The platform phenomenon: who has the power?

8 March 2018

8 March 2018

Continue to invest in brick-and-mortar stores and web shops or use a platform? Platforms are growing like mushrooms and some are snapping again very quickly. More and more retailers, as well as manufacturers, are taking advantage of each other’s platform rather than relying entirely on sales through their own and traditional channels. Many retailers hope and even think that they can survive only as a platform, but forget that in the end (as in the tech world) only a limited number remain.

Well-known platforms include Alibaba, Amazon and Zalando. What is the idea behind a platform? What is the added value and how can you take full advantage of this, or not? The definition of a platform, according to expert Maurits Kreijveld, is “a (digital and smart) organizational model that uses a shared base of standardized organizational building blocks: technologies, infrastructures, agreements, competencies and standards or protocols on the basis of which multiple applications can be developed. The platform integrates competencies and functions needed to deliver products and services to end users. A platform can be created by one player making its product, service or infrastructure open and available to third parties. It can also be created by multiple players pooling their competencies or merging overlapping competencies in order to strengthen them and work together more effectively.’

Let’s make this definition tangible by looking at the platform phenomenon from three perspectives: the producer, retailer and consumer.

1. The producer
Until recently, producers were almost entirely dependent on retailers, such as department stores, supermarkets, multi-brand stores, drugstores or even online stores. These retailers determined the choice of assortment, the place on the (online) shelf and, in many cases, even the selling price. In general, only the large manufacturers can offer some counterweight to the power of hard buyers at retailers. Small and new producers cannot escape settling for low margins or are forced to convert to private label producers. So for the large but especially for the small producers it can be interesting to use platforms. Think Etsy, and most recently Nextail by Blokker Holding.

A platform can be especially advantageous to a producer over the traditional retail channel. The power may lie somewhat more with the producer, provided the platform manages to offer a broad, deep and competitive range and, above all, is easy to use. The producer does need to gear up for this. It requires a different way of working and especially more entrepreneurship from the crew. Time pressure to deliver faster is increasing, and delivery will often not be by full trucks or pallets, but by the piece, and payment will not follow until the consumer has purchased.

A great example where producers are joining together on a platform is INS. This is an online supermarket platform created by two young Russian entrepreneurs. INS is not a retailer but an independent platform where producers (large or small) can offer their assortment. Logistics are handled integrally by INS, but inventory remains the producers’. Especially for smaller producers, this presents an opportunity to offer their assortment to the larger audience without being squeezed out by powerful retailers. Stockon is also a good example of a web shop where, for now, only long-life products are sold directly to consumers and PostNL handles the logistics. Both examples are platforms that settle for relatively small margins. However, there are also parties such as Amazon and Zalando, which charge decent commissions for their services and guarantee the risk that a successful product will quickly be parallel marketed as its own brand. After all, customer data are accessible to the platform.

2. The retailer
A second group of users we look at are the retailers themselves. First, it is first important to realize that many retailers make negative net margins on online sales. In addition, often failing to attract new customers, online sales shift from profitable store sales to loss-making online sales. A diabolical dilemma: Growth comes from online, but this eats up margin. Joining forces, or using each other’s technology, can offer advantages. Such as tapping into a new target market, but especially things like logistics, digital marketing, data mining and back office processes. These are often expensive activities and investments that cost a retailer margin and time-to-market. Of course, you pay for these services, but in doing so, you also share in the costs which means it could potentially still yield a return.

3. The consumer
Finally, the consumer. We can be brief about that, the benefit to the consumer should be primarily a significantly lower price or exclusive product. INS says this new supermarket model allows it to deliver thirty percent cheaper than traditional supermarkets. However, it may also offer consumers a wider range. Items from manufacturers that are kept off the shelf at retailers. What is important, however, is that a proper experience is provided on the platform and you don’t feel like the assortment is thrown together. Ultimately, the omnichannel experience is important, regardless of what products the product is from.

Four tips you should look out for if you want to make your sales through a platform:

  1. Determine in advance what a platform can bring. At what points are you now in the squeeze and failing to build a solid market position? Where is the potential for collaboration? And does the platform fit your brand and commercial vision? This should not bite each other.
  2. Choose a platform that truly contributes to your strategy, is sufficiently independent and does not compete with your own products or erode your margin. Do the math on what benefits it brings you in engineering, marketing, data mining or logistics. Assure that it will bring you new customers.
  3. Set clear goals for yourself that you want to get out of using the platform.
  4. Measure and make clear what the results are and dare to adjust. Don’t make yourself (too) dependent on one sales channel AND one platform.