Rise of Hybrid Marketplaces Bucks Conventional Retail Growth Strategies

Digital marketplaces are becoming an important growth channel in retail, as global sales were projected to reach $3.8 trillion last year. To succeed in this environment, brands must adopt the right strategies to leverage these platforms’ unique advantages. One trend is the rise of hybrid marketplace models, where platforms like Amazon sell both directly and through third-party sellers.

According to Jason Greenwood, founder and lead consultant for Greenwood Consulting, this model offers brands greater flexibility, allowing them to scale more efficiently while avoiding the complexities of managing inventory and logistics. Hybrid models also enable brands to offer a broader product range without the overhead of holding all the inventory themselves.

“This is becoming very common, particularly in the B2B [business-to-business] eCommerce space,” Greenwood explained to PYMNTS. “Many B2B manufacturers are also ‘distributors’ of certain products in their catalog, and it’s often easier to create a marketplace for these third-party products versus simply passing the order to the third party for fulfillment or trying to hold inventory of all items yourself.

“The reason for this is that in a marketplace scenario, the seller not only holds the stock, but also loads all the product details into the marketplace themselves and sets their own pricing and shipping rules, meaning it is much faster and easier to onboard these sellers into your distribution network instead of being the seller of record for all items in your online store.”

This approach, however, requires more than just an efficient onboarding process, Greenwood noted.

What Brands Need to Consider

“To succeed on marketplaces, brands must have the technical ability to be channel agnostic,” Greenwood explained. “This means they have the technical ability to list their products easily, download and ship orders quickly, and provide amazing customer service should something go wrong along the way.

“Most marketplaces have strict rules around product attributes, categorization, listing details, shipping times, and many other facets of trading on their platform. If a brand cannot meet these requirements, their listings may be blocked, pushed further down search results, or other penalties levied, ranging from a simple warning to having their seller account blocked temporarily or banned altogether.”

As highlighted by the PYMNTS Intelligence “How the World Does Digital” report, which drew from a survey of 67,000 consumers across 11 countries that make up about half of the world’s gross domestic product, the rising popularity of digital marketplaces is evident: 1 in 4 consumers shop on these platforms weekly, particularly among wealthier and younger consumers. Twenty-one percent of consumers engage in online shopping each week, and that share rises to 27% for high-income shoppers and 35% for Generation Z.

Customer Engagement Limitations

Greenwood, however, points out limited data sharing on these platforms prevents sellers from directly engaging with customers, which hinders their ability to fully leverage the platforms for customer engagement.

“Many marketplaces keep buyer details under lock and key apart from buyer names and delivery addresses,” he added. “This is because they typically consider buyer data to be their customers’ data and not customer data belonging to the third-party sellers on their platform.

“This means that, typically, the only way a seller can communicate with their marketplace customers is via delivery parcel inserts or direct mailings. Many brands will attempt to leverage marketplaces purely as customer acquisition channels and then try to redirect customers to their own eCommerce sites via printed/inserted QR codes and special promotions or other physical mailing methods.”

Platforms Differ From D2C Sites

As William Harris, CEO of Elumynt, explained in an interview with PYMNTS, brands must consider several factors when adopting marketplace models, but often overlook the most important one.

“One of the most critical pieces that I see brands miss is the conversation around profit,” Harris said. “When you’re comparing your D2C [direct-to-consumer] website versus a marketplace, you can’t just use the same CAC [customer acquisition cost].

“If you’re willing to pay $50 for a $200 purchase on your website, that’s likely worth more to you than a $50 CAC for a $200 purchase on a marketplace where you will need to factor in the marketplace fee.

“Additionally, on your website, you captured that customer’s email address and have the ability to upsell them, driving more LTV [lifetime value] compared with the marketplace.

“You should absolutely be on marketplaces in addition to your own D2C site, but you have to at least be aware of how the numbers need to change to reflect what you are giving up on the marketplaces.”