What Is A Vertical Marketplace?
Vertical marketplaces are ecommerce platforms specialising in a single category and bringing together several brands/vendors to cater to customers’ needs across specific categories such as beauty, home decor, personal care and more.
The outbreak of the pandemic in 2020 led to a surge in vertical marketplaces in India, including vertical category-focussed marketplaces such as Nykaa, FirstCry, Droom and Purplle. These platforms rose to meet the rising demand for personalisation and customisation among India’s tech-savvy population. Interestingly, all four of them have entered the unicorn club since.
What Are The Characteristics Of A Vertical Marketplace?
These characteristics help identify a vertical marketplace:
- Specified Target Consumers And Niche: It allows vertical marketplaces to serve a narrower target audience and include specific industries, service verticals and product categories.
- Regulatory Compliance: Though it is a strong point of value proposition, it can also be a significant challenge for marketplaces. These marketplaces must navigate complex regulatory requirements to maintain trust among consumers.
- Specialised Yet Comprehensive Services: Through a deep understanding of the target audience and their challenges, vertical marketplaces must provide specialised services that are not easily accessible in the economy. In a specific category, it should build itself as a one-stop solution.
- Targeted Marketing And Engagement: Vertical marketplaces employ specified specialised channels, community engagement and partnership initiatives to connect customers within their specific vertical. Through these efforts, they can connect with customers genuinely interested in their offerings.
- Focus On Quality And Authenticity: Specialised offerings replace generic ones as there is a heightened emphasis on the quality and authenticity of products. To ensure this, timely quality checks are conducted.
What Are The Benefits Of Vertical Marketplaces?
According to a report published by IAMAI and Kantar Research, India’s internet users are expected to reach 900 Mn by 2025 from 759 Mn in 2022. The rising internet users will also benefit vertical marketplaces as there will be a broader customer base. Here are the benefits vertical marketplaces bring:
- Easier To Nurture Customer Relationships: A smaller market makes it easier to personalise customer relations or understand pain points. Ultimately, it builds stronger customer relationships.
- Accessible Business Type For Startup Founders: Since they are easier to build and reach product-market fit, vertical marketplaces are more accessible for startup founders. With a well-defined and homogenous audience, pain points are easily discoverable and there is a possibility to reach marketplace liquidity faster.
- Gives A Competitive Edge: Vertical marketplaces enable founders to understand the needs and customer pain points inside-out, which the competitors focussing on a broader audience may have a hard time uncovering.
- Reduced Competition: A smaller niche usually has fewer players. Although giants will compete in the space, a startup can differentiate itself from them by offering specialised services. This reduced competition will land higher market share and revenue opportunities.
- Higher Profit Margins: Vertical marketplaces often justify higher commission rates since they operate in a niche market. Sellers, too, can command higher prices while targeting specific audiences.
What Are The Challenges In Vertical Marketplaces?
While vertical marketplaces form their moat in specialising in a single product or a category, there are several challenges they face:
- Limited Target Audience And Sales Potential: The potential target base of vertical marketplaces is narrower than general marketplaces. It can affect the overall sales potential of the platform.
- Impacts The Appeal Of The Platform To Future Buyers: Specialising in specific services or products may result in limited options for the range and diversity of offerings on the marketplaces
- Inventory Management Challenges: Vertical marketplaces often rely on a limited number of suppliers for their delivery, which can lead to challenges in product quality and ensuring competitive pricing.
