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How to spot the difference between pureplay & hybrid marketplaces
Myer, Bunnings, Woolworths, Harvey Norman, Barbeques Galore, Qantas, Surfstitch, Freedom.
Marketplaces?
No, they’re retailers of course. Perhaps with the exception of Qantas (who only have an online points store), you’ve probably walked into all of their stores. They’re iconic Australian retailers with a long history of success. Their customer service is always top notch, and they advertise everywhere. You’ve seen their billboards and bus shelters, watched their TV ads, heard them on the radio and seen their ads in magazines and newspapers. They’re definitely not marketplaces.
Or are they?
What is a marketplace?
A few years ago ACCC did a review into online marketplaces to understand what they are, how they function, and what risks they pose to fair competition and consumer experience.
In the resulting report, ACCC identified 2 types of marketplaces:
- Pureplay marketplace
- Hybrid marketplace
Amongst other things, ACCC expressed genuine concern about hybrid marketplaces because of the potential for unfair treatment of third party sellers by self-preferencing similar products, thus reducing competition.
What does that even mean?
What is a pureplay marketplace?
In their review of online marketplaces, ACCC correctly identified that Myer, Bunnings, Woolworths, Harvey Norman, Barbeques Galore, Qantas, Surfstitch, Freedom and around 30 more retailers in Australia are hybrid marketplaces. So too is Amazon, Catch and Kogan.
eBay, Etsy, Lasoo and Fruugo aren’t hybrid marketplaces – they’re all pureplays. A pureplay marketplace merely facilitates trading between buyers and sellers. They don’t stock products of their own. Therefore a pureplay marketplace cannot compete with it’s own members. In fact a pureplay marketplace only exists because of it’s members.
A pureplay marketplace can still be a highly competitive environment though. Literally anybody can become a seller on eBay or Etsy, so there is a wide range of sellers across all categories with varying degrees of knowledge, experience and budget. In this environment, there’s always going to be somebody who thinks having the lowest price is the only way to sell. More experienced sellers will devise a carefully considered pricing strategy knowing that winning the war is more important than winning every battle.
The pros and cons of hybrid marketplaces
A hybrid marketplace is a retailer who has invited other smaller retailers to list their wares alongside their own curated range of products. Some marketplaces such as Myer and Bunnings have made a clear decision NOT to accept third party listings of products similar to what they stock themselves. That’s a smart move because in doing so, they have eliminated any chance of competing with third party sellers and running foul of Australia’s tough anti-competition laws.
Other marketplaces including Amazon, Catch and Kogan are also retailers in their own right, and will also accept third party listings of products identical or similar to their own stocked range. This increases the risk of third party sellers being disadvantaged by the marketplace’s preference of their own products.
Where multiple selling offers exist for the same identical product, the search and listing algorithms of Amazon and Catch’s offer just one of them through a ‘buy box’. On the one hand it’s a much better experience for customers browsing their websites because they will only ever see one listing of every different product. By contrast, shop on eBay and you’ll quickly become fatigued seeing the same product photo over and over ad nauseum (that’s why sellers taking their own product photos really matters).
As a shopper on Amazon and Catch, when you decide to buy a particular product and click the Add to Cart button, the marketplace will give you that product supplied by the individual seller who happens to own the ‘buy box’ on that listing at that moment. Therefore owning the buy box is the pre-eminent goal of all sellers on a hybrid catalogue-based marketplace. Once you have the buy box, you tend to keep it unless your sales start to drop off. From a buyer’s perspective, that means you may not be getting the lowest price offer of the item you’re buying on these marketplaces.
What’s the best marketplace strategy?
So where does this leave you as a retailer wanting to expand your consumer reach?
Are marketplaces worth it, or do the risks outweigh the opportunities?
The biggest benefit of selling on an online marketplace is that essentially you only pay a fee when you sell. Therefore it’s low cost and low risk. The flipside is that you face stiff competition from other sellers offering the same products, and will tend to only get a very tiny market share.
For most sellers, marketplaces are worth the risk as part of a broader multichannel strategy. Marketplaces are a good way to augment and extend your online retail audience, but not as the sole approach. You will never own marketplace customers, meaning you will rarely if ever get repeat sales through a marketplace from the same customer. If the holy grail of retail is repeat sales, then a marketplace-only strategy is short-sighted. The marketplace selling fee will always be a lot lower than the cost of acquiring customers on your own webstore, and that reflects the lifetime value of those customers which on a marketplace is typically limited to a single purchase.
Set your marketplace strategy with ZELLIS
We live and breathe marketplaces. Before founding ZELLIS, our CEO Tim Davies previously worked at eBay first as Business Development Manager and then Head of Seller Education. Our co-founder Iain Johnston was selling on eBay the very first day they opened in Australia, and has been retailing online ever since. That’s almost 30 years of continuous online retail and marketplace selling experience.
In our ecommerce advisory business today, all of our clients are multichannel. All of them have their own webstore (some have several) and all list on marketplaces too as part of a well planned and executed multichannel strategy.
All of them are successful.