The brokerage model (BM) is a relatively new concept that originated from what we traditionally call a “broker”, but unlike a broker, it is much more enhanced and advanced.
While a broker is usually the person responsible for facilitating a transaction between two or more parties, BM is a business model where transactions are carried out through a platform or marketplace provided by a third party.
In the BM, the intermediary can be:
- A company;
- An app;
- A website.
In short, it can be any platform that provides a range of value-added services to buyers and sellers, such as payment processing, logistics, shipping, customer support, and dispute resolution.
The whole scope of this business model concept is huge, much bigger than many other businesses, as it can be successfully implemented by any other business model, be it B2B, C2C, or B2C.
Of course, it can be utilized in e-commerce businesses as well. And though some of the operations may vary depending on the area of business, one thing is constant – a third-party role. Let’s take a look at how BM is being utilized in the e-commerce space exactly and how e-commerce businesses benefit from it.
An online marketplace is a digital platform where buyers and sellers can connect and engage in transactions. These marketplaces operate over the Internet and allow users to explore brands and buy and sell products or services using various tools and features provided by the platform.
For e-commerce businesses running online stores, the BM offers many advantages. First off, it allows them to generate revenue through fees and commissions on transactions without actually having to hold inventory or manage logistics, which can be a real pain for some retailers.
However, more importantly, it enables online marketplaces to scale rapidly. Because they don’t have inventory or logistics infrastructure costs as traditional retail models, they can offer a wider range of products or services. Amazon, Alibaba, eBay, and Walmart are just a few of the online marketplaces to mention.
Another good example of how the BM can be used in e-commerce businesses is as a search agent. Search agents are AI-driven online platforms that help customers find the products and services they are looking for by searching multiple e-commerce websites on their behalf.
The main advantage of search agents is that they can provide customers with a more comprehensive and convenient shopping experience. Instead of having to sift through hundreds of websites individually, they can go on a single platform, find what they need, compare prices and features, and make purchases.
Search agents are being used not only by virtual malls, though. Take LinkedIn, for example. This professional network is also driven by search agents, allowing employees to search for the best job roles and companies for the top talent based on their profiles, preferences, and requirements.
All online purchases have been made possible thanks to the integration of a so-called transaction broker (TB). This type of brokerage model is aimed at facilitating transactions between buyers and sellers in the virtual area by providing a secure and reliable platform for payment processing services.
One of the key advantages of transaction brokers is that they ensure the encryption of the payment gateway, thus excluding the risk of fraud, scams, and unauthorized access to the customer’s card details. Some examples of TB in e-commerce include:
These payment platforms are user-friendly, secure, and trusted by both merchants and customers around the world.
Auctions (Traditional and Reverse)
Action platforms embrace the brokerage model, too. They act as a third party between buyers and sellers, providing them with a place to bid on and purchase items they like for the price they are ready to pay. Buyers with the highest bids win the auction.
Along with traditional auctions like eBay, there are also reverse auctions, the concept of which is the polar opposite. In this BM, auctions are used as a B2B procurement tool, and the idea is to bring prices down. Two notable examples of platforms using reverse auction mechanisms include QuiBids and Priceline.
Buy and Sell Fulfillment
Buy and Sell Fulfillment is a good example of how the brokerage model can be used in e-commerce. It gives sellers a single platform where they can create virtual stalls to display their services or goods. Customers visit these stalls, compare prices and features, and buy whatever they like.
At the same time, these platforms work both ways. For example, if a buyer wants something specific, they can post their request, and sellers who have the item can contact them. One of the largest marketplaces, Fiverr, is based on this model.
Marketplace Exchange is exactly what it says on the tin. These electronic exchanges bring buyers and suppliers together in a centralized platform where they can obtain products through a barter system. Some examples of companies that use the Marketplace Exchange model include ThomasNest, Etsy, and ChemConnect.com.
For example, a large B2B platform ThomasNest connects people in the industrial and manufacturing sectors. The platform offers a wide range of products and services, including machinery, tools, and raw materials.
Etsy, in turn, is a famous platform featuring handmade, unique craft supplies, while ChemConnect.com acts as an intermediary for trading chemicals and similar products.
To sum it all up, the brokerage model, without a doubt, is a beneficial approach for e-commerce businesses, and the companies we’ve mentioned in the article prove it by their examples.
However, not only global players like Amazon and eBay can take advantage of it.
The price for the BM is more than reasonable, which makes it a go-to even for e-commerce startups that are looking to grow and succeed in the digital marketplace.