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GUEST COMMENT We need to redefine what a marketplace is

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Napoleon’s famous critique of the British is often quoted, but it was Adam Smith in his work The Wealth of Nations, who originally described Britain as a nation of shopkeepers due to the unique strength and influence wielded by SMEs and merchants. It speaks to the entrepreneurial spirit of our nation, and is no less true today than it was 250 years ago, and this is something we should wear with pride.

What started out as merchants selling local goods at cross roads has seen a huge evolution through towns and villages, to town centres, shopping centres and most recently, online has begun to take centre stage, with an almost limitless variety of products to choose from. The proliferation of online channels presents an array of different brands and retailers, selling across a variety of ecommerce platforms. For consumers choice is no bad thing, but for online sellers looking for sustainable long-term growth, this plethora of options does present its challenges.

The events over the past two years have led to a boom in online retail, as more consumers were forced to abandon their old shopping habits and any retailer that wasn’t already online was scrambling to get there. But with increased competition and retailers being squeezed for all they’re worth, online marketplaces have become less about facilitating an exchange of goods, and more about enriching the experience for both the consumer and retailer to be successful in their endeavours. It’s time we redefine what an online marketplace is and what exactly its purpose is in a world where ecommerce dominates.

Straddling the line between marketplace and retailer

In order for a marketplace to give sellers an equal opportunity to grow, it needs to provide them with an equal way to reach customers. Amazon is notorious for having its own products promoted on its retail platform as a “recommended choice” ahead of other brands, even if those items don’t meet its algorithm’s criteria for being listed in that position. In fact, the retail giant will often use seller data to determine which products and categories are selling well in order to create their own Amazon-branded versions, essentially using retailers to conduct their own market research. This exercise is a far cry from the level playing field that should be standard practice for any online ‘marketplace’. The only way for retailers to compete with such tactics is to lower prices and succumb to other Amazon services, such as FBA, in an industry that already has some fairly slim margins to begin with. This puts retailers between a rock and a hard place when it comes to how they want to operate, and unfortunately, can cause many to close up shop because they just aren’t able to compete.

Customer and retailer centric

Any marketplace, whether it’s online, or physical, should work in the best interest of their customers and that means both the seller and buyer. They need to be respected as partners but this hasn’t been the case for a while on some platforms. Amazon always touted its marketplace as being the best thing for retailers and customers but was found in a recent report to be taking and ever increasing slice of the transaction. It even raised fees in January citing rising operations costs, despite it becoming its most profitable and fastest growing segment. Ebay’s own recent increase in fees goes further to penalise sellers whose sales are considered below standard, something that will likely only exacerbate any problems they’re having selling on the platform.

Fee structures can be complicated, leaving many retailers trying to figure out exactly what it would cost for them to sell on certain platforms, and how to price their goods. Higher fees result in higher prices on goods as retailers often must pass that cost on to consumers in order to stay profitable, and with sellers being dependent on the big players, they have no choice but to accept the price hikes.

How did we get to this point? Surely instead of penalising sellers and trying to wring as much revenue as they can out of them, marketplaces should be providing them with the insight and data needed to grow as this benefits all parties. Success for a marketplace should and quite frankly must be an outcome of the success of those selling on it.

Back to the fundamentals

We’ve come a long way since the birth of online marketplaces and it is inevitable that platforms will adapt and evolve. However, the core purpose should remain the same, and that’s where the industry has strayed. By definition, a marketplace is the system of a buyer being able to find the item they wish to purchase and then by default a retailer, meeting that need, in a fair and competitive environment. It’s assumed that the marketplace itself is not the competitor! It should exist to give retailers the opportunity to sell as many of their products as possible, at prices that are fair to consumers. Only when marketplaces return to these original principles will this nation of shopkeepers be able to enjoy a fair, transparent playing field.


Cas Paton, chief executive officer, OnBuy

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