Five Questions All Marketplaces Should Be Able to Answer

An online marketplace may seem like a good solution for startups wishing to enter the e-commerce market but having no products or services of their own to offer. Indeed, in a marketplace, the company only needs to provide a convenient platform for the buyers and sellers to meet and transact. However, the word “only” is probably out of place here, as running a marketplace is not an easy task.

To start a peer-to-peer marketplace business and make a success of it means facing a lot of challenges and problems. The competition in the market is enormous, and startups need to find new unique solutions to get their services noticed by visitors.

Today, the meaning of the term “marketplace” has become much broader than a platform for buying and selling goods. There are different types of marketplaces – service marketplaces, freelancer marketplaces, even dating marketplaces. Yes, a dating platform is a marketplace too – it is a place where people looking for a partner choose from among other people’s profiles.

marketplace-questions-answer-business

It seems that every niche is already occupied, and there is no room for new marketplaces or for the existing ones to grow. However, the situation is not quite as bad as that. With smart planning and creative marketing, your marketplace may very well win the market. Before you launch your business, try to answer five basic questions about your future marketplace. The answers may help you get off on the right foot and make your marketplace grow.

#1 How is the seller matched to the buyer?

Or, rather, the question should be “Who is doing the matching?”

Depending on the specifics of the marketplace and the goods or services it offers, there may be different techniques of matching the seller with the buyer.

Matching is done by the buyer

In this model, the buyer searches for the product either by browsing the supply or by searching based on certain criteria. For example, eBay supports both options – you can either shop by category, looking through a list of items in the selected category, or apply search filters.

Many marketplaces give the buyer the option to choose the product or service – for example, on Airbnb, the user enters the criteria of the place they wish to rent; on Upwork, the person or company looking for a freelancer to hire restricts the options by setting filters.

marketplace-questions-answer-match-seller-ebay

Image credit: eBay

Matching is done by the seller

In this case, the buyers post their requests stating the conditions and the price they are willing to pay, and the sellers choose the requests to respond to. This model is often used by job-hunting marketplaces – Upwork, which we have already mentioned, also uses this technique. The customers post jobs and the freelancers respond to those they find suitable.

marketplace-questions-answer-buyer-upwork

Image credit: Upwork

Matching is done by the marketplace

Here, the matching begins with the buyer either coming back for another purchase or searching for a product. Then, the marketplace suggests the matching offers, either based on the customer's purchase history, or prioritized by the customer’s details (for example, location). The classic example is Uber, which offers rides that are the closest to your current location. The same principle works on the marketplaces offering services – for example, if you open an application where you can search for a doctor or a beauty professional, it will show you the available services nearby.

marketplace-questions-answer-uber-marketplace

Image credit: The Verge 

Why is this important?

The matching method can help you create unique customer experiences. If you just create a catalog of your supply, leaving the buyers to browse or search for the items they need, you may become just another marketplace, no different from dozens of others. If, however, you design a very customer-friendly search and filtering mechanism suggesting the most suitable options, that can raise your value to the customer. For example, implement a chatbot that can help buyers choose products based on their answers to questions.

In addition, you may notice a nice side effect – a great customer experience may make your marketplace go viral. Your customers will be advertising your business by recommending it to friends and relatives.

#2 Who will you attract first?

Since in a marketplace you should attract both buyers and sellers, you should decide who is going to be your primary target audience. Of course, you need enough of both, as without buyers, your sellers will move to other marketplaces, and without sellers…well, your buyers will move to other marketplaces, too.

However, it may be difficult to target both audiences at once, so you have to focus on one. The recommended tactics are to focus on sellers first, so buyers coming to your market can find goods there. Naturally, you need to create some incentives for sellers since their trade may not be too successful at first. For example, you can drop the listing fees, or offer promotion of the sellers’ merchandise on other resources. Develop a set of smart measures to keep your sellers with you while you actively promote them and bring buyers in.

Another good strategy is to implement a super-easy onboarding procedure for your sellers. They will need to put in enough effort anyway, as they need to showcase their product. Make onboarding straightforward to encourage sellers to complete it. If you implement a sophisticated authentication and approval procedure, there is a good chance that some sellers will think, “Oh, to hell with it,” and just close your app window.

marketplace-questions-answer-onboarding-signup-register

Why is this important?

Sufficient supply may generate adequate demand, creating a snowball effect. However, at first your buyers must be able to find enough goods to shop for. On the other hand, successful sales will encourage the sellers to continue listing with you and to recommend you to others.

We by no means insist that you should only focus on the sellers. On the contrary, do all you can to attract both buyers and sellers to your marketplace. A steady incoming flow of both will help you to grow your marketplace.

#3 What can you do to keep your users in your marketplace?

In every marketplace, there is a danger that once you have introduced the buyer to the seller, they will continue their transactions without you. Of course, for your users this solution is both less expensive and more convenient, as it allows them to communicate directly. For the marketplace, though, it is a loss of business.

To prevent users from leaving you, you should provide something that the sellers and buyers cannot provide. One such thing is trust. By running a marketplace and charging commission, you assume the role of moderator between the seller and the buyer. Both of them will trust you to verify the other side.

For example, on Airbnb, the person wishing to rent a place has to send a copy of their photo ID, and only after its verification is the guest introduced to the host. On the other hand, the guest’s payment is not immediately sent to the host. Airbnb collects it and releases it to the host only when the guest has arrived. This way, both parties are sure that they are protected by the marketplace.

marketplace-questions-answer-airbnb-security-payment

Image credit: Airbnb 

Of course, this works best when each transaction is between a different seller and buyer. Indeed, when you travel, you try to travel to different places, and each time you are going to meet a new host. However, when you have found a person to walk your dog or to clean your apartment, and you are happy with them, what can possibly prevent you from getting their phone number?

Unfortunately, there is not much you can do about this. Therefore, if you are planning this line of business, aim your marketing power at getting new customers.

Why is this important?

Understanding your users’ behavior will help you organize your marketplace to build the maximum trust of your sellers and buyers, and make them return to you. Otherwise, this analysis can help you plan your marketing measures so that they generate leads rather than retain customers.

#4 How will you organize payment?

While planning your startup, you should also take care of the payment solution for your marketplace. The payment platform should provide a secure and trusted environment for the buyers to pay the sellers.

There are a number of marketplace payment platforms specifically designed to meet the requirements of peer-to-peer online marketplaces. Check, for example, Braintree, which has a special product called Braintree Marketplace. It supports multiple payment options – credit cards, bank transfers, PayPal (by the way, PayPal recently acquired Braintree, which should add to your customers’ trust towards the system). Braintree has a number of other great features that are important in marketplace payment processing:

  • Support of multiple currencies and exchange rates
  • Fraud prevention through the use of advanced verification mechanisms
  • Compliance with the PCI regulations applicable to marketplaces
  • An API that you can use for easy payment integration into your marketplace

marketplace-questions-answer-braintree-payment-paypal

Image credit: Braintree

Why is this important?

All payment matters are important, as people tend to be very cautious and critical when it comes to their money and the way their credit card details are handled. Thus, in a successful marketplace, the payment system must inspire trust and confidence, so make sure you implement one that your customers have heard of.

#5 How are you planning to earn with your marketplace?

An important question, isn’t it? After all, you are building your marketplace to make a profit, so this is a question that should be answered before you launch.

There are quite a number of methods of earning that you can use in your marketplace:

  • Commission. With this model, you charge either a flat fee or a percentage of the transaction price for your services. Upwork uses the commission model, charging up to 20% of all payments to contractors.
  • Listing fee. In this case, you earn from your sellers posting their goods or services on your marketplace. The listing fee model is not too popular with sellers, as they are charged regardless of whether their goods are sold or not. This model is used by Etsy, which charges $0.20 per listing.
  • Subscription. You can charge a monthly subscription fee giving your users a certain limit of goods or services they can get. You can find the subscription model on Shutterstock, where you can pay, for example, $29 per month to download up to 10 images. The fee is charged regardless of whether you download anything or not. Of course, the subscription fee is divided between the image contributor and the marketplace.
  • Freemium. You can offer two pricing plans – a free one, and a paid one with extended options. For example, Amazon uses the freemium model, offering free participation for sellers; however, the limit on the number of items is 40 and there are listing fees. In the Professional plan that costs $39.99 per month, there are no listing fees and the number of items is unlimited.
  • Featured listing. With featured listing, you charge to promote a certain item on your marketplace to make it more visible to buyers. eBay has a system of so-called “advanced upgrades”, starting with $0.10 per item.

marketplace-questions-answer-etsy-earn

Image credit: Etsy

Of course, you can combine different models. Shutterstock charges a commission from the contributor and a subscription from the customer. eBay uses as many as three methods – a subscription, a commission and a listing fee. We recommend not starting with fees that are too high or too many, as this may very well scare your customers away.

Why is this important?

Choosing a suitable revenue model can both ensure your profitability and show your customers that you are, in fact, providing good service to them. When your customers see that for a relatively small amount of money they get a reliable and secure space for selling and buying, they will trust you even more.

↑ Go up

Similar post