How to Create Online Marketplace

Before moving any further and making any efforts to “How to create ecommerce Marketplace” store.

Let’s first understand what is an online marketplace and how to create ecommerce marketplace from scratch.

First Step- What is an Online Marketplace?

A Marketplace is a business model that focuses on facilitating commerce between buyers and sellers.

It helps to build a connecting platform for sells and purchase of products at a commonplace.

Second Step- Introduction To Marketplace

Marketplaces/ Multi-vendor stores are entirely based on diversity where different sets of products and services offered by a wide range of third-party merchants to a large number of buyers.

You can opt for a headless e-commerce for your multi vendor marketplace if you want have separate store front and the backend.

When we are introducing the marketplace, we must consider the most popular open source eCommerce platform Bagisto.

It is built on top of Laravel and Vue.js also which gives us an option to successfully run it’s Marketplace extension.

Marketplace – Diversity Of Products & Sellers

In simple word, local market, shopping malls are the example of a conventional marketplace.

In these places, the buyer finds different brands of products coming from multiple merchants underneath the single place.

This helps the buyer to find the most reasonable price for the best quality product.

Therefore, traditional marketplaces give a possibility for selling/ buying a diversity of products, the ability to bargain/buy the goods at for the more reasonable and affordable price.

Another form of selling of products in the local market is the Hyperlocal System.

For example, you can create a food and grocery based hyperlocal marketplace. You can also convert the store into a native Hyperlocal mobile app.

Third Step- Which are the most popular online marketplaces?

You must be familiar with these companies as they are the pioneers in the eCommerce marketplace industry.

Today everything has been digitalized and so the multi-vendor stores. They are now being transformed into eCommerce multi-vendor marketplaces.

Wherein an eCommerce business model involves buying and selling via the internet.

In an online marketplace, a large number of vendors sell their products and services under one website and app.

And the buyers find transparent prices and inventory of the product on the marketplace website round the clock.

However, for revenue, the marketplace website owner takes a percentage of the sales from the vendors on any product sold across the marketplace website.

Fourth Step- Why do we need to create an online marketplace?

Multi-Vendor stores have been flourishing over the past few years.

The booming success of platforms like Amazon, Alibaba, Etsy has proven that the online marketplace model is very extensible and flexible.

Creation of Marketplace will allow you to sell goods without setting up your own online store.

Therefore, selling on online marketplaces provides a flexible business opportunity with economical start-up costs.

Variety of Product Options in Marketplace Stores

The customers have the benefit to find aggregated brands and product options from different sellers all in one place.

And can get in on the latest products of most reasonable price or of extremely genuine quality in the marketplace.

Below is a statistical chart displaying the Online shopping preference by product category worldwide as of 2023. (Source- Statista)

Global Reach 

Marketplaces have a large customer base already and selling on the marketplace will help your brand to gain massive recognition.

Traffic Increases 

When we create marketplace in eCommerce store it results in more traffic than individual business sites.

This is because it has a large variety of product offering that attracts new customers who are now exposed to your product range and the other reason is that access to the website from various devices.

The chart below portrays the global internet user penetration till April 2024 (Source-Statista)

Sale Conversion 

Visibility for vendor products is improved as exposed to the widest audience range. This increased recognition and visibility can help to drive customers and an increase in demand for the products leads to increased sales.

Inclusion of Small Business 

Small business ventures can get off the ground with economically low start-up costs by start selling on an online marketplace.

Time and Resources 

By aligning with an online marketplace the vendors can focus their time and resources on product management instead of investing in designing and maintaining their own virtual store.

Customer Coverage 

The large customer base has also been one of the key parameters for marketplace success.

The marketplace delivers a broader set of products and services across all categories due to which customers from all age groups driving the trend of buying online.

Niche Market 

Niche marketplaces address the needs of a specific range of consumers by offering a more complete set of specialized products that may hard-to-find items in less demand.

The growth of the marketplace economy led by sharing economy companies is set to double between 2018 and 2022, growing from US$19 billion to US$40 billion.

Flipkart is one of the top eCommerce marketplaces in India. Flipkart had 39.5% market shares of Indian eCommerce industries.

In May 2018, US-based retail chain Walmart announces its intent to acquire a 77% controlling stat in Flipkart for $16 billion USD.

This acquisition tells how the marketplace influence online selling. This is one of the biggest acquisitions of the year 2018.

Fifth Step- Why online marketplaces are so popular these days?

eCommerce marketplaces are mushrooming and redefining business in every sector. Every marketplace is known for its specific marketing strategy.

Thus, helping in incrementation of demand to How to create eCommerce Marketplace store.

As the customers look for specialized and professional service that would deliver unique offerings rather than a generalized one.

For eg., customers buy handmade products from Etsy, home furnishings from Fabfurnish.com, groceries from Instacart.

Wouldn’t they rather buy them all at one shop like eBay, Flipkart or Amazon? The answer is no.

Because Etsy is much more famous for handcraft products than amazon handcraft products, Instacart is very famous for groceries and it’s fast delivery which can’t be expected from eBay or Amazon. But eBay is famous for auction type products.

Sixth Step- Categories Of Online Marketplaces

In eCommerce, there are two different types of marketplaces- horizontal and vertical.

1. Horizontal Marketplace

In a horizontal marketplace, the seller offers different category products focusing buyers from all sectors.

So, in simple terms, it means selling everything to everyone. It is a one-stop-shop for various needs of customers. 

The most famous horizontal marketplace is Amazon. It sells books, furniture, clothes, shoes, toys, gadgets, and much more.

2. Vertical Marketplace

In a vertical marketplace, the seller offers products on a particular category focusing the buyer belonging to a specific sector.

This focus on distinct product categories that foreground the special features of the product category. It basically targets niche markets.

For example- Instacart – selling groceries, Myntra – offering clothing, Esty- handmade, Booking.com, and Airbnb – hotel booking, Uber and Ola – car on rent.

Seventh Step- Business Models of Online Marketplace

There are different types of business models –

1. Drop-Shipping

In this business model, the store owner sells items on his website without holding the inventory that means someone else manufactures and ships the product to the customer.

This frees the store owner from the hassle of managing inventory, warehousing stock, delivery or dealing with packaging.

An example would be Magento 2 Printful Integration, connect both the Printful and Magento 2 stores and start selling Printful products in Magento 2 store with shipping options of Printful.

For example, there is a B2C domain eCommerce store owner who sells shoes. And have a tie-up with third party supplier/producer/manufacturer.

The suppliers will provide the inventory of the shoes and the owner will list them on the web-store.

Now whenever a customer will make a successful order, the notification will be received by the supplier.

The supplier will then dispatch the item to the buyer and the store owner will get a commission on the sales.

An example of this would be Magento 2 Dropship extension.

2. Wholesaling & Warehousing

The warehousing business model is more of a supply chain management process.

In it, the whole mechanism is concerned on to have a track and control over the movement and storage of products stored in Warehouse.

In this, the web-store owner buys products in bulk and store them in a warehouse.

For Example- The customer buys the product from the website. And the web-store owner takes care of the whole process from product purchase, warehousing to product dispatch just like Jabong.

You can also manage the warehouse with the help of warehouse management mobile app.

3. Service-Based

The service-based marketplace is growing at a very fast pace because they don’t need huge investment as they are based on services.

The web-store store owner can sell booking services as a product eg, Uber, Airbnb, etc. Clustering service providers under one platform will offer a wide range of services.

4. Subscription-based online marketplace

In this business model, products to customers are delivered at regular and scheduled intervals.

The customers pay for the goods and services on a subscription basis like monthly, quarterly or annually. Netflix is one such example of the subscription business model.

This business model is a reliable income channel that can lure customers to purchase additional subscriptions via incentives or encourage their contacts to subscribe.

5. White-Labelling & Manufacturing

Manufacturing is when you’re actually paying to have the items created for you. While white labeling allows one to put his brand on the product or service as if one is the manufacturer.

This type of business model is most likely to fall into the food, beauty and wellness industries.

For example- In a grocery store, you find all sorts of products under a brand name say ABC. Does that brand ABC has manufactured all those products?

No, they simply have various companies that provide those products and are willing to put the product in ABC brand packaging instead of their own.

Eighth Step- What are the different types of online marketplaces?

B2C and B2B are two different spheres of the Marketplace.

Business to Consumer(B2C) model

B2B marketplace involves selling the product and services directly to the consumer. In this, the consumers browse the products online, decide to make a purchase and proceed to checkout.

Therefore, the purchasing process for B2C customers is less complex.

While the Business to Business (B2B) model facilitates online sales transactions between two businesses. In this, buyers are generally repeated customers with big orders.

This makes the purchasing process more complex.

Purchase Reason:

The basic parameter which differentiates the two is “customer”. The businesses and individual consumers purchase for different reasons and conduct business in entirely different ways.

In B2C customers select products based not only on price but on popularity, status, and brand while B2B customers make decisions on price and profit potential and as per their business requirement.

Customer Log-In:

B2B involves repeated customers with big orders. Therefore, maintaining long-term relationships becomes uttermost important.

This makes customer log-in important for customer after-care. Also, making it quick and easy for buyers to reorder.

While B2C streamlines the buying journey avoiding the need for registration and log-ins as the average consumer prefers not to sign up or register while purchasing.

The study shows that they often abandon the purchase when they’re forced to login/register.

Checkout:

In B2C, the purchase journey from “Add To Cart” to “Thank you for your purchase” is as smooth as possible. Throughout the process, the customer should feel comfortable, confident, and secure.

While in B2B, the purchase process is slightly complex, a unique and more careful approach needs to be taken because it involves bulk purchase orders.

Product Price:

In B2C, consumers who buy products pay the same price as other consumers.

But, in B2B, the price may vary customer to customer. Because the customers who place large orders or negotiate for special services pay different prices.

Ninth Step- Pricing models in online marketplaces

The marketplace is a brilliant post commerce sales revenue generation model. And almost every big online commerce site is a marketplace from Amazon to eBay and from Etsy to Asos.

If you are a marketplace startup owner, then the marketplace pricing model could be an important subject to discuss. There are various kinds of pricing models for the marketplace exist.

Commission based Pricing Model:

Commission based is the most popular pricing model for the marketplaces. In this model, vendors do not need to pay extra costs to list their products.

All the leading marketplaces like Amazon, eBay, Etsy have chosen the commission-based model where an admin gets a share of every transaction that takes place at their platform.

But how the commission is applied in online marketplace stores?

In the marketplace there are different entities like categories, products, different kinds of sellers and accordingly, the admin can define the commission based on these entities.

It will charge a commission from every exchange based on the entity configured for the commission. 

Now, let’s discuss how many ways you can apply commission.

Global commission type

Whatever the product category is or which vendor is selling the product, the marketplace owner will get the commission on every transaction that takes place in the marketplace.

Let’s say there are three product p1, p2, and p3 with a price value- 100, 200 and 300. And the marketplace owner has set the global commission as 10 %.

So, the transaction on any of these items, the owner will get 10% of the product price as commission.

However, the owner can also set the fixed price commission say 20$ on each transaction.

This means whatever the price of the sold product is, the owner will get 20$ on every purchase.

Category Commission Type 

The global commission type is fine for all types of marketplace shops.

But for a sophisticated marketplace structure, the owner can set the percent/fixed amount commission based on the product categories.

Let’s say there is a clothing marketplace with categories are bottoms, shirts, tops and many more.

However, the owner has applied a 10% commission on bottoms, 20% commission on shirt and 30% commission on tops.

So, on every transaction of item fall in these categories, the admin gets the configured commission.

Seller / Vendor Commission type 

This is another set of commission structures for the marketplace where the owner can define percent/fixed amount commission for different kinds of vendors.

Let’s say there are three vendors A, B, and C.

Now,

• the owner can set x% commission for vendor A,

• y% commission for vendor B and,

• z% commission for vendor C.

So on every transaction of the item belongs to these sellers, the admin gets the configured commission.

Product Commission type 

In-kind of commission structure the owner can define percent/fixed amount commission for different products.

Let’s say there is a popular product “ABC” in your marketplace.

Now the owner wants to generate more revenue on the sales of that item.

So, x percent/fixed price commission can be applied to that particular product.

Subscription-Based Pricing Model:

This is another very popular pricing model for marketplaces. In this, the owner can charge sellers/vendors based on the number of products the seller wants to list for the specific time period.

Although there are pros and cons to this model. Because many times sellers don’t want to pay for the membership fee. So the marketplace owner provides the subscription in terms of groups.

Let’s say marketplace owner has created three kinds of membership profiles basic, silver and gold. The basic will be kind of free with restrictions to list only 10 products.

So, eventually, the marketplace may attract sellers. The sellers start getting traffic and revenue for their products and want to list more products.

Then, in case the marketplace owner can ask them to update their membership group to gold or silver or platinum if want to list more products.

Advertisement Based Pricing Model:

The advertisement based pricing model is not like displaying Google Ads or any Java-Script Ads at various places in the marketplace.

Understand this via an example – let’s say the owner ask sellers to purchase some space on the landing page of the marketplace.

The sellers can use this space to promote or showcase their featured products. This will surely lead to more conversion for any seller if their products appear on the marketplace home page.

Tenth Step- Why create an online marketplace?

From Amazon to eBay, these marketplace businesses have had massive success.

Their ability to leverage technology to connect buyers and suppliers directly without middlemen make them an attractive opportunity for founders and venture capital.

Research Business Models

From Amazon to eBay, these marketplace businesses have had massive success.

Their ability to leverage technology to connect buyers and suppliers directly. Thus, revoking middlemen make them an attractive opportunity for founders and venture capital.

Every marketplace has a physical product but adding a garage is not a good choice. Because one might like the idea of making their own products and others may hate.

Therefore in the marketplace, you have to check each and every point of product management and inventory.

If you are using drop shipping then there is no issue of budget and managing inventory but you have to be more focused on the promotion of products.

And if you wish to start by warehouse and wholesale model then you have to invest more. But it will absolutely help you to gain the faith of customers because in this model quality is managed by the store owner.

There is another model of the marketplace is the service base which provides service to the customer with the suggested time interval.

So it’s up to your reach with the type of business you want to start.

Product Selection

There are thousands of products and services available to consumers just a click away. Therefore to succeed as a seller becomes very competitive.

So, you must select and offer the right products and services to your customers in this competitive market.

Always keep your target audience in mind on selecting a product, give more time on product value, quality and price.

Only the best product and service make your marketplace special. The same way service selection needs to be fulfilled on time.

Always think, who you are? why is your store for? and who is your ideal customer? Then only you can start a proper marketplace.

Brand & Business

Branding is a way you establish an image of your company in your customers’ minds. A brand is always targeted at a section of the population based on age, interests, or gender.

Therefore, it becomes highly important to find an apt audience. The more specific your targeting, the more your branding will resonate.

So, give a proper brand name to your business which can create an idea about your store. There are legal protections and tax benefits for incorporating, so don’t skip it.

Attracting Customers

Attracting a customer is not an easy task because every store provides a discount on the purchase.

If you are a brand then people directly visit your site and order the product but if not then how will you promote.

Then you should have proper SEO, so any product is a search on google then your listing should be on google surf.

Eleventh Step- How to set up an online marketplace?

Picking the best solution for building the marketplace is the most critical decision. And can be a lot more learning journey that needs much research and experience to set up.

But before you start hunting the different software solutions available, you first need to understand the types of ways available for building the marketplace.

One can build a marketplace in 3 ways:

1. Saas based model (for a small company)

2. Self-hosting model (for a medium/large company)

3. Develop from scratch

Saas-Based Model

This is the fastest way to launch your marketplace. Basically, SaaS is a software licensing model in which software is licensed on a subscription basis and is centrally hosted.

SaaS model eliminates the load of technical deployment from the entrepreneurs to the SaaS provider.

This avoids the hassle of creating their own eCommerce platforms and maintaining it’s infrastructure.

SaaS providers centralize their systems to implement all technical aspects of their customer’s websites.

For SAAS based model, Shopify and BigCommerce is the option for e-commerce business.

However, to convert it into the marketplace you have to install a plug-in known as Shopify multi-vendor marketplace.

You can also take a look at Adobe Commerce Multi Company SaaS extension in which vendors can subscribe to become SaaS tenants.

Pros-

• Quick & Fast to setup.

• No technical background is required.

• No server maintenance or hosting charge.

• 24×7 support from the support team.

Cons-

• Pay monthly or Annually.

• Data is on a different server.

• Limitations in customizability.

• Limited Accessibility.

• Not suitable for marketplaces and big stores.

Self Hosted

A self Hosted option is faster than building your marketplace from scratch. And, also known as Open Source or Ready-made Solution.

There are many free or one-time fee CMS available online which have front end & back end both by default.

Existing software solutions will already have some basic functionality requirements.

So if you want to build additional features on top of the existing feature set then either you can create it on your own if have skills. Else you can reach the third party to do it for you.

However, to manage the website traffic you need to have the best server infrastructure. It should have an elastic approach moreover cloud server with loader balance.

Pros-

• Highly customizable and scalable.

• Cheaper and faster than building it from scratch.

• Data is on the personal and manageable server.

• Easy Integration third-party plug-ins.

• Web API feature.

• Simple interface & easy to use.

• Community support.

Cons-

• Some technical skill is needed.

• Support & Maintenance team is needed.

Twelveth Step- How to create an online marketplace from scratch?

One can also develop their marketplace from scratch using programming languages. Creating your marketplace from scratch allows you to build exactly what you have in mind.

One can create its own if he is a skilled coder. A number of benefits involved like you have access to all the source code, no licensing issues, and subscription costs.

Else you can reach a third-party developer to create marketplace for you.

Scratch web development is suited for a multinational company that has experience of around 10 to 15 years in the field of commerce just like Amazon.

Development from scratch needs huge assets. It needs to hire expert technical, domain management for the various module and various types of hosting for huge traffic control involves.

Pros-

• You can make it look exactly what you want.

• Robust API and Code structure.

• Community Support.

• Choose any programming language.

Cons-

• Huge investment & money.

• Need an expert technical team.

• Need a customer support team.

• No standard practice.

Thirteenth Step- How to create a mobile app for the online marketplace?

Mobikul creates your marketplace store into a mobile app for Android / iOS.

Your customers can easily purchase products on the go. They don’t need to have a laptop or desktop, they can easily explore your store through their smartphones.

It will not only benefit the store owner and customer it will benefit the sellers too. Sellers can see their dashboard, order history and can contact the admin through the mobile app Android / iOS.

The Mobikul provides you the best and advanced features with the mobile app builder.

Summary: Create Online Marketplace

Hence, it’ clear that in the near future, we will see enormous growth in building the marketplaces.

As marketplace business has proved to be a long-term initiative and has the potential to grow faster than other businesses.

The ecommerce marketplace sites bring more traffic and offer a broader set of the product that offers consumers more reasons to stay on a site.

This has not only benefited the buyers but also the small and medium sellers by offering the space for bigger or smaller product sellers. And offers secure and high prospects of earning.

Support

So, that’s all for How to Create Marketplace Store? For any query kindly feel free to connect us on support@webkul.com.

Originally Published - https://webkul.com/blog/how-to-create-online-marketplace/