Every two-sided marketplace starts with a chicken-or-egg question: Do you bring suppliers or buyers to the platform first? The right answer is nearly always to find suppliers first. Suppliers are the merchants. They are the ones with something to sell. Once you build an inaugural assembly of suppliers, the next quest is to find a sustainable and scalable user acquisition strategy. There are multiple ways for a marketplace to drive growth.

Find Additional Suppliers

It is likely that an initial marketplace acquisition strategy involved going deep in one or a few geographic regions. One obvious way to grow is to expand your geographic pool of available suppliers. This happens through increasing suppliers in existing geos or increasing the density of available suppliers (and buyers) in targeted markets. Geographic density has the advantage of minimizing advertising expenses. Many acquisition strategies, include paid search, outdoor and social media advertising, can come with a lower price tag when efforts are geographically focused.

Expand Search for Buyers

The geographic expansion for buyers will mimic that of the suppliers, with the supplier growth preceding buyer growth. Identify buyer personas and their physical and online gathering places. Partnering with organizations who reach the same buyers can yield mutually beneficial results.

Add New Offerings (and Cross-sell Them)

When contemplating new offerings, consider the needs of the buyers that are seeking out your suppliers’ services. Airbnb’s hosts offer house-sharing from budget to luxury in everything from large metropolitan areas to remote locations. The company recognizes that travelers needed meals and help navigating once arriving at their destination.

Eight years after their initial launch, the company added Experiences to their service offerings. Today, they offer chefs, tour guides and even entertainment services, like escape rooms. They have onboarded new suppliers who want to share their talents and interests with guests in their communities. What tangential services would enhance your buyers’ experience?

Reward Buyer and Supplier Loyalty

Build product features that make it easy for buyers who make multiple purchases to do so. A discount may be appropriate for a buyer who is purchasing again from a supplier they have purchased from through your platform in the past. In fact, such an offering might reduce revenue leakage that results from disintermediation. Packaged services, such as those offered by travel services who bundle airline, hotels and car rentals, can be attractive to buyers who purchase multiple services. They also increase the average spend per user.

Loyalty can also be rewarded through product features. Mine your data to identify opportunities when a customer who buys X is also likely to buy Y. This information can help determine what emails to send to past customers, how to use effectively remarketing or what information is displayed when a customer visits your site or app.

On the supplier side, those suppliers who list and sell multiple products or services or your platform are likely your most valuable. They can be rewarded with a priority position in the product display queue. A tiered fee structure might help you attract more of these suppliers, who offer higher average revenue than those with fewer products in your marketplace.

Developing a formal advisory board of your best suppliers is another way to reward loyalty. Not only will it allow you to recognize your highest performing suppliers, but it will also allow you to establish a formal feedback process to keep the supplier community engaged.

Focus on Frequent Buyers

It is important to analyze consider customer data to identify characteristics of buyers who spend more on your platform. For instance, during the pandemic, Airbnb noticed that the work-from-home trend resulted in longer term stays than traditional vacation travel did. Undoubtedly, they are now displaying properties with desirable WFH amenities in key markets.

Once you have identified your most frequent buyer segments, be sure that your customer acquisition strategies appropriately target these key buyers. Consider that the higher average revenue garnered from this population may justify higher acquisition costs for the same.

Invest in Product Enhancements

In early 2021, Airbnb also introduced their “I’m Flexible” search functionality. This feature was designed to allow those living nomadically during the pandemic to discover properties. It also gave Airbnb an opportunity to display their most frequently booked and most profitable properties first.

Product enhancements that simplify the supplier onboarding experience will allow you to get more sellers on board faster. Once you have captured supplier contact information, communicate what is required to move a profile from pending to active. If you are unable to convert suppliers in the pipeline form pending to active, consider capturing more information upfront.

Tools that give the supplier market information that they do not otherwise have access to, like pricing recommendations, can be useful for converting and keeping suppliers on your app.

Take Advantage of Market Trends

As noted previously, as the WFH trend took hold during the pandemic, Airbnb took a WFAH (work-from-any-home) approach to its product. The company recognized that staycations and local travel had become a larger part of its business. They discovered that guests wanted to be closer to family and domestic travel rebounded faster than international travel. Stay abreast of market trends so that your platform stays current and relevant for today’s users.

Improve Brand Awareness

With so much discussion on performance marketing, it is easy to lose sight of the value of a strong brand. Google has become synonymous with search and Uber with ridesharing by investing in brand. When you are top-of-mind in your market, it become easier to garner more share of market. In the long run, investing in brand awareness can also reduce reliance on paid media.

Increase Prices

There are at least two ways for a marketplace to increase revenue through price increases. One is to increase service fees. Another is to get suppliers to increase their prices. The latter is often the less contentious.

One drawback to marketplaces is that they can inherently put suppliers in direct competition with one another. This competition can lead to pricing cutting and lower average revenue for suppliers and the overall marketplace. To mitigate this risk, help suppliers price their products by supplying market-based data. Use a broad range of product characteristics to categorize supplier offerings in order to introduce more differentiation in the marketplace.

When increasing service fees for suppliers, consider market conditions including competitor fees. The ideal time to increase fees is when there is a corresponding change in your product that increases the value for suppliers.

Key takeaways for marketplace leaders:

• Focus growth of marketplace suppliers and buyers on those who sell or purchase multiple offerings. Rewarding both will improve average revenue per user.
• Prioritize product enhancements that meet supplier needs. Remember that suppliers are your most active users on the platform.
• While performance marketing will drive early growth, long term growth is contingent upon building strong brand awareness.