Many things are needed to work together for marketplaces to grow and become successful. But, which are the most important to realizing success?
The marketplace is a central location for people to meet and exchange goods or services. Within marketplaces, there is supply (seller base) and demand (buyer base). Once established, this marketplace often maintains the majority of control, potentially resulting in high equity values for the marketplace provider.
Successful marketplaces usually reap benefits from expansive networking effects, especially in the digital/online sector. Due to this, these marketplaces find themselves to a large extent in a winner-takes-all scenario. In this scenario, only the companies who provide the most value realize success. There is often no second place in this sector, unlike in most sectors of technology.
The real challenge for marketplace providers lies in the way they approach the market they wish to serve. Read on for some of the top characteristics possessed by successful marketplaces, those who provide far-reaching benefits to both sellers and buyers.
A successful marketplace must offer a truly unique value proposition to sellers as well as buyers. It should provide its community with savings in time, money, or both. There needs to be noticeable benefits for the marketplace to grow, thrive, and succeed.
In the digital era, consumers expect quick and convenient access to inexpensive, but high quality goods and services. This is one of the main value propositions companies in this sector can offer, and there are three main methods of approach.
These three approaches can be utilized independently or together, however the most successful marketplaces tend to focus on all three:
- The market access approach: Platforms focus on connecting consumers with more products and suppliers than the competition. Offering “abundance of choice,” for example; connecting consumers with over 5,000 sellers is a common market access pitch companies might use.
- The price reduction approach: Platforms focus on providing consumers with a lower price for goods or services than can be found locally or on other marketplaces. A pitch with this focus would include high discounts or frequent sales.
- The convenience approach: Platforms focus on saving time for users, usually on something that can be automated or streamlined in some way.
Another way marketplaces define their value proposition is through high liquidity. This involves maintaining high quality supply and demand, while making this process as convenient and frictionless as possible.
Uber, for example, has found success by focusing heavily on decreasing the time it takes to match drivers with passengers. While this is important for Uber, it may not be relevant to other companies. No matter how they define it, all marketplaces must achieve liquidity to meet the expectations, needs, and demands of both buyers and sellers.
For early marketplace providers especially, extensive focus on safety and trust is vital for growth and success. Consumers, buyers, and sellers all want a transparent, well-behaved community who abide by clear rules of engagement.
Nothing establishes trust more than letting users know there are security mechanisms in place to protect every party. If a company focuses on establishing this early on, they will be more likely to create stark raving fans of the platform.
In addition to trust, a marketplace must also be convenient for it to function properly. These two incentives are what keep transactions flowing on the platform. Buyers need to rely on the quality of the inventory, and they also need to know that there is no easier way for them to conduct this transaction.
Inventories, sellers, and buyers all need to be easily verifiable, and technology enables marketplaces to bridge this gap:
- Identity verification: All participants need to know who they are dealing with and if they can trust them.
- Reviews: Consumers want to see and share product reviews, buyer/seller reviews, company reviews, and more.
- Support: Users want protection if something goes wrong.
These point-to-point interactions are what lead to platforms establishing more trust over time. Technology can also provide companies with greater convenience through a wider variety of interactions, such as:
- Payments: Buyers and sellers need to know their payments are secure, and transactions are easy and frictionless.
- Products: There needs to be proof that the listing isn’t a fraud, that the supply/seller is trustworthy, and that they will receive their order in a timely manner.
- Messaging: There needs to be an easy, convenient way for these two sides to connect and communicate.
By focusing on these different areas, marketplaces establish trust, create greater liquidity, and lower the barriers of commerce on both the supply and demand sides. It is important for any new marketplace to consider these. As well, it can benefit any marketplace users to learn more about what makes the platforms they use so great.