How brands can keep (or catch) digital marketplace momentum

Bobby Stephens and Surya Saurabh

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27 Apr 2021

8 minute read

Brands that don’t take marketplaces seriously now may find themselves in the same position as businesses that once dismissed e-commerce as a novelty.

Digital commerce boomed in 2020, which comes as no surprise to anyone who witnessed groceries regularly appearing on neighbors’ doorsteps or who collapsed countless cardboard boxes in their own recycling bins.

The rapid shift to digital commerce was born of necessity and safety in the early days of the pandemic, as consumers under stay-at-home orders adopted new ways of shopping. Yet the momentum in e-commerce proved tenacious even when pandemic restrictions eased up, with many people clearly not just sufficing with online shopping but in fact gravitating to it. All told, e-commerce sales soared 44 percent in 2020, reflecting the strongest single-year growth in two decades.

Amid this uncommon growth in an uncommon year, digital marketplaces—where multiple brands list and sell their products and services—saw even more exceptional growth, with gross merchandise value up 81 percent year over year, according to a recent, comprehensive report on marketplaces by Mirakl. In other words, digital marketplaces outpaced general e-commerce nearly twofold.

Why were marketplaces successful in 2020?

What is it about marketplaces that made them so compelling? Certainly, many shoppers were already familiar and comfortable with established marketplaces run by the biggest names in e-commerce, with their wide selection across multiple categories. But another kind of marketplace emerged in 2020 as well: nimble brands that quickly innovated by creating their own digital marketplaces. With this new breed of marketplace, brands of all sizes not only sell their own products and services but also offer a curated selection of third-party products and services complementary to their own. Third parties are charged a commission for every sale and are typically responsible for their own fulfillment logistics.

The success of the marketplace can be attributed to several factors:

Pandemic closures careened people toward new ways of doing everything: working, learning, eating, exercising, and more. Shopping online was actually something most people were already familiar with, so the behavioral stretch was more about exploring and experimenting with shopping rather than an outright discovery of digital channels. People were open to virtual solutions of every kind. Especially if it made their suddenly upturned lives a little easier and streamlined. Marketplaces responded to those needs, increasing their network of sellers by 46 percent on average.

Businesses that previously relied on local foot traffic had to pivot as people sought new ways to find the things they needed (say, toilet paper, bread flour, and recreational gear). Some began listing their offerings on marketplaces as a means of survival, and were astounded, in some cases, to grow even faster than before. For example, a small flour mill that relied on sales to regional grocers could suddenly reach the nation’s ballooning ranks of sourdough bakers who were looking everywhere for flour, including digital marketplaces. Marketplaces offer the best of both worlds: the trust of the large brand but the intimacy and engagement of a smaller brand.

Brands of all sizes that launched their own marketplaces were able to expand what they could offer existing customers well beyond their own inventory, with low risk and little overhead. For instance, at the onset of the pandemic, sensing the shifting customer demand signals, Etsy quickly ramped up its catalog of face masks due to the dynamism of its marketplace seller base. This approach has inspired new partnerships between companies that might have in the past been rivals or simply operated in different lanes altogether; like the instructor-designed collection recently launched by Peloton and Adidas. Customers were inclined to return to the marketplace because new products were added regularly. In the fourth quarter of 2020 alone, product assortment on digital marketplaces grew by 32 percent on average. The continuous refreshment of offerings also helps explain why marketplaces were accountable for a 34 percent uptick in site traffic for retailers.

Can 2020’s marketplace growth be sustained going forward?

The answer is yes, albeit at a tempered pace. We see a parallel between today’s digital marketplaces and the first e-commerce websites of 20-some years ago. Brands that don’t take marketplaces seriously now may find themselves in the same position as businesses that dismissed e-commerce as a novelty.

Here are the questions businesses need to ask to catch the momentum of digital marketplaces—or, for those already riding the marketplace crest, to sustain their growth:

Create a new marketplace.
From a technology point of view, marketplaces have never been easier to launch. But they are also their own businesses—and so before jumping into a technology platform, you need to answer fundamental questions, such as: What criteria will you use to curate products and services to ensure they fit your brand? What kinds of new offerings do you want to experiment with? What processes will you need in place to begin reaching out to potential third-party vendors? Will a marketplace affect your relationship with any existing partners, such as distributors? How will you use the data you collect from the new marketplace to inform your entire commerce universe?
Sell on other marketplaces.
For some brands, especially smaller ones, selling on other marketplaces might be the right place to start. With this approach, brand and reputational considerations are paramount. If you can’t deliver on the promises you make on a marketplace, your brand can suffer reputational damage. Which products do you want to offer on marketplaces, compared to on your own site? Will competitors’ products be sold on the marketplace also? How will you protect your price point? Do you have the supply to fulfill potential demand that may come from a marketplace with millions or even hundreds of millions of shoppers?
Maintain your marketplace momentum.
If you already have a marketplace up and running, congrats. But don’t make the mistake of viewing your marketplace as a one-and-done, immovable venture. A key benefit of marketplaces is their flexibility and agility. For instance, your marketplace provides you with an ideal place to test drive selling new categories of products or services. Look closely at your traffic, search, and sales data to see what shoppers want—and whether they’re finding it with you. Are some of your third-party sellers falling short of your sales or service expectations? Now is the time to cull them. Conversely, how can you deepen your relationships with your strongest third-party sellers?

Marketplaces proved themselves in 2020 as places where customers could find what they wanted—which, increasingly, is the ability to buy multiple products on reliable sites where offerings are available and frequently refreshed. In this new era of e-commerce, proactive brands need to ask themselves the right questions in order to carve out a marketplace strategy that attracts and retains loyal customers and drives revenues.

Want to develop or fine-tune your own marketplace strategy? Get in touch with Bobby Stephens to learn how Deloitte Digital can help.

Bobby Stephens, Principal, Deloitte Digital is a leader in Deloitte Digital’s Retail & Consumer Products practice. He has nearly 20 years of retail and e-commerce operations, consulting, and startup experience in the United States and abroad. He focuses today on working with clients to drive revenue growth through digital transformation and customer engagement.

Surya Saurabh, Senior Manager, Deloitte Digital is a results-driven leader in Deloitte Digital focused on helping clients leverage digital technologies for profitable business growth. Surya leads large e-commerce transformations, primarily focused on the Retail and Consumer Products industries.

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