Single vendor (or standalone e-commerce) stores, by their very nature, remain limited to a single market or niche.
The future of e-commerce retail sector is bright and full of opportunities. But with thousands of entrepreneurs pushing their way forward to seize these opportunities, the competition in the sector is also getting intense. As a result, in the current e-commerce dynamics, growth is the only way forward — the only means of survival. This is why more than eight in 10 e-commerce start-ups fail within first two years.
One of the major hindrances to growth is the poor scalability of a business model, which brings us to the topic of multivendor vs. single vendor e-commerce model.
Single vendor (or standalone e-commerce) stores, by their very nature, remain limited to a single market or niche; thus, have poor scalability. On the other hand, multivendor or marketplace model has the capability to scale like a jungle fire in new markets. And this is evident in the fact that across the world, growth in ecommerce sector is driven by multivendor stores – Amazon, eBay, Alibaba, Flipkart, Rakuten, & so on.
Besides scalability, there are other inherent challenges associated with single vendor model that are implicitly taken care of with multivendor model to ensure startups a seamless growth. Below we will discuss how multivendor model addresses these challenges for entrepreneurs (as the business owners& as the vendors).
Challenges Associated with Single-vendor E-commerce Model
There’s only so much inventory a vendor can manage, which is one of the prime reasons why standalone online shops stop scaling after a certain extent. It’s not a dead-end situation, but after a threshold value (which vary from business to business), increasing inventory requiressizable investment ®ular extra management efforts, which often result in thinner profit margins.
In a multivendor environment, increasing inventory means connecting with more vendors, not increasing the inventory of individual vendors. And since efforts on inventory management are already distributed among vendors, its expansion doesn’t come as an obstacle to scaling business.
As mentioned earlier, single-vendor online shops are mostly destined to stay confined within a certain market or niche. Even when backed by a lot of capital and with excellent hold on customer acquisition, there is a limit to how much they can stretch their market reach.
On the other hand, by connecting with an online marketplace & listing their shop there, retailers can amplify their reach almost instantly in the markets that were previously far beyond their radar. It is clear that for small-town manufacturers, home-made product sellers, artists, etc., connecting with a multivendor store is a better idea than simply relying on their own online shop.
We just discussed how connecting with a marketplace increases a retailer’s reach drastically at virtually zero marketing cost. With a single-vendor model, a retailer simply cannot hope for such a reach even with a lot of investment. Apart from that, connecting with an existing online marketplace also allowsretailers to go online without any website creation &its long term maintenance cost.
Multivendor model ideally segregates the cost & responsibilities between the owner & vendors (so that owners manage only admin related activities & cost; and vendors handle only merchant related activities & cost); thus, create a win-win situation for both.
Tips for Entrepreneurs Aiming at Multivendor Model
Choosing the Right Technology Solution
In comparison to single-vendor, there are relatively fewer e-commerce platforms available for multivendor model. On top of it, most don’t offer an off-the-shelf solution and require multiple integrations to create a full-fledged multivendor store, which makes finding the right multivendor solution quite a task.
Ideally, a multivendor e-commerce solution should come with inbuilt analytics & reporting system, social media integration, and preferably with multicurrency/multilingual support to allow marketplace a seamless expansion in different markets. As of now, YoKart multivendor solution comes closest to meet all these requirements adequately. This platform is a perfect solution for startups looking into entering ecommerce sector and launches their own Ebay or Etsy.
Connecting with Vendors
As a marketplace, your business growth is directly proportional to the number of vendors you are partner with. So, it becomes almost obligatory for marketplace owners to devise a strategy to connect with as many vendors as possible in the target market.
Some helpful tips in that regard are – connect with online retailers on social media, join online ad networks for displaying advertisement on popular sites, invest in offline marketing to bring offline retailers on board, and connect with merchants directly through online business directories, merchant associations, trade fairs, etc.
I recently read a business model study published on Brookings.edu, which states“The business model—the specific combination of product, distribution, supply chain, financing, pricing, payment and sales—is often far more important in determining success than a given specific technology”.If we compare single & multivendor models, we can clearly see how the latter outperforms the former on many of these parameters.
So, as an aspiring entrepreneur, you should aim at multivendor model because that is what essentially drives the growth of ecommerce sector; that is what ultimately provides masses a better & convenient way to shop with lots of options to choose from.
Digital marketer & e-commerce consultant at FATbit Technologies
October 5, 2017