Consumer Marketplaces: Towards Curation
How consumer marketplaces are becoming more curated and less aggregated.
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The Need to Embrace Marketplaces
The pandemic has accelerated a shift to online shopping, as users across age brackets have become much more comfortable with the prospect of shopping online. For instance, Alvarez & Marsal's study in partnership with Retail Economics estimated that 17.2m UK consumers would permanently change the way they shop, redirecting their spending online.
A common throughline in my articles is the sense that customer acquisition costs are rapidly rising, a product of so many brands competing for valuable online traffic. It's a difficult situation for many competing in consumer spaces. Whilst some look to customisation or community as ways to differentiate themselves (see my last post here), others increasingly realise the importance of creating an omnichannel strategy – utilising their own 'dot com' sites, marketplaces and wholesale with a view towards maximising consumer interaction.
Looking at this slightly differently, it's interesting to think about where online traffic will consolidate. As consumers become increasingly comfortable shopping online, 'go-to' online shopping destinations will likely emerge - personalised to the user, offering a consolidated checkout and a pool of trusted reviews. Whilst the likes of Amazon and eBay have long occupied vital parts of the consumer internet infrastructure, more and more contenders are vying for a piece of this online traffic.
New, more focused marketplaces are appearing, building around specific verticals or niches. In a way they are 'unbundling' some of the horizontal marketplace behemoths. The latest iterations of these marketplaces integrate curation and community into their browsing experience - helping consumers navigate the universe of consumer products available.
This week's read dives into what 'go-to' online destinations will look like and how this will evolve in the years to come.
1️⃣ Marketplace 101
It's first worth understanding the current marketplace landscape. Marketplaces emerged en masse with sprawling horizontal marketplaces where consumers could buy everything and anything, often offering consumers convenience at lower price points. The Amazons and eBays of the world are apt examples. Both expanded out of a key niche - Amazon, for instance, initially sold books before evolving into a deep cross-category platform.
When done well, marketplaces can be a powerful mechanism. The immediate benefit of their sheer size enables these platforms to build deep logistical operations, offering operating efficiencies that few pure-play brands can compete with.
However, the data marketplaces generate via sales of third-party brands is the real prize for many players - helping to better 'understand' their customers and, in turn, tailor product recommendations over time with the objective of maximising purchase conversions. A second advantage comes in the form of data-driven trends, used to drive a vertical integration strategy through launching in-house brands. Once established, these labels are positioned side-by-side the same brands whose data helped inform their genesis, often discounted to price points to pique customer conversions. Amazon's portfolio of in-house brands, including Amazon Essentials, is a testament to this model's strength.
This dynamic represents the 'flywheel' effect of marketplaces. As platforms grow, the flywheel effect goes into overdrive. More third-party brands lead to more product choices — appealing to and capturing more users. More data can then be translated into a wider in-house product offering, driving profitability as a result, and so on.
2️⃣ Marketplace Evolution
However, horizontal marketplaces have been met with a period of unbundling. 'Vertical' marketplaces, focused around a specific niche, have built deep businesses by offering a better customer experience - for instance, Farfetch (luxury), Chewy (pet products) or Grove Collaborative (natural household goods). Many of these verticals are worth colossal amounts alone - for instance, Chewy's target market (the pet industry) is worth a staggering $70bn.
However, as brands continue to come to market, consumers face a new problem - too much choice. According to Nielsen, a new product is launched into the US market every two minutes. While marketplaces do an excellent job aggregating, they do a poor job of curating. This continued saturation makes it difficult for consumers to understand what products are 'right' for them or which to trust. In short, the way consumers 'discover' products is broken.
In Search of Curation: Curated 1.0
Out of this has risen a range of 'curated' marketplaces, which seek to remove some of this search friction and help consumers 'filter out the noise and make informed purchase decisions'. Instead of listing as many products as possible, these marketplaces focus on curating the best choices. The first generation of these marketplaces, such as Good Eggs, Zippy Pantry and Goop, list products often hand-picked by their staff / editorial team around a particular proposition (e.g. Good Eggs curates fresh produce from local grocers) and meet their mark of approval for listing. Others, such as Curated, personalise the shopping experience by connecting consumers to an expert in the space to help guide their shopping choices.
While curated marketplaces are still (largely) in their infancy, it represents the next big marketplace trend. However, how exactly this curation will evolve is yet to be defined.
Community & Creators: Curated 2.0
One supportive trend has been the rise of community-driven marketplaces, which seek to build audiences around a given niche. This speaks to younger audiences, especially Gen-Zs, seeking authentic value-driven indie brands over larger CPG 'cookie-cutter' brands. Beauty marketplaces such as Geenie curate minority-led, sustainable brands and pair this with a community - enabling members to interact with one another and gain unbiased recommendations in their search for the products 'right' for them.
The rise of the creator economy will also have important implications for the future of e-commerce. As creators continue to build audiences, several platforms have emerged to help them better distribute and monetise content without the middleman component - Substack for writers, Playbook for fitness instructors, etc. In e-commerce, creators will become curators - helping guide their audiences to products that match their lifestyle through proprietary creator-led marketplaces.
For example, it's easy to imagine fitness instructors creating a branded marketplace directing their audience to healthy food & drink options or beauty creators curating their makeup & skincare choices. Bubble, for instance, allows consumers to ‘shop’ wellness experts. Integrating this human touch enables recommendations to become much more personal - helping consumers navigate the thousands of available options out there.
3️⃣ The Brand Perspective
It's worth circling back and understanding the brand perspective regarding marketplaces, as there are several pitfalls that brands need to be wary of. Not all brands will flock to marketplaces - it makes little sense for ultra-premium products like Peloton to list on these platforms. Equally, those with fully-fledged communities or customised products have a degree of differentiation that makes marketplaces potentially dilutive to their brand (and margins).
Yet, the more homogenous a product, the more marketplaces are an inevitability. In a saturated consumer world, gaining exposure to consumers across the web is important - particularly when internet traffic is likely to condense around 'go-to' destinations. These marketplaces can add legitimacy to a brand at the expense of competing against other brands and marketplace private labels.
The downside of marketplaces comes with a loss of control of your brand, imagery and customer relationship. Rather than directing consumers into your own funnel, geared towards conversion, your products are featured alongside hundreds of other SKUs with limited opportunities for your brand aesthetic to shine through. Therefore, brands must carefully evaluate which marketplaces align with their brand.
4️⃣ Final Thoughts
We are currently witnessing a complete shift in the state of consumer behavioural choices. The pandemic has shifted consumption online with at least some permanence. At the same time, Gen-Zs - a group where brand authenticity and community feature prominently in their decision to purchase - continue to gain buying power. In reaction, marketplaces look to become consolidators of this online traffic.
Yet, by definition, not all marketplaces can become 'go-to' online shopping destinations. While there is no doubt the likes of Amazon will continue to succeed, other marketplaces will succeed by evolving from horizontal or vertical aggregators and instead focus on meaningful curation - providing consumers with trusted recommendations. Whilst the first generation of the curated marketplace is already in play, future iterations will likely centre around community and creators.
Sources & Additional Reading
Snaxshot #17: Curated Groceries | Andrea Hernández
How Curation is Reinventing E-commerce | Marie Dollé
The Rise of Curation in CPG | Misa Batcheller
Angel Investing in Jenny Gyllander and Thingtesting | Pippa Lamb
Internet Niches | Rex Woodbury
What Can DTCs Gain From Online Marketplaces? | Tatiana Walk-Morris
The Shape of Retail: Consumers and the New Normal | Alvarez & Marsal
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