Especially in the initial phase of business, the platforms as sales channels are a worthwhile alternative in order to not bearing the high investments of an own online shop right away. Instead, retailers and brands can gain experience in the e-commerce business at predictable fees and sales commissions within the platform business. Platform merchants also do not have to worry about the technology and the creation of product descriptions.

The problems grow with increasing dependency on a platform
However, such a single-platform presence is not sufficient in the long term. With increasing sales of the brand on one platform, the dependency on this sales channel increases at the same time. In the past, controversial cases have repeatedly arisen in which Amazon has blocked vendor accounts without prior warning. Likewise, higher fees, a change in the sorting of merchants’ . offers or in the presentation of recommended products such as “Amazon’s Choice” can quickly lead to retailers generating significantly less sales than before. Ultimately, the platform still sets the rules. Therefore, merchants should take the additional trading volume that platforms open up for them, but not solely rely on it.

More reach with a targeted multi-platform strategy
Every brand aiming at reaching the entire market and pursuing a growth strategy should distribute the platform business across several platforms. Since these at least partially address different target groups, retailers with a multi-platform strategy reach additional customer groups that do not overlap with other platforms. In addition to the high reach, the value added services  in the areas of advertising, logistics and customer care offered by various platforms are often worthwhile for retailers and brands. Platform operators receive innumerable data from the enormous number of customers, which they can use to analyze buying habits and use, for example, to play out personalized advertising. This degree of personalization ensures a loyal, recurring customer structure from which the brands can ultimately benefit. However, the data sovereignty over the collected information remains with the platform owner, who often only offers the dealers the opportunity to purchase it – here, a certain dependency on the platform becomes apparent, too. In addition, brands and dealers should take into account the fact that the more platforms they use, the greater becomes the degree of complexity. Since each platform has its own requirements, e.g. in terms of fulfillment, the quality of the downstream processes should be ensured, especially when the reach is quickly gained.

Using your own web shop as a stage
A successful multi-platform strategy enables brands and retailers to generate high sales and reach relatively quickly. However, it is not advisable to rely solely on the platform business. When it comes to flexibility, your own web shop can hardly be outbid and for many reasons there is no alternative: you not only retain full sovereignty over your business, but also control the entire transaction and do not pay any sales fees to third parties. Companies can combine their physical products with (customer) services and thus become less dependent on price developments. The decisive factor is above all branding and thus the long-term asset. While satisfied shop customers build up true brand loyalty in the best case, the focus on trading platforms is more on the product and less on the seller. As long as the price-performance ratio is right, it is of secondary importance for marketplace buyers which retailer they buy from. In any case, many customers are hardly aware that they are buying their products from a third party.

Objectives and timing are relevant
What path should online merchants take: their own web shop, a single-platform or a multi-platform strategy? Both your own web shop and the use of trading platforms can pay off for merchants. However, in addition to all the opportunities and challenges offered by platforms, sales via an online shop of one’s own remains essential. This not only offers maximum independence from platform measures, but also enables retailers and brands to better focus on customer needs through direct customer contact. Marketplaces, on the other hand, are suitable for experiments with new markets and target groups and for expanding one’s own business activities. The right mix makes the difference.

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