The rise of digital marketplaces brings sweeping changes to how manufacturers have historically interacted with retailers and customers to distribute, promote and sell their products.
This complex mix of risks, responsibilities, opportunities and challenges has a profound—and sometimes underestimated—impact on fashion, beauty and consumer goods brands that are mired in business as usual.
Shift in burden
Imagine a manufacturer designs a cut of jeans that is all the rage among teens. In the old world, retailers would clamor to carry the jeans. They would place orders, stock shelves, store inventory, and mark-up prices to cover costs and make a profit. After the jeans were made, the retailer did the heavy lifting.
This dynamic is flipped on its head in the world of digital marketplaces. The owner of the marketplace invests heavily in the platform and focuses on self-service models, not on curation. The partnership is essentially about improving the platform, not promoting and selling the jeans like it was previously. Not only does the manufacturer pay a commission to participate in the marketplace, but it is responsible for merchandise curation, brand experience and sales performance.
The shift is a double-edged sword. In theory, it offers manufacturers unprecedented control of brand experience and sales performance. In reality, though, most do not have the capabilities to manage their marketplace business for optimal performance. But smaller, more agile new entrants do. This leveling of the playing field resets the competitive landscape, making it harder for manufacturers to capture mindshare—and market share—for their brands.
Now, consider how customers shop online for these trendy jeans. On a traditional fashion retailer’s site, most would rely on Navigation, which directs them to a narrow, fixed set of digital shelves defined and curated by the retailer. People follow the retailer’s lead to find what they want. Clicking through Kids to Teen Girls to Jeans hopefully finds the product.
But finding the jeans on a digital marketplace like Amazon or Farfetch is much different. Here, customers define the shelf. Search replaces Navigation—and what shows up is driven by a bevy of algorithms hyper-focused on finding the right match to drive conversion. There are hundreds of search term variations that people might use to find the jeans: designer jeans, juniors’ jeans, skinny jeans, ripped skinny jeans, red skinny jeans for women, jeans worn on Pretty Little Liars, and so on. The possibilities are endless and constantly shifting depending on what is trending. The reality is that marketplace shelves are not just digital. They are dynamic, and owned by the customer, not the retailer.
In this customer-driven reality, algorithms—not a brand’s prominence or its MDF investment—determine shelf position. This is another competitive advantage for new entrants. Using data-driven approaches, they are able to quickly capitalize on a more robust understanding of what customers are seeking to level the playing field with established brands. The silver lining? These digital shelves provide invaluable insights into what people are searching for and buying. This is a welcome change for manufacturers that are used to guessing at market trends and relying on quarterly customer panels. It is also a new source of value to put customer needs at the center of product development.
Finally, think about all of the marketplaces where the manufacturer would want to promote and sell these jeans to target customers. There are hundreds of digital marketplaces to participate in—from digital giant superstores to expertly curated specialty platforms that fashionistas flock to for all the latest finds. And the number of marketplaces is growing every day.
This mind-blowing—and continually expanding—scale creates a gargantuan task for manufacturers in areas that are already well outside of their comfort zone. The work is daunting. Manufacturers must manage the digital assets, copy, advertising, ratings & reviews, and other aspects for every PDP across every marketplace for every product they sell. The brand experience is exposed more broadly than ever. And for the first time, the manufacturer is responsible for managing it directly in the retail environment. For larger manufacturers, this literally means intelligently managing millions of assets.
This unprecedented scale and complexity are overwhelming in themselves. Add the pressure from the shift in burden and the loss of prominence that manufacturers have built up over years, and handling all of these vital marketplace management tasks can seem impossible.