The concept of digital commerce is now widely known, as this type of selling is gaining popularity worldwide. Today, the marketplace business is one of the largest and most profitable; experts estimate that by 2025 their market will be valued at 7 billion dollars. If you’re considering starting or scaling a business with a digital marketplace, you must start by defining your business model. Will you grow in a vertical or horizontal marketplace? What are their differences, as well as strengths and weaknesses? Learn more about this below.
The concept of a marketplace & its role and benefits
A marketplace is a trading place in a digital environment that allows you to buy and sell goods and services of any type and in any category. A marketplace is simply a vast digital platform responsible for the interaction between customers and sellers, transaction processing, and logistics tracking. Online trade platforms benefit all parties, customers, merchants, and platform administrators. They provide maximum convenience to buyers as they have unlimited resources, technical capabilities, and capacity.
Key benefits for customers
Marketplaces save buyers much time as they can find everything they need in one place. The critical perks for such e-commerce platforms customers are:
A centralized place to shop – users don’t like downloading many apps or jumping from website to website looking for products and services. The online trading place allows you to browse developments from different merchants in one place
Competitive prices – marketplaces feature lower prices; Users can compare prices from different vendors and choose what’s best for them
Fast delivery – in many cases, customers can choose delivery company & method
Big choice of payment methods – customers can choose the payment method they are used to, so they don’t have any additional problems as they do with individual e-commerce sellers
Major benefits for merchants
Sellers can save on many things if they decide to set up a profile on the trading platform. In this way, they get the following:
Additional channel for selling. Marketplaces have high traffic and a broad reach, and therefore sellers can save on targeting and customer acquisition
Faster deployment – In marketplaces, the platform is responsible for the look and feel of the storefronts and the management and analytics tools. All sellers need to do is sign up
Ability to work around the clock without worrying about trading hours
Main benefits for marketplace owners
Marketplace owners earn a percentage of each transaction, and there is more than one way to charge a commission. They get a significant source of income, and depending on the business model, they may not be responsible for transactions and shipping.
The Role of the Marketplace in the business world
Online trading places play a massive role in the business world; sellers and service providers can become part of this global purchase and sale system. Marketplaces allow them to put their goods in the most favorable light and increase customer confidence, as users usually trust e-commerce platforms more than individual sellers. You don’t have to invest time to earn trust; everything happens faster on marketplaces. In addition, not all sellers can afford the expense of developing their websites and other digital and logistical capabilities. Marketplace is becoming a better option for thousands of e-sellers worldwide.
Since its inception, the Marketplace has evolved, resulting in different business models. If you want to become a marketplace owner, you first need to consider which of the existing business models is worth moving into; this does not mean you cannot change your direction later. However, the choice must happen. Let’s take a look at the two main principles of marketplaces below.
So, e-platforms owners can choose vertical marketplaces as their business model. This means that you will only provide services in one specific category. Still, you must constantly evolve to become the best in your field due to a relatively limited target audience.
The strengths of a vertical marketplace are:
A better-personalized experience – because you’ll be working with a limited number of customers, you’ll have an easier time meeting their needs
Ability to focus on one thing – a vertical marketplace is not wasteful; it is concentrated in one industry and, therefore, will be able to give its development a better quality of attention
Faster sales – vertical marketplaces typically experience faster sales due to the lack of concentrated competition. With fewer competitors to contend with, buyers are more likely to make purchases quickly, resulting in faster sales for sellers
Weaknesses of the vertical Marketplace are:
Intolerance to change – when you operate in one niche, you become unstable in trends and changes. If a trend suddenly passes you by, you can become uncompetitive in an instant
Growth Opportunity – depending on your niche, you may need more time & effort to develop and implement an efficient growth strategy. Nevertheless, you need to constantly innovate and improve your business to meet customer needs
The brightest examples of vertical marketplaces include Etsy and Uber. The first one became a successful seller of vintage records, while Uber today is the most popular app for booking and paying for cabs and private drivers.
A horizontal marketplace is the exact opposite, an e-shop that offers everything from small trinkets to electronics, furniture, etc.
The strengths of a horizontal marketplace are:
More market share – attract suppliers from different industries. This leads to faster & more efficient profit process, benefiting both the marketplace & its suppliers
More target audience – because horizontal marketplaces have a wide range of products, their target audience is correspondingly broader, which also increases your revenue
Minimal risk of lack of demand – you can adjust the range of products on the platform, according to the demand. Therefore, you do not have to fear lack of demand
The weaknesses of the horizontal Marketplace are:
Higher acquisition cost – the horizontal model is more wasteful on multiple industries, and therefore the cost of attracting a customer is higher in this case
Less customer centricity – to cover lack of close interaction with customers, you’ll need a stronger loyalty program
Low product differentiation – customers can buy the same product as in your range anywhere. The competition in horizontal markets is very high, and it is tough to stand out
The best examples of horizontal marketplaces are Amazon and Alibaba. You can find anything you want on these platforms, and they’ve managed to scale to become one of the most profitable marketplaces.
Vertical vs. Horizontal Marketplace Comparison
The eCommerce industry is rapidly evolving and becoming increasingly competitive, so e-commerce entrepreneurs, whether online stores or marketplaces, must focus more on surviving this competition. To do this, you must decide on your business model, and a Vertical vs. Horizontal marketplace comparison will help you do just that.
Aimed at one sector of the market and only works with one certain category of goods
It is a digital interpretation of the usual marketplace, where you can find anything in one place
The target audience is relatively narrower than in the horizontal market. It serves only a specific audience in its niche. However, their audience is more cohesive – vertical marketplaces can offer unique products
Aims to reach and serve a wide audience by providing a huge range of goods and services
Offer specialized goods and services
Offer a variety of products and services in different categories, thus helping different companies reach a wide market and audience
Continuous improvement in your niche, improving product and service quality, delivery and loyalty program, etc.
More focused on introducing modern trends and technology to make it easier for salespeople and customers to buy
Choosing the Right Marketplace for your business
To accurately decide on your type of marketplace, you must also consider your plans, preferences, and capabilities. Asking yourself the following questions might help you make the choice:
Who are your customers?
Do you want to sell your products and services directly to consumers? Or will it be other businesses? B2B and B2C have different approaches and priorities
New or second-hand?
The most common choice is new things, but many customers are also after rare, unique, or on the contrary very cheap items. The vertical market suits you more if you want to sell used items
What are your competitors doing?
By studying your competitors, you can fill in many gaps in your strategy and the market itself. For example, you can start offering products that relatively few sellers offer, as well as develop unique delivery offers, bonuses, and promotions to draw attention to yourself; horizontal markets face the problem of high competition more often
Managing and optimizing a marketplace is a challenging task that requires ongoing effort & flexible approach. Success may not come easily, especially at first, and you will need to make changes long the way. Here are some best practices you could adopt:
Develop and constantly improve sales strategy
In order to do this closely monitor any changes you make. Be prepares to adjust your prices, prepare & complete various tests (and invest into it!), delivery options & providers, design of the platform, and more. Don’t be afraid to take action and make changes.
Simplify the path to purchase
Make it easy for customers to make purchases. Ensure they can access the marketplace from any device & channel, reduce the steps they need to take to complete the purchase.
Ratings and reviews matter
Customers do really rely on ratings & reviews when they are unfamiliar with a product or service. Encourage feedback, respond to problems & complaints, address deficiencies to improve your rating & attract new customers.
As an owner of an e-commerce, you must consider many other factors, such as payment systems by region, warehouse partners, scaling, and more. However, understanding the abovementioned fundamental principles will make your business journey smoother.
Developing your own marketplace with Centum-D
Having done your preliminary research and decided what type of marketplace you will be affiliated with, you should proceed to the next responsible step – development. Creating e-commerce platforms requires knowledge of all the latest trends in IT and design to provide a truly effective product. The website layout plays a huge role; it has to be responsive to ensure that your platform can be viewed in the best possible way from any device. Today, more than 79% of users regularly use a smartphone to shop online, so the look of your platform on different screen extensions is very important.
Speaking of what is website layout, it is the positioning of page items intended to provide the best possible user experience. The experts of Centum-D have impressive experience in IT development and know exactly how to make website layouts to ensure high traffic and comfort of use. Our team creates custom projects from scratch, monitors & analyzes the most efficient site layout examples. We are happy to advise our customers, and guide them through the whole process of creating, upgrading, or scaling their digital product.
Virtual and Horizontal Marketplaces have different goals, business & development strategies; that’s why you first need to decide what kind of marketplace model you will have. Feel free to get in touch with our team, so we could advise you on any issue, related to eCommerce web design, development, promotion, and scaling.