Harnessing the power of marketplaces in the pet space

Consumer-facing online marketplaces that enable third-party sellers to offer their goods and services to a broad audience have already reached an impressive scale of trading and continue to grow rapidly.

A global phenomenon

The top 100 online marketplaces globally now account for over $3.8 trillion (€3.5T) of total gross merchandise value (GMV).

According to e-commerce research agency Digital Commerce 360, this has more than doubled in size in the past 6 years.

This is a channel that was already growing strongly pre-COVID, but accelerated during the pandemic.

Even in the post-pandemic and consumer income squeeze years that have followed, it has continued to deliver growth with marketplaces having an established presence in all major global areas.

According to business intelligence firm Marketplace Pulse, Amazon’s third-party marketplace business across all categories worldwide accounts for an estimated $480 billion (€440B) of its $700 billion (€642B) GMV.

Since 2018, this has grown at 25% each year, nearly twice the rate of its own e-commerce retail sales.

Gaining pet market share

In the pet segment, Amazon has not only taken market share from offline retailers but has also gained share from online pet category specialists.

Over the past 2 years, for example, this platform has won business at the expense of Chewy in the US and Zooplus in continental Europe.

Underpinning this success are 2 key areas where Amazon has proved effective at capturing consumer demand: winning consumer replenishment transactions in pet food and consumables, and gaining share in pet accessories and equipment sales.

For example, based on our research, online marketplaces already account for a 20-30% share of pet food share in many developed Western markets, and a significant proportion of this is sold through Amazon.

Keys to Amazon’s success

One reason for this is that Amazon has an unparalleled consumer reputation for the breadth of its range.

In a survey asking consumers in the UK, US and Europe to rate 100 retailers, including major pet players Pets at Home, Jollyes, PetSmart, Petco, Chewy, Fressnapf, Das Futterhaus and Zooplus, Amazon was ranked top in all 3 markets for offering the widest choice.

This is complemented by Amazon’s strong price proposition.

For example, when the consumers were asked to rate the retailers’ value for money on a scale of 1-5 (with 5 being best and 1 being worst), bricks-and-mortar pet specialists were typically rated 3.8-3.9, general grocery retailers around 4 and Amazon 4.2.

Its marketplace element is a critical component of this, extending its range and offering price choice from a broad set of suppliers competing for the consumer spend.

Maximizing opportunities

For suppliers, trading on Amazon’s marketplace offers huge opportunities, and not only in terms of reaching new areas of potential consumer demand.

Choosing to sell through the marketplace rather than the Amazon-owned retail model gives vendors full control over pricing and promotions, enabling them to avoid channel conflicts elsewhere.

For example, in pet food, Amazon tends to over-index in larger pack sizes in line with its stock-up replenishment consumer purchasing mission.

Additionally, suppliers need to take care to manage price and promotional consistency across all channels when they are also selling through specialty channels. The ability to control pack size/format exclusives per channel can help with that.

Suppliers who come from a heritage of distributing through B2B channels in particular need to build a toolkit of capabilities to win on Amazon.

Successful trading requires thinking carefully about the marketing investment to gain the right listing positions, as well as making the most of product descriptions, managing reviews and carefully optimizing pricing.

As other suppliers also push to leverage Amazon’s marketplace, this increased competition is raising the cost of advertising and securing the best listing space on the platform.

Meanwhile, Amazon continues to increase the slice of value (the ‘take rate’) that it captures.

As a consequence, the most successful vendors are investing in developing dedicated teams with Amazon-specific capabilities, and building out the unique datasets and insights needed to optimize trading decisions.

Price disruptors

With the success of Chinese-founded players such as AliExpress, Shein and Temu, a different breed of marketplaces is emerging.

Connecting consumers directly to suppliers of very cheap Far Eastern products, they are achieving substantial growth. They are particularly gaining traction among younger consumers, who seem willing to forgo quality and speed of delivery for low prices.

Even sustainability concerns do not appear to be a barrier. OC&C’s consumer research indicated that sustainability is a factor in only 30% of purchasing decisions; 70% of consumers decide based on other priorities.

So far, these marketplaces are mainly gaining a foothold in categories such as fashion and accessories, and do not yet play a big part in the pet category.

Perhaps they never will in areas such as pet food but, as today’s teenagers and 20-something fashion buyers mature into tomorrow’s new pet owners, categories such as pet equipment and accessories have the potential to become much bigger on these platforms.

Suppliers of such pet products may need to consider whether these marketplaces pose a long-term threat or opportunity.

They can then decide whether they should become a player on such platforms, or whether they should make defensive moves – such as reinforcing their offering at lower price points or communicating the quality benefits more clearly.

Marketplaces for pet services

Beyond the tangible world of products, we are also seeing the emergence and growth of marketplaces for pet services, particularly in areas beyond health and veterinary services.

For example, categories such as pet boarding, pet sitting, dog walking and pet adoption have a highly fragmented set of small-scale providers. These naturally lend themselves to a marketplace model that matches service providers with customers.

In pet adoption, for instance, we have seen a shift from classified listings (offline and online) to marketplace models that take payments or deposits. Similarly, standard marketplace models are on the up in pet sitting and boarding, with more innovative models emerging too.

For example, TrustedHousesitters matches pet owners who are looking for someone to come to their home and look after their pet while they are away with pet sitters who also use the pet-sitting opportunity as a chance to spend time in a different location.

The importance of trust

With over 85% of dog and cat owners regarding their pet as a cherished member of their family, building consumer trust is paramount for suppliers on marketplaces for pet services.

OC&C’s consumer research shows that 3 of the top 5 drivers of consumer purchasing behavior among pet parents are linked to trust and quality.

So how can marketplaces help to build that trust? Service provider vetting and rapid problem resolution are 2 key areas that need to be got right. Additionally, user reviews of suppliers are equally critical in trust building.

Potential for pet product suppliers

Marketplaces for pet services may be of potential interest for product suppliers from a partnering or marketing perspective.

For example, pet adoption marketplaces give access to new owners at a particularly valuable point in their customer journey: a time of investment in equipment and accessories, and when brand preferences are being formed.

Other marketplaces for services such as dog walking might give suppliers access to more affluent or higher-spending pet parents.

Therefore, in an era when onboarding new customers is becoming increasingly costly, it is worth considering how these types of marketplaces could play a role in advertising or lead generation for products.

In summary, marketplaces are a huge and rapidly growing opportunity that will become an increasingly important route to market for suppliers in the pet industry.

To be a winner in this channel, you must not only offer a great product or service but should also build the specific capabilities to trade on these platforms effectively.