Creating a marketplace for unique products sold at 50 % plus margins

A few grim facts: US marches into another great recession. Consumers viciously compare prices and switch for a $1 difference. Online retailers dropship from the same established manufacturers selling almost at cost just to stay in business. So, is everyone blind? Why compete with Walmart and Target instead of signing up small manufacturers and selling unique products at a nice margin?

There are two most commonly cited reasons: setup cost and traffic.

Setup Costs
Big guys have product info nice and clean, are easy to exchange orders with, have predictable shipping schedule. Small guys frequently lack product pictures or descriptions, ship 2-3 days a week and are difficult to resolve issues whenever these happen. In addition, big guys have more products so smaller setup cost is allocated to larger product base, smaller guys cost more per product and will have lower sales making working with them a riskier bet.

There are thousands of people searching for "Nautilus" or "elliptical" or "rowing machine". Another sports equipment manufacturer can be quickly hooked up with existing Adwords campaign. Niche products, on the other side, require keywords research and optimization on a more granular level.

From a perspective of a single retailer - small guys are a pain in the neck due to higher costs and unpredictable sales volumes.

This is a classical Prisoner`s Dillema when retailers go after large manufacturers out of a fear that time spent developing small manufacturers will result in a loss of an opportunity to have guaranteed even though less profitable sales with the large guys.

So, what`s needed to create a marketplace for unique products produced by small manufacturers and sold at 50 % plus gross margin?

1. Universal Product Database
To start selling the product online a few key characteristics should be present for each product: picture, description, dimensions, weight, shipping method.

2. Common Product Taxonomy
There are hundreds of ways to describe the same product. What`s the difference between contemporary and traditional? sleigh bed or platform one? Each niche product needs to be mapped against the common structure that can be used to connect with comparison shopping engines or generate a list of keywords suggestions.

3. Pricing Tool
The easiest way to scalably manage prices of new products is through a Tool that takes retailers discounted product costs, connects to shipping accounts (UPS, FedEx, Yellow, UPS Freight etc.) to get an accurate shipping quote, adds X % margin and generates recommended retail price.

4. Webbased OMS (order management system)
Small guys have very basic capacities. A web-based solution to communicate with their retailers helps them create a new channel and lowers management costs. There are a couple of solutions out there yet all of the providers seem to focus on large manufacturers overlooking the potential of transaction cost reduction for smaller folks.

Just a couple of areas where existing solutions fail to meet the market needs: suggesting whether a damaged product should be returned to the manufacturer or disposed by the customer, making sure that retailers get credit memos from the manufacturers for shipping errors or defective products. The more you dive into the business needs - the more griddy details raise to the surfact and scream to be addressed.

5. Feed Management System
Feed Management is used to get products published in Google Product and Shop Comparison engines (Bizrate, Shopzilla etc). While setting up feeds can be difficult for individual retailers - it will be a piece of cake for a solution combining product database, taxonomy and order management.

Finally, if everything is so simple - why there isn`t yet such a marketplace where small manufacturers can submit their products and find retailers who will build stores at a rate of 1,000 SKUs a week?

My answer - this is a coordination challenge. There are companies with tons of products in their databases, there are OMS solution providers, there are feed management companies. Yet, noone has yet looked at the system as a whole and built a universal solution. I find this idea very interesting and would greatly appreciate your comments on what`s the best way to build such a marketplace.

Thank you and thrive!

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Blogger Unknown said...

A difficult thing would be the cleanliness of the data supplied by wholesalers and getting them to stick to the 'taxonomy' discussed. On the other hand, the CSE's seem to do a pretty good job at this....


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