This article previously was published in Cross-Border Magazine
How We Are Pentagon supports big brands to overcome challenges when entering marketplaces worldwide.
Laurence Guy is founder and CEO of Pentagon Group. As a former eBay power seller, he knows the challenges of selling on marketplaces from first-hand experience. Having lived in Bangkok for two years, he has expanded the operations of We Are Pentagon in Asia by establishing offices in Tokyo and Singapore. He talks to us about the current state of marketplaces in today’s e-commerce and provides us with his vision on what they will evolve into in coming years.
We Are Pentagon
We Are Pentagon is a specialist online marketplace provider. The Group consists of three interrelated solutions: managed service, managed retail and managed marketplaces. Each solution is powered by Pentagon’s software platform that integrates to seventy marketplace channels globally. “It is the backbone of our business,” says Guy. “The service division consists of more than a hundred experienced marketplace practitioners, who manage store launches, run campaigns, create promotions, transform data and provide customer services in multiple languages for brands across the world. The retail division takes that proposition one step further, by acting as a merchant of record for leading global brands who do not have the capacity in international markets to manage things like marketplace contracts, shipping and logistics, local taxes and regulations, localisation and more. The managed marketplace solution is designed for organisations with established audiences, who are looking for a partner to build and manage their own marketplace.”
In 2015, We Are Pentagon undertook a strategic review of its business, resulting in a three-year transformation plan that would see the company pivot from being a domestic service provider in the United Kingdom for eBay and Amazon to a global e-commerce enabler. “We believed that our cross-border solution should be powered by our own technology and that we needed a merchant of record proposition,” Guy explains, continuing; “You also cannot support a global business without having a global presence. We now integrate to a very wide range of marketplaces globally, from Mexico to Korea, and we have three offices in Asia to complement our European operations.”
“We believe that we are now in a great position to deal with the explosive growth we expect in coming years. Having staff who understand the local language and culture can build relations with marketplaces – that is critical. For us, Japan has been a steep learning curve. It would be impossible to imagine how we would support that market without our local Tokyo office.”
Online marketplaces are hot and unsurprisingly are the fastest growing segment of e-commerce. Conducted research¹ indicated that last year, the top 75 marketplaces in the world accounted for $1.55 trillion in sales. “That’s nearly half of all e-commerce sales worldwide,” states Guy, “It is predicted to increase to two-thirds by 2022. On top of that, a Pitney Bowes study² found that eight out of ten digital buyers around the world are using marketplaces when shopping online. There is an increasing number of consumers who start their online shopping journey by using a marketplace first (67%), compared to 46% who use search engines first and 24% who start searching on social media.
“Marketplaces are especially hot in Asia, which is the leading region for this way of shopping,” says Guy. Looking at research numbers from the Pitney Bowes study, China (93%), Japan (84%) and South-Korea (79%) are leading. Here, consumers are making at least half of their purchases on multi-merchant sites. Looking solely at cross-border e-commerce, the position of marketplaces is even more dominant: 62% of the respondents in the survey said their cross-border purchases have been made on marketplaces. When looking at huge players like Amazon, third-party sellers now account for one in every two units sold. In 2017, about 25% of the platform’s revenue is generated from cross-border sellers. “The place of marketplaces in today’s e-commerce markets are right in the centre and expanding to the edges,” Guy states.
Marketplaces are ever-evolving. Dominant players like Alibaba, Amazon and eBay are innovating on a continual basis. But what will happen to them in coming years? Guy: “I expect there will be more consolidation in the large multi-category space, where Amazon and Alibaba are increasing their global share through huge investments and acquisitions in emerging regions. Illustrative examples are Amazon’s acquisition of Souq.com, one of the biggest marketplaces in the Middle-East and Alibaba’s acquisition of Lazada, one of the biggest marketplaces in South-East Asia. Only huge companies can now compete with these two. They would need very, very deep pockets – as evidenced by Walmart’s $16 billion investment in Flipkart in India.”
Something that will emerge more and increase in popularity in coming years are niche marketplaces that cater for a particular audience. “We, for example, partnered with one of the largest mobile operators recently to build and manage a marketplace for them. I believe we will be building more of these niche marketplaces with our technology and expertise over the coming years,” Guy explains. “There is also an increasing convergence between marketplaces and social networks to create ‘market networks’. Houzz in the US is a good example of this.”
Challenges and conflicts
A lot of brands, even bigger brands, have difficulties performing well on marketplaces. Their challenges are various, but there are some big issues that can be defined. “The biggest challenge for brands, especially manufacturers, is managing channel conflict,” states Guy. “These are typically huge organisations that have always had a clear view of where they are positioned in the value chain. The trend towards selling directly to the consumer is increasingly hard to resist, but disintermediating your traditional customer is tough, especially when multi-billion revenues depend on these relationships. We have seen both ways. We launched a British manufacturer on eBay US about two years ago and they had the right strategic approach. They sold $2 million over the Black Friday weekend. On the other hand, we have seen huge organisations failing because they were too timid. It is important to get the high-level buy in from the brand. That is when we can do our magic.”
Another major challenge is defining a single strategy and finding a single solution for it. “Firstly, it is very hard to build a team internally that can deal with the huge global opportunity that exists as each country has different rules and regulations and cultural nuances. In almost every case you need to work with a partner, potentially more than one. Take China as an example: it is a massive opportunity as a market, but a massive challenge at the same time. We complement our solution with local partners to address that market because e-commerce is so highly competitive and fast-moving there,” Guy says, adding; “Apart from that, the operational problems can be anything, from regulations through to taxation and logistics.”
Guy advises to not be afraid of working with partners. “We help brands with our consultative approach. The old adage of fail to plan and plan to fail is very true in our industry. That is why we offer a very customisable solution which our customers can curate to meet their needs. The key to success is always alignment, both in terms of commercial outcomes and in terms of commitment from both sides and it works best if our customers see us as an extension of their team.”
To enter a marketplace there are certain things you need to get right. “First, you need a clear strategy, which is right for the size for your business, but allows for some experimentation on sites or in countries you may not have considered before. Secondly, have a look at the paid search offerings, as marketplaces are increasingly used as search engines. These days, you really need to allocate a budget to buy some of that traffic. Thirdly, constantly educate yourself about the fastmoving industry. Visit events3, join webinars and learn new things wherever you can: there is a solution that fits your company out there,” Guy concludes. ••