What is a Marketplace in E-commerce? Online Marketplace Definition

With 56% of online retailers preferring to sell on online marketplace platforms, they have become an essential aspect of the e-commerce landscape. In this article, we will delve into the concept of a marketplace in e-commerce, providing you with a clear understanding of its definition and significance. 

What is a Marketplace in E-commerce?

An e-commerce marketplace is an online platform where multiple sellers can list and sell their products for sale. It provides a virtual marketplace where buyers and sellers interact, creating a convenient and diverse shopping experience. In 2020, 38.7% of the total e-commerce sales in the US were attributed to Amazon. Other popular ecommerce marketplaces include Etsy, and Walmart, each offering unique product offerings and customer bases.

While Amazon and Walmart have incorporated third-party sellers to expand their product offerings, platforms like Etsy and eBay solely operate as online marketplaces without a traditional retail presence. This distinction allows sellers to tap into new markets, drive traffic, and benefit from the credibility and reputation of established marketplaces.

How Do Marketplaces Work?

Selling on a marketplace is a straightforward process that begins with applying for admission or setting up a seller account. Once approved, sellers can easily list their products for sale on the marketplace, reaching a wide range of potential customers. When a customer decides to make a purchase, they can do so directly through the platform. The marketplace then handles the entire transaction process, including payment, order fulfillment, and customer support.

Marketplaces offer numerous benefits for sellers, including:

• Market Expansion: By joining a marketplace, sellers gain access to a larger customer base, increasing their potential reach and sales.
• Traffic and Visibility: Established marketplaces attract significant online traffic, generating exposure and visibility for sellers’ products.
• Credibility and Trust: Customers often feel more confident purchasing from reputable marketplaces, which can boost sellers’ credibility and trustworthiness.

However, there are also some drawbacks to consider when selling on a marketplace:

• Lower Profit Margins: Marketplaces usually charge fees or commissions, which can eat into sellers’ profit margins.
• Competition with Other Sellers: Marketplaces are crowded with sellers offering similar products, leading to increased competition.
• Limited Control over Customer Service: Sellers may have limited control over the customer service experience, as the marketplace typically handles customer inquiries and support.

Benefits of Selling on a Marketplace	Drawbacks of Selling on a Marketplace
Market Expansion	Lower Profit Margins
Traffic and Visibility	Competition with Other Sellers
Credibility and Trust	Limited Control over Customer Service

The Major Global eCommerce Marketplace Players

The major global e-commerce marketplaces include Amazon, JD, Alibaba, Rakuten, and Pin Duoduo. These marketplaces have a significant share of the e-commerce industry worldwide. Amazon, in particular, leads in sales value, especially in the US market.

The COVID-19 pandemic has had a profound impact on the strategies of these marketplaces. Many of them have shifted their focus towards higher-profit margin advertising services to adapt to the changing landscape.

When it comes to cross-border online purchases, China takes the lead in utilizing e-commerce marketplaces, followed by Germany, the United Kingdom, the US, and France.

Marketplace	Leading Market
Amazon	US
JD	China
Alibaba	China
Rakuten	Japan
Pin Duoduo	China

As illustrated in the table above, Amazon dominates the US market, while JD, Alibaba, Rakuten, and Pin Duoduo command their respective markets.

How International Consumers Use eCommerce Marketplaces

When it comes to cross-border online purchases, international consumers show a strong preference for utilizing e-commerce marketplaces. In particular, China stands out as the leading market for using these platforms, driven by consumer shopping habits. However, other countries such as Germany, the United Kingdom, the US, and France are also prominent players in cross-border transactions.

So why do international consumers favor e-commerce marketplaces? One of the key reasons is the extensive product range available on these platforms. Whether you’re looking for electronics, fashion, or home goods, marketplaces offer a diverse selection to cater to different needs and preferences.

In addition, e-commerce marketplaces have established a reputation for providing good service and ensuring a consistent customer experience. Buyers can rely on the trustworthiness and reliability of these platforms, which further encourages them to make cross-border purchases.

When it comes to product research, e-commerce marketplaces are a go-to resource for international consumers. They provide a wealth of information, including detailed product descriptions, customer reviews, and ratings. All of this helps potential buyers make informed decisions about the products they wish to purchase.

However, it’s worth noting that search engines also play a vital role in the product research process. Popular search engines like Google are frequently used by international consumers to gather information and compare products from different marketplaces and sellers.

In terms of popularity and usage, two prominent online marketplaces in terms of gross merchandise value (GMV) are Taobao and Tmall, which operate within the Chinese market. These platforms have a wide reach, catering to the preferences of international consumers. On the other hand, Amazon leads in terms of popularity based on the percentage of visits it receives from global consumers.

What is a Marketplace Strategy?

Developing a successful marketplace strategy involves thorough research and strategic planning. Here are some key elements to consider:

• Research: Start by exploring different marketplaces to identify the best fit for your business. Understand the fee structure, target audience, and the competitive landscape. This research will help you determine if selling on a specific marketplace is viable and profitable for your products.
• Product Content: High-quality product content is essential to stand out from competitors and attract potential customers. Ensure your product descriptions, images, and specifications are clear, accurate, and compelling. Use keywords relevant to your industry and target audience to optimize your product listings for search engines.
• Paid Advertising: Increase visibility and reach a broader audience through paid advertising on the marketplace platform. Consider utilizing sponsored ads, promoted listings, or display ads to drive more traffic and sales to your products.
• Pricing: Determine competitive and profitable pricing strategies for your products. Research market trends, analyze competitor pricing, and consider factors such as shipping costs, fees, and profit margins. Price your products competitively to attract customers while ensuring profitability.
• Product Listings: Effectively manage your product listings by regularly updating inventory, optimizing keywords, and monitoring customer reviews and ratings. Provide exceptional customer service and promptly address any issues or inquiries to maintain a positive reputation and increase customer satisfaction.

Integrating your existing e-commerce platform, such as WooCommerce, when building a custom marketplace can streamline the management of product listings. This integration ensures consistency and simplifies inventory and order management across multiple channels.

Marketplace Strategy Elements	Description
Research	Thoroughly explore different marketplaces, understand fees, analyze competitors
Product Content	Create high-quality and keyword-optimized product descriptions and images
Paid Advertising	Utilize sponsored ads and promoted listings for increased visibility
Pricing	Determine competitive and profitable pricing strategies
Product Listings	Regularly update inventory, optimize listings, and monitor customer reviews

How to List Products in an Online Marketplace

Managing marketplace listings can be made easier by integrating with an existing e-commerce platform like WooCommerce, BigCommerce, or Magento. These platforms allow sellers to manage their product listings for both their online store and marketplaces in one place.

For example, WooCommerce offers various plugins that help sync products between the platform and a marketplace. This integration streamlines the process and ensures consistency across multiple channels.

Conclusion

When deciding between a marketplace and an e-commerce model, several factors come into play. Consider your business type, goals, resources, and circumstances before making a choice. Marketplaces have their advantages, such as a large customer base, established trust, and reduced entry barriers. However, sellers should be aware of potential platform fees and limited control over their operations.

E-commerce, on the other hand, offers full ownership, direct customer relationships, greater profit margins, and data ownership. But it also requires building and marketing a website and facing competition from other online retailers. It’s crucial to carefully weigh these benefits and challenges.

Ultimately, businesses must make an informed decision based on their specific needs and develop a strategy accordingly. Whether you opt for a marketplace or an e-commerce model, it’s essential to consider the factors influencing your choice and leverage the benefits while navigating the challenges to achieve success in the competitive online landscape.

FAQ

What is the definition of an online marketplace in e-commerce?

An online marketplace is a platform that facilitates the buying and selling of products online, where multiple third-party vendors can sell their products to consumers. It acts as an intermediary between buyers and sellers, providing a platform for transactions.

What are the key characteristics of an online marketplace?

The key characteristics of an online marketplace include facilitating transactions between buyers and sellers, providing a platform for multiple vendors to sell their products, and acting as an intermediary in the buying and selling process.

How does an online marketplace differ from an online store?

An online marketplace allows multiple independent vendors to sell their products through a single platform, while an online store typically sells products from a single business or brand.

What are the main advantages of using an online marketplace to sell your products?

Using an online marketplace provides access to a larger customer base, reduces the cost and effort of creating a standalone online store, and often includes built-in traffic and payment processing capabilities.

What are the different business models of online marketplaces?

Online marketplaces can operate under various business models such as B2B (business-to-business), platform models, wholesale marketplaces, and global online marketplaces, each with its own unique characteristics and target markets.

Can you explain the marketplace model and its role in e-commerce?

The marketplace model in e-commerce refers to the operator of the marketplace providing a platform for multiple vendors to sell their goods and services, acting as an intermediary in online business transactions.

How does an online marketplace differ from an e-commerce platform?

An online marketplace focuses on providing a platform for multiple independent vendors to sell their products, while an e-commerce platform typically refers to the software or technology used to run an online store.

What are the challenges faced by operators of online marketplaces?

Challenges faced by operators of online marketplaces include creating value for both buyers and sellers, ensuring the safety and security of transactions, and attracting and retaining website traffic.

What factors should businesses consider when deciding which model of an online marketplace to use?

Businesses should consider factors such as the type of products they intend to sell, the target market, and the level of control they want over the selling process to decide which model of an online marketplace best suits their needs.

How does an online marketplace facilitate in-person selling, and what are its benefits?

Online marketplaces can facilitate in-person selling by providing a platform for street vendors and local sellers to reach a wider audience. The benefits include increased visibility, access to online payment processing, and the ability to reach a global audience.