Marketplace Strategy Podcast by Onport - Ep.3 Shipping Overview



Nov 27th, 2021

Episode 3 - Shipping Overview

Amanda Hi again, I’m Amanda, Customer Success lead at Onport, a marketplace technology automation company, and today we are continuing our new podcast format series on Marketplaces. We’ve already spoken about Marketplaces in general, and also how to build supply for your Marketplaces in previous episodes. Today we’d like to introduce one of the most complex but key topics to run a Marketplace, shipping & logistics.

With me is Francisco, our Head of Operations, who is quite familiar and fascinated by the topic, and will hopefully give some guidance to our audience in how they can approach such a complex subject, isn’t that right Francisco?

Francisco: Hi Amanda, and everyone listening in. Well yes, hope that we can start breaking down some of that complexity behind Marketplace shipping & logistics, and everything it entails. As you mentioned it is an area I’ve worked previously in, and specifically in Marketplaces, so glad to share what I’ve learned from it so far, and also to address what we see as some recurring customer pain points.

Amanda: Great! As you mentioned it is definitely one of the main pain points for our clients starting their Marketplaces, so I’ve prepared a set of questions that addresses those big concerns. My suggestion is that we touch on Shipping Responsibilities between the Marketplace and the Vendors, Shipping Costs split between the 2 parties and also Customer Shipping Prices, how does that sound?

Francisco: Sounds great Amanda, those are really a subset of interconnected topics within Shipping which I can definitely see our customers struggling the most with, so let’s tackle them, and perhaps in a future episode we can address other areas of the broader topic.

Amanda: Absolutely, we will surely do so. So Francisco, allow me to start by questioning how do you see the split of responsibilities regarding shipping between the Marketplace and the Vendors?

Francisco: Well, this is probably the single greatest aspect where marketplaces differ in their operating from one to the other. While some Marketplaces position themselves as intermediaries, leaving full responsibility to Vendors to fulfil and ship items, using their preferred carriers, setting up their own shipping cost to the end customer, and being responsible for adding tracking information, others like to take full control, which may even include warehousing and fulfilling the items on behalf of vendors.

I believe the distinction between different models needs to come from a perspective of adding value, be it to the end customer, be it to the vendors.

So the question becomes, are you adding value at a profitable trade-off for your business, when you take on part of the shipping responsibilities? If so, then you should, but let me give one practical example:

Should you provide shipping labels to your vendors? This typically entails the Marketplace having carrier accounts from which all labels will be created, and invoiced back to the marketplace, the main advantages of doing so would be:

Standardizing customer experience - if you give all your vendors USPS labels to ship, as Onport allows you to using its bundled USPS account, customer will get a similar delivery experience every time, and consistency is positive

Discounted rates - this is surely the biggest advantage, if you can provide labels to your vendors at a lower cost then they can obtain them, there’s a saving there, which can then be split between you and your vendor, instead of falling into a carrier’s pocket. But typically you can only get better rates if your business ships a number of orders that is higher than what your vendors are shipping individually, so this is closely linked to the scale of the marketplace, as will most points be, the higher the scale, the more likely it is that you have further value to add by assuming shipping responsibilities.

The downside would be having to source and maintain any carrier contracts and relationships, which will include solving shipping incidents since they are being shipped from your account, and also control expenditure which, from experience, can be quite cumbersome with a number of carriers.

My rule of thumb would be, can you pass on relevant savings because your volume allows you to negotiate better shipping rates? Then it’s a path worth exploring, if not, then best to focus on other areas of the business.

Amanda: That makes a lot of sense, and is surely a very helpful guideline as I do see a lot of our clients and prospects getting really torn on this topic, and often end up making a decision that might hurt their business. And Francisco, how do you see the balance between who is responsible for paying for shipping, whether it’s the Marketplace, the Vendors, or the Clients? That’s one of the most common doubts that our clients put forward, and they rarely have a great understanding of what they want to do.

Francisco: I believe that is one of the toughest problems to solve in Marketplaces, but let me give you my take on it.

Your priorities need to be, profitability, immediately followed by competitiveness, but what does this mean? Well, as Marketplace, you’ll be taking a commission on sales, and that is the margin you have to sustain your business and cover all expenses. If you could offer free shipping on every order for every country in the planet, that shipping cost strategy would be maximising your sales, however, it would take a toll on your profitability potentially making the business unviable if you are losing money on every order. So you need to assure that the strategy assure healthy levels of profitability, but then, look at your competition, if they are able to offer better shipping rates for a similar product selection, you can expect them to steal some customers from you, assuming all else is equal, which never is but best not to go down that rabbit hole.

But going back to profitability, when it comes to shipping, the simple math is how much are clients paying for it, and how much is the marketplace supporting or subsidising. But there’s a 3rd element in the picture, your Vendors. Your revenue ultimately comes from your vendors, from the services you are providing to them. When you are setting or negotiating a commission rate, you already need to know how shipping will play a part of it.

Here are two different approaches and my thoughts on them:

  • You can set customer shipping charges as defined by your vendors as they’ll be responsible for shipping the items at their own cost - despite the understandable reasoning behind it, this is often a painful approach to the topic - first, you’ll need to gather all the shipping charges your vendors wish to apply, and it can get quite complex, maybe they want to charge different rates depending on the items being shipped, or on the destination country, second, your customers will get confused, it will be hard to clearly explain to them how shipping rates are set, and to manage their expectations on them throughout the buying process And third, you are at the hands of your vendors, maybe they’ll want to increase the shipping price vs their actual cost to minimize the impacts of the marketplace taking a commission, or you will have to fully subsidize a free shipping campaign from your margin as you’ve set the standard that vendors are entitled to cover their shipping costs Ultimately it is a very complex setup, both for you to implement and manage, and for your customers to understand.

  • A different approach would be to negotiate a lower all-in commission, where the vendor is responsible for incurring the shipping cost with no shipping revenue in return. This means that the marketplace keeps any shipping revenue they decide to charge the end customer. Simplicity and flexibility is granted with this setup. As the Marketplace, you decide how to charge customers to make it competitive and easy to understand, setting up flat fees, or per item fees that will be clear for your customer. If you wish to run a free shipping campaign, or change shipping prices, you can, without any pressure from your vendors.

I truly believe it needs to be the marketplace controlling the end consumer’s experience, and leave everything else to proper negotiation with your vendors in the background.

Amanda: Thank you for covering that so extensively Francisco, for sure understanding these different models is very helpful for anyone developing a Marketplace strategy. Often we see clients struggle with this component of their business, trying to implement complex setups that lead to frustration and a not so great experience for the end customer. Is it fair to say that the takeaway is, put your customers first, simplify for them, and you’ll be simplifying for the business and the vendors?

Francisco: Absolutely Amanda, and I think that is applicable across so many decisions in the business.

Amanda: Great Francisco, and there’s definitely so much more we can explore in this topic alone. Whether we detail how to create a transparent shipping policy for customers, or how to build a network of carriers for marketplaces with bigger scale, or even how do you measure great customer experience and satisfaction from a shipping standpoint. We will definitely return to these questions in a future podcast episode, in the meantime, let us know whether you have any questions or specific topics you’d like us to cover in the podcast, we’ve been getting great feedback and it will certainly help shape future episodes. Thanks!

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