Building A Marketplace – Adding Value to Sellers and Buyers

With Mason Park, we’re a marketplace of independent retailers that serves a consumer audience. To build our marketplace we needed to provide value to both sides – the businesses on our marketplace, as well as the consumers who would shop on our marketplace.

To determine what value we could bring to sellers and buyers, we listened, observed, and placed ourselves in the shoes of sellers and buyers to understand what they cared about.

Here, I’ll look at some of the factors we looked at and could be applied to build an online marketplace of sellers and buyers.

Adding Value to the Sellers

For the sellers on a marketplace, the overall value of a marketplace is the impact to the bottom line. A seller joins a marketplace for business success, whether that’s through increased revenue, profits, or both, and perhaps with considerations over the short or long-term effects.

There are a few areas that could affect business success and that which a seller could evaluate a marketplace on. These areas are also opportunities for a marketplace to provide value.

The better a marketplace could add value on these dimensions, the more attractive a marketplace would be to a seller.

Sales Potential

Bringing sales to a seller is a fairly straightforward method of adding value. For example, small artisan sellers who might not receive any traffic to their own sites might join Etsy because of the traffic and sales Etsy brings. At the other end of the spectrum, Amazon receives so much traffic that more and more brands, small and large, are offering their products for sale on Amazon.

However, profit margins and any short-term or long-term impact to sales across other channels would need to be taken into consideration. Groupon promised high sales volumes to its sellers, but the discounts and commissions required made the marketplace unsustainable for many sellers. Cannibalization of sales may also be a consideration, particularly if the marketplace is known for offering specials to entice shoppers.

Screenshot 2017-08-23 at 6.04.30 PM

Discounts and commissions on Groupon have made it unsustainable for many sellers

Services Provided

A marketplace could add value to sellers by providing services that reduce effort and costs or adds value for sellers.

For example, a marketplace could offload from the seller undesirable or costly aspects of e-commerce such as customer service, payments, or shipping. The convenience alone may be valuable to sellers, but if the services are provided at a cost that is also lower than what it would cost the seller themselves, the value of the marketplace becomes even greater.

In Amazon’s case, almost every aspect of the order logistics (e.g. warehousing, payments, customer service, shipping) can be offloaded to Amazon from the seller. This may not only be valuable from cost and convenience, but it may also improve the customer experience (e.g. Amazon FBA includes 2-day prime shipping for customers).

Customers

Since a marketplace interfaces with customers and is usually an acquisition channel also, a seller would be keen to understand a marketplace’s impact to the seller’s customer base.

A marketplace may reach new customers, perhaps in a desirable new segment or region, or it may make existing customers happier via an improved experience. Both of these would be valuable to a seller. With Mason Park, we enable local sellers to reach a targeted nationwide audience which may have been more difficult for them to reach on their own.

However, on the other end of the spectrum, the quality of the customer or impact to existing customers could also be negative. A marketplace that attracts the wrong type of customer or provides a negative experience to existing customers would be highly undesirable to a seller. Groupon famously received backlash from many sellers for the troublesome and unloyal customers it brought to their businesses.

Groupon backlash

Groupon not only forced deep discounts onto sellers, but it brought many businesses undesirable customers

Brand Value

Sellers often have their own brand to manage and build and this type of seller would want to examine the impact and fit of a marketplace to its brand.

On the positive side, the marketplace enhances a seller’s brand due to the marketplace’s own brand equity and positive associations. For example, Farfetch is known as an exclusive luxury goods marketplace, and this brand association would have a positive impact on smaller luxury good sellers. On the negative side, a marketplace can erode a seller’s brand by diminishing its importance or with negative associations. Currently, Amazon’s brand image of low-cost and efficiency would likely be undesirable to luxury brands, despite the enormous traffic Amazon brings.

Ideally the relationship is synergistic and both the seller and marketplace brand benefits from the other. For example, Nike has in the past offered extremely rare and desirable sneakers for auction on eBay. eBay benefits from the cachet of rare and desireable offerings from a major brand, and Nike leverages eBay’s brand as the world’s foremost online auction site.

Amazon Adidas storefront

Adidas has a branded storefront on Amazon, enabling Adidas to build their brand within Amazon

Adding Value to Buyers

Buyers often have the option of purchasing goods through channels outside of a marketplace, but often choose marketplaces for various reasons, whether it’s convenience, selection, price, or something else.

Here, I’ll highlight some dimensions of importance to buyers for a marketplace.

Inventory Breadth and Depth

Buyers go to a marketplace seeking products. For product inventory, marketplaces must have enough inventory in a certain area such that the customer feels there is sufficient choice to select from. This would typically mean that there is more choice than if the buyer went to an individual seller than through a marketplace. For example, on Mason Park, we focus on quality made and artist driven goods. Within this realm, we strive to have the best selection of quality goods from independent boutiques, which would be a better selection than one could get from visiting any individual seller. While Mason Park is narrow on inventory focus, we aim to go deep so our customers can find something they want from what we offer.

Larger marketplaces such as eBay would have not only depth of inventory, but also breadth. On eBay, customers can expect to find a large selection of items in categories as varied as automobiles to collectible toys to electronics.

It’s important for the marketplace to convey clearly what the marketplace offers, so that buyers can browse with the right expectations.

Unique Marketplace Value

A marketplace must provide some type of value to the buyer. Beyond the inventory breadth and depth, this can be in many forms including the prices, the curation, or the browsing and purchasing experience.

Marketplaces such as Wish have flourished for its simple and mobile focused marketplace for buyers to purchase extremely low-cost goods. eBay often has a massive range of used items and the auction format provides utility to many buyers. Amazon is well-loved for their selection, prices, and outstanding shipping and customer service.

Other marketplaces add value through information provided to buyers. Buyers may enjoy visiting marketplaces because they’re viewed as an authority on areas of interest and may inform or entertain buyers. For example, fashion marketplaces such as Spring or Farfetch often feature editorial content and seasonal edits to educate buyers.

Thus a marketplace needs to have a strong understanding of the unique value it will bring to the buyer and their experience.

Screenshot 2017-08-22 at 4.13.44 PM

Farfetch adds also adds value to buyers through its position as an authority on fashion

Trust and Safety

Trust and safety are necessary for a buyer purchasing from any seller. As marketplaces have varying levels of involvement with the actual purchase transaction, trust and safety can become a crucial aspect to a buyer’s use of a marketplace.

Marketplaces such as Amazon, which can handle virtually all aspects of the transaction offer a high level of trust and safety to buyers on the marketplace. On the other end of the spectrum, buyers on Craigslist know that they must exercise caution as fraudulent and malicious sellers exist on the marketplace.

Several tactics have been done to increase trust and safety of marketplaces for buyers, including seller rating systems, buyer protection programs, and seller screening. eBay motors is a great example of adding multiple layers to build trust in purchasing a car from its marketplace. eBay motors relies on eBay’s general member profiles and rating system, and eBay motors as well offers buyer protection services for transactions completed on the marketplace. Regardless of the tactic, buyers need to trust that their transaction will be trouble-free.

Screenshot 2017-08-22 at 4.07.23 PM.png

eBay Motors offers various features to build trust and safety, including the ability to order inspections and reports and a purchase protection program

Comparing Marketplaces

For fun, I’ve mapped out a few of the major online consumer marketplaces as well as Mason Park to illustrate where each falls.

With varied strengths and focus, it’s clear that marketplaces attract different types of sellers and buyers. While there’s certainly overlap among some of the larger marketplaces, it’s up to the marketplace to determine what sellers and buyer they want to target and how they’ll position their marketplace so that it offers value to its intended audience.

To sum up, some areas a marketplace could look at to provide value to sellers and buyers are:

Sellers:

  • Sales potential
  • Services provided
  • Customers
  • Brand value

Buyers:

  • Inventory breadth and depth
  • Unique marketplace value
  • Trust and safety

Overall, any marketplace should have:

  • A clear understanding of why their sellers and buyers will want to participate
  • A clear understanding of the marketplace position relative to other marketplaces

With this in mind, we’ve been able to develop partnerships with our sellers and offer differentiated value to buyers who visit.

As e-commerce continues to flourish and traditional retailers continue to fade I think it will be interesting to see how the large marketplaces continue to evolve, as well as the new marketplaces that continue to arise.

 

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Agree, disagree, or have further perspectives to share? Let me know in the comments. I’m always curious to understand how we can improve.

 

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