Building a marketplace brand is no easy feat.

Marketplace executives may be tempted to consider whether they or their sellers “own” the relationship with the customer. In truth, neither the company nor the seller does. The customer determines the terms of engagement. Both the company and the sellers serve the customer, albeit in different capacities. The company’s brand and the seller’s brand must coexist in this environment.

Many early-stage marketplaces focus on driving buyers to their website or app. While this is a critical step in validating product-market fit, building a brand is as important for the longer-term viability of the marketplace. Without a strong brand, the marketplace has no chance of remaining top-of-mind and will be relegated to a perpetual cycle of spending heavily to acquire customers.

Take these steps to begin to strengthen the brand and break the cycle.

Implement a Seller Vetting Process

One role the company plays is that of a scout. Potential buyers often come to a marketplace because they will be presented with several options to choose from. Like sports scouts, marketplace leaders have to go to the game, see how the player plays and how they interact with others. Essentially, they watch how the seller performs outside the marketplace before they are invited to join the team. If the seller meets expectations, they’re in.

This vetting process is important because the individual activity of each seller reflects on the company’s brand. It is important for the marketplace to define and screen for seller criteria that align with the brand they wish to embody.

Expand the Supplier Base

In addition to having vetted sellers, marketplaces must curate a sufficient number of suppliers. A wide supplier base not only gives buyers more options but also reduces the company’s reliance on individual suppliers.

A more substantial supplier base can reduce the need for the buyer to look elsewhere. It can also mitigate damage to the company brand if a rogue supplier does not meet customer care expectations. Essentially, having more suppliers reduces the impact of any single supplier’s untoward actions on the platform.

Mitigate Communication Barriers

It is practical for marketplaces to want to limit communication between buyers and sellers before any transaction has taken place. Doing so keeps opportunities for disintermediation in check. However, it also can breed distrust. Blatantly blocking communication between buyer and seller will be brand damaging.

Marketplaces should mitigate communication barriers so that their brand can be seen as one that is trustworthy. So, share critical information between buyer and seller in a timely fashion. If it is prudent to do so, transmit contact information after the purchase transaction. The product should enable communication to commence immediately after payment is made. Marketplace leaders can also prioritize product features that enable communication through a secure (perhaps monitored) channel.

Satisfy Buyers to Retain Sellers

Remember that building a strong brand with suppliers is as important as building a brand with buyers. For some platforms, it is more important.

Suppliers will remain active on the platform if a steady flow of buyers is available to them. Encourage loyalty in the buyer community. Invest in data systems that allow for dynamic learning of buyer behavior. Use this knowledge to make personal recommendations that add value to the buyer’s experience.

Introduce options in products, devices, and payments that allow buyers to interact on their terms. A concierge-level of service for frequent buyers can further strengthen loyalty. In fact, preferred tools should be made available to both volume buyers and volume sellers.

Key takeaways for marketplace leaders:

• The brand voice of the marketplace becomes more significant as the supplier base grows. The larger supplier base reduces the ascendancy of any individual supplier brand.
• The supplier’s delivery of service is a reflection of the marketplace brand. Therefore, the marketplace must select sellers who align with its brand values.
• Communication between buyer and seller before the purchase can be perceived as an opportunity to remove the marketplace from the transaction. However, it is a critical part of building trust within the community and one that the marketplace must astutely navigate to build a viable brand.

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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.

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Uber is Not a Transportation Company: Lessons for Marketplace Leaders

Uber is a technology platform that powers “movement from point A to point B.” Even though it was founded as Ubercab, it is a technology company first. Through its app, the company connects riders to drivers and eaters to couriers. Independent contractors provide the transportation. These contractors provide rides in various types of vehicles, including rickshaws and taxis. The passenger determines what type of vehicle to call and the driver determines what type of vehicle to drive. 

Uber provides the platform. It derives revenue from the use of its tech. More use and more users of the app generates more revenue for the company, regardless of how they move about. 

Uber-sized User Growth 

Uber users benefit from network effects as a result of its technology. The company, drivers, passengers, eaters, couriers and restaurants benefit from the network. 

For simplicity, let’s focus on drivers and passengers. Let’s say there is a single city with one driver and two passengers. That single driver picks up either passenger at an appointed time. When a second driver is added to the network, the passengers have more options for pick up times and locations. Now, because there are two drivers in the market, more passengers join because there is more availability. More passengers produce the need for additional drivers and the cycle continues. The drivers benefit from having more passengers to pick up. The passengers benefit by having more options in their immediate area. The network is effectuated by the technology.

One risk with this network growth is disintermediation. This occurs when a driver defects, bypasses Uber’s app and has a few or several passengers pay them directly. There are inherent reasons why disintermediation happens less frequently with ridesharing than in other online marketplaces. But Uber’s focus on technology and app features (like the display of wait times and upfront pricing) help to mitigate this opportunity.

Risks in Reclassification

Uber does not want to be in the business of transportation. Management recognizes its gig economy workers as independent contractors. They argue that drivers and couriers get to decide whether, when and where they work. Employees do not have the option of punching out of work by turning off an app. Drivers also provide their own vehicles and work with competitors. (Roughly one in four ridesharing drivers drive for both Uber and Lyft in the U.S.) 

Many jurisdictions, including Uber’s home office state of California, have challenged the classification of drivers as independent contractors. However, with much support from ridesharing lobbyists, Californians passed Proposition 22 in 2020, which essentially allowed Uber, Lyft and other ridesharing drivers to remain independent contractors. That said, Uber understands that it may not be able defend drivers’ independent status in all jurisdictions it operates in and that operating as a “transportation company” increases that risk. 

Autonomous Vehicles Are Coming

Perhaps one of the biggest threats to ridesharing companies is the development of autonomous vehicles. While widespread adoption is not on the immediate horizon, it is anticipated that there will be 65 million self-driving cars globally by 2030. Autonomous vehicles have the potential to materially disrupt Uber’s current business model. The companies developing such could create a new network for driverless vehicles and passengers.

It would not be surprising to see a technology company, like Uber, increase its investment in this space. While the strategy could cannibalize its existing business model, Uber can use the technologically advanced vehicles to defend against new market entrants. 

Key takeaways for marketplace leaders:

• Look for opportunities to remove your company from the transactions in your business. This will help you understand how suppliers may engage in disintermediation. Use your product, processes and people to mitigate these opportunities.
• If your business engages gig economy workers, consider how and why regulators might want to reclassify them. Stay ahead and abreast of regulatory threats in your industry.
• Determine technological advances that might disrupt your business. This exercise will help you identify new product features, key partners and/or acquisition targets in the years ahead.

Email Katherine  | LinkedIn | 626-344-8730 | Download Katherine’s CV (PDF) | Twitter