Marketplaces look effortless in 2022. But in the early era of doing business, selling across markets was difficult. Businesses were often limited to their own regions, and scaling across geographies was tough. Two key factors added to these woes:
1. High rental costs: Retailers had to spend on fixed costs to set up physical stores in multiple locations. Then there were the additional costs of rent, electricity, and worker salaries. All this with no guarantee of successes.
2. Delayed time to market: In the process of setting up physical stores, businesses would often lose out to competitors because of process delays. Licences, shortlisting land, and local authority approvals made it time-consuming to scale.
Then came marketplaces. Even though these are young businesses, they could create value in a brief span of time. Sellers benefit because they get onboarded in just a few weeks.
Picture this. There is a retail merchant in a small town in Tamil Nadu, India, who sells premium handloom products. He doesn’t have the financial resources to sell in other districts, let alone other states. Hence, even though his business has the potential to make high margins, he suffers losses. But with B2C marketplaces, he can distribute these products across India or even the world.
Remember how you ordered food before 2014? You’d have to first call up the restaurant, ask them if they had the things you wanted, and then, amidst chaotic background noises, you’d place your order and hope the restaurant heard it correctly. Next came the uncertainty of the long wait. Sometimes the order could take 30 minutes, sometimes two hours. The system was broken. So when Swiggy entered with a value proposition of predictable delivery times and quicker orders, the customers resonated with it.
These platforms take off the operational burden from the seller/service providers. Here’s how:
B2C marketplaces have enabled e-commerce adoption across merchants of all sizes. Since the marketplace provider takes care of the logistics, listing, and payment infrastructure, the business owners can refocus on bringing quality products and services to customers’ doorsteps.
Retailers can tie in with multiple online marketplaces and scale faster. The costs saved can be deployed to improve the customer experience. Overall, this is a more capital-efficient model of sales.
Marketplaces exist because of customer demand. Where there is a product or service bottleneck faced by customers, there’s an opportunity for a B2C marketplace to be established. Here are the key factors to be considered:
1. Consumer pain point: It is important to consider if a product or service resolves a consumer concern. For example, TaxiForSure launched in 2012 as a marketplace to find reliable and affordable taxis.
2. Stakeholder concerns: A marketplace can help bridge demand-supply mismatch. For instance, a product that is out of stock in a store is highly likely to be available on Amazon. That’s because they stock products from millions of vendors.
3. TAM and model scalability: The total addressable market of a product or service could be studied to understand its true potential. For example, Zomato, which already had partnered with restaurants for discovery, could easily scale the model to offer food delivery as well.
4. Fragmentation: A fragmented supplier base with a large number of repeat customers could be a potential marketplace. The cab service category is one such example where there is a 365-day demand from a large customer base and too many cab drivers.
Within B2C marketplaces, the key is value creation. Only marketplaces that meet real needs are able to attract and retain customers. But before making a debut, having a test bed can help find the ideal PMF. For instance, Swiggy used Koramangala for testing. The region is Bengaluru’s startup hub, and it provided a diverse set of audience for the product. Swiggy collected feedback, tweaked the app, and only then began expanding. Today, it is present in 500 cities. TaxiForSure followed the same process using Bengaluru’s JP Nagar as its test bed.
After setting up B2C marketplaces, the next phase of growth is to add allied products and services. But a key indicator to expand would be milestones such as $1 billion gross merchandise value (GMV) or 10 million customers. Once the existing market is running and thriving, add-ons can be built on top of the platform.