When clients solicit my advice, I often reply with a cliché statement, “Hedge your bets carefully.” A few days ago, one of my most loyal clients accosted me to throw some light on single vendor vs multi-vendor marketplace platforms. As an ecommerce consultant and strategist, I thought of jumping to the fore with rationales, judgements, predications and justifications. The rationales, judgements, predictions and justifications weave the fabric of both reasons and signs to invest in multi-vendor marketplace platforms. Without any further ado, let me dwell on the potential good that this post has in its vanguard.
Understanding single vendor sourcing
It is all about the digit ‘1.’ One vendor, one contact number, and one invoice. To add a dash of humor, it is ‘One bloke to choke’ scenario. Customer support team can do away with the pain points of using diverse servers and diverse software tool kits. It all boils down to lower operational costs at the very high risk of greater capital expenses. While the benefits seem to be exciting, the cons associated with single vendor marketplace far outweigh the benefits. Here are a few cons:
- Greater capital expense
- No geographic flexibility to customers
- Inventory replacement costs are high
- Due to the absence of competition, a single vendor marketplace may have to compromise on the quality of products.
- Maintenance costs have to be borne by an individual. Upfront costs are exorbitantly high.
To do away with the above cons, it is solemnly advised to opt for multi-vendor marketplace.
Understanding multi-vendor marketplace
Multi-vendor strategy is known to the business world as multi-sourcing strategy. It is a competitive strategy that fosters not only a healthy competition among its sellers but also operational efficiency and enhanced specialization. Most of the companies that have gone global are known for their multi-vendor marketplace engagement activities. Adequate planning and robust implementation of multi-vendor marketplace can ideally open the doors of fortune. It is worth mentioning that most large companies and business conglomerates start from a single vendor. Slowly and steadily, they graduate to multi-vendor sourcing. Some of the advantages of Multi-vendor marketplaces are:
- Enhanced throughput due to specialization- broad product portfolio
- Competitive pricing
- Risk mitigation
- Better risk management due to the presence of many sellers
- Access to larger base of resources
- Implementation of best practices. It is good to see a few vendors simulating the best practices of other vendors.
- Technical resources abound.
- Supreme technical expertise and domain knowledge due to the presence of diverse hosting plans
- Geographical flexibility to customers- every nook and corner of the world.
- Enhanced service delivery as each and every vendor tries his/her best to outperform his/her competitors.
An account on the factors that help you decide Single Vendor vs Multiple Vendor strategy:
- Size of the deal: This ranks first amongst the factors to be considered before zeroing on to single vendor vs multi-vendor sourcing. If the size of the deal is small, it is unnecessary to add extra management. Moreover, communication overhead can be undone by opting for single vendor. Take this statement as a rule of thumb: If your estimated deal value is less than 2 million USD per year, it is recommended to go for single vendor. If the number of clients/customers is more than 50, it is recommended to go for multi-vendor marketplace.
- Duration of the deal: The duration of the deal is an important factor which cannot be discounted. If the deal is for a longer duration say 2 years or more than 2 years, it is recommended to opt for multi-vendor deals. Higher the duration, higher is the time for customers to engage in healthy relationships with sellers. Higher the duration of the deal, higher is the efficiency.
- Customer base: If your customer base is large and is slated to increase every year, with no second thought, opt for embarking on a multi-vendor marketplace.
- Prior experience of working with sellers and customers: If your customers are mature enough to understand how the sellers function, how the marketplace model operates, challenges and adversities inherent in the ecommerce business, it should serve as a boon in disguise to the vendors. This experience will reduce the risk of ‘monopoly becoming ubiquitous’ and hence the customers are more likely to nod in the affirmative for a multi-vendor marketplace.
- Location constraints: If your customers are present in different time zones spread across seven continents, it is recommended to go for multi-vendor marketplace. From the perspective of meeting the requirements of diverse target audiences, it is recommended to have diverse sellers.
A scholarly account on advantages of multi-vendor marketplaces
- The power of choice lays the path of success: In the case of a multi-vendor marketplace, customers are given the power of choice unlike single vendor sourcing where customers are restricted to a sole provider’s point of view. This lays the path of success, the path of business evolution that is in perfect accordance with the mission and vision of the business.
- Best-of-the-breed innovations: When customer satisfaction winds its way into a compulsive trait, it is important to deliver best-of-the-breed innovations and products to customers. An example of something epistemic is a much appreciated concern-‘No compromise on quality.’
- Normative standards for flexibility that drives innovation: A multi-vendor strategy is all about a rat race in which sellers are constantly in the pursuit of designing, configuring, manufacturing and inventing innovative products. The so called ‘competitive edge’ is inherently manifest in any multi-vendor marketplace. This sets the normative standards for flexibility that drives innovation.
- Reducing risks and costs: Top notch enterprises face the risk of losing a venture or a contract if they rely only on a single vendor. This can be explained with an example- Let us assume that XYZ is a software product development company that has requested ABC to design and configure some Java based plug-ins. If ABC fails to meet the deadline set by XYZ, or if XYZ isn’t satisfied with the quality of plug-ins, it is mutual loss-loss scenario. Neither of the companies benefit. Arbitrary product rationalization twined with the threads of competitive-pricing and comprehensive service programs makes multi-vendor sourcing all the more desirable.
- Time to scale the business: A multi-vendor business takes less time to scale if most of the sellers follow the witticism, “Customers’ wishes are our commands.” If they don’t, it may result in an unthinkable cataclysm.
- Investment: ‘Investment’ is an umbrella term that includes both monetary and non-monetary instruments. Monetary instruments as we all know are cash, cheques, drafts, futures, options, bills of exchange etc. Non-monetary instruments are time, energy, responsibilities etc. If investments are done with utmost diligence and commitment, magnificent potential is always in the offing.
All this is understandably to establish some fabulous sense of certainty manifest in multi-vendor marketplaces. In the face of positively predictable certainty that has been the hallmark of ecommerce business not only in India but also across the seven continents, the most important thing that this article purports is that one needs to have a feature-rich marketplace to initiate an ecommerce business pursuit. What thus is the key take-away is that to design, develop, configure and update a robust, feature-rich and a secure marketplace, you have to invest time, energy and monetary resources. Fortunately, Admire from Ecommercemix comes to your rescue. This turnkey solution is already holds the spotlight for its host of features. For a complete list of features, check out our Online marketplace software.