We are living in an "Uber for X" era where marketplace startups are revolutionizing almost every industry. Over the past 20 years, we have seen the rise of massive and extremely lucrative marketplaces with pioneers like Craigslist, eBay, and Amazon paving the way. And in more recent years, it has led to the growth and success of shared marketplaces and on-demand services, such as Airbnb, Uber, Lyft, and GrubHub. Today it seems like there is a marketplace for almost every industry and service out there.
Although there are different ways to build a marketplace, it is not an easy business to take off the ground, manage, and scale. Many founders are often challenged by the simple "chicken and egg" problem. How can a marketplace create a demand when there is no supply and vice versa? This two-sided online ecosystem relies on buying and selling services between 2 stakeholders - service seekers ("buyers") and service providers ("suppliers"). And it regularly results in extreme fluctuations between supply and demand. With this in mind, how do these major giants tackle the "chicken and egg" problem? How do they manage their supply-demand imbalance?
How Do Marketplace Startups Measure Success?
Many entrepreneurs believe that the success of marketplace startups is dependent on growing a large user base and the increasing number of transactions. Entrepreneurs measure success with key performance indicators like gross merchandise value (GMV), net revenue, average order values, number of users, and much more. Despite those values being extremely important, according to Julia Morrongiello from Point Nine Capital, the success of a marketplace really boils down to 1 key driver - Marketplace Liquidity.
Marketplace liquidity involves many different elements but to simply put it, it's about creating value for each stakeholder and improving the likelihood of business. It is defined as the number of buyers that a given supplier can service within a specific timeframe. This focuses on guaranteeing that suppliers are getting business while buyers are getting the services they need.
Marketplace liquidity is measured by calculating the "buyer-supplier ratio". This metric is broken down into Buyer Liquidity and Supplier Liquidity. Buyer Liquidity ("Search to Fill Rate") is guaranteeing that the buyer's search leads to an actual transaction. Whereas, Supplier Liquidity ("Utilization Rate" and "Time to Fill") is ensuring that the supplier's operations are fully maximized.
Picture Credit: Point Nine Capital
Here are two examples of measuring the Buyer to Supplier ratio:
1. Uber and Lyft:
Buyer Liquidity: percentage of requests resulted in rides
Supplier Liquidity: the number of drivers that are working full-time (40 hours a week).
2. Airbnb:
Buyer Liquidity: percentage of search sessions that result in bookings
Supplier Liquidity: the number of hosts that are at full capacity
How Contextual Promotions Can Help To Maximize Marketplace Liquidity?
In order for marketplace startups to win, it needs to hit liquidity as fast as possible. Marketplace success is all about personalization. It is about making sure that the services your buyers want are displayed in front of them.
A simple and effective strategy is utilizing a well-crafted, programmable marketing & coupon marketing strategy. Programmable coupon marketing is an advanced form of retargeting and will make your marketplace reach a larger audience. It will also build buyer-supplier trust, maximize capacity, and boost growth. Check out our 5 favorite programmable promotion strategies designed especially for marketplace startups.
1. Promotions Optimized By Time
It is extremely difficult to make a customer immediately purchase a service, especially nowadays with easy access to information, reviews, and alternatives. Therefore, utilizing limited-time promotions will help marketplaces create a sense of urgency. The goal is to ultimately get the customer to act sooner rather than later and to maximize the service's operational capacity. For instance, limited-time offers can pop up during new launches, increase orders during low peak times, or even during special times of the year.
To give an example, food delivery service marketplaces utilize timely-triggered promotions to provide a discount after a certain time, such as 9:00 PM. This approach attracts price-conscious customers, broadening the market. These customers already understand the service but require a final push to make the purchase. Whereas, for the business, this allows the restaurant to get rid of food for the day and ultimately optimizes its inventory to maximum operational capacity.
Success Story: How Does Uber Utilize Time-Sensitive Promotions?
Uber struggled with matching the number of drivers with the demand from riders on its systems. As a result, Uber launched its timely-based promotions focusing on balancing demand and supply. These prices encourage customers to wait longer and book rides for a specific time in exchange for a cheaper price.
So how does this promotion benefit both drivers and riders?
By decreasing the fee for customers during peak times, bad weather conditions, and traffic conditions, the promotion focuses on cutting down the idle time for both drivers and riders. It guarantees people to be at a specific location and time. In other words, Uber is able to keep its on-demand services exclusive and controlled through its automated promotions.
Picture Source: Uber
2. Location-Based Coupons
Managing supply and demand across different demographics for marketplace startups can be challenging. However, location-based coupons allow you to target a particular audience based on its geography. It is especially crucial for locations with high margins, such as long-distance airport rides, areas with fewer bookings, or even services in the suburbs. The key is to capture an audience’s interest by increasing their willingness for trial and customer loyalty. Location-based promotions can be recommended by offering free shipping, discount codes, or even suggesting additional services.
Success Story: How Nextdoor Uses Local Deals To Reach Thousands
Nextdoor is a network connecting neighbors by enabling local conversations to build stronger communities. Nextdoor offers "Local Deals" that connect people in their local neighborhood to different businesses, service providers, and neighbors for hire. Businesses can create "Local Deals" to promote a sale or other incentives to reach customers in the exact neighborhoods they want to target.
How do "Local Deals" impact Nextdoor's business? According to researchers, consumers will typically refuse to travel more than 30 kilometers for their everyday purchases. In addition, 90% of consumers make a majority of their purchases within 15 minutes from their home. Therefore, Nextdoor's Local Deals supports local businesses in the United States to target specific audiences that will garner an increase in sales. Here is a testimonial from The Toasted Yolk Cafe, a Texas fast-casual chain:
“In just one month, our Local Deal helped us reach tens of thousands of people who we know live in our target neighborhoods. That’s huge for us.” - Nextdoor User, Tom Worley, The Toasted Yolk Cafe
3. Vendor-Specific Promotions
Suppliers are a crucial variable in marketplace startups. Multi-vendor marketplaces are extremely difficult to manage as stakeholders vary from small family businesses to big multi-national corporations. Vendor-specific promotions are used to create value for different stakeholders by increasing their activity and maximizing their sales potential. The promotion varies from showcasing add-on services, promotion of new suppliers, or even suppliers that are being booked less.
Success Story: How Etsy New Coupon Tools Help Attract & Retain Customers?
Etsy is a global marketplace bringing people together to make, sell, buy, and collect unique homemade items. Etsy announced its new sales and coupon tools that improve the buying experience for all suppliers. The sales and coupons tools allowed suppliers to easily schedule and run promotions, easily redeem coupons, and gain detailed insights about the promotions.
Picture Credit: Etsy
How does this benefit specific vendors?
A survey stated that 71% of Etsy buyers said they look for the best deals on products when shopping, such as coupons and promotions. Furthermore, promotions allow your business to be featured on home pages or as product recommendations. As a result, it is crucial to implement "Thank You" promotions, single item discounts, and new product promotions. This provides your business and products to gain more coverage, attracts new customers, and encourages repeat business.
4. Rewarding Reviews
It is common knowledge that products and services with reviews are more likely to be purchased than those without. According to research conducted by Invesp, it showcases that by improving your rating by one star, it can result in a 5-9% increase in business revenue. However, one negative review can result in losing approximately 30 customers. Therefore, utilizing positive reviews in marketplace startups will increase trust, and customer loyalty, and build a strong brand presence. Loyal buyers are more likely to be repeat customers and share their positive experiences which will ultimately increase the trust of the suppliers.
Success Story: How ClassPass Reviews Increase Local Business?
ClassPass is a marketplace for finding and booking fitness classes in your area with their unique fitness pass. However, ClassPass has changed its business model many times over the years. When announcing a price hike in 2017, ClassPass lost 10% of its user base. But as of January 2020, ClassPass closed $285 million in Series E funding and brought its valuation to $1 billion dollars.
Picture Credit: ClassPass
How did reviews change the business landscape for ClassPass?
Health and fitness customers enjoy familiarity, therefore they are more likely to stay in their current studios and gyms. But with the right reviews and insights, a customer may be encouraged to travel an extra 10 minutes to try new classes and studios. Data shows that reviews indicate an 18% increase in user exploration of different ClassPass studio pages. As a result, reviews empower users to try classes that may have been originally overlooked. This allowed ClassPass to gain repeat business, increase usage of the application, and support its suppliers.
5. Supplier Referral Program
Similar to reviews, referrals are a staple to instilling trust, and customer loyalty and fundamentally increasing sales. In a service marketplace, customers tend to be highly skeptical of new services and businesses. However, customer referrals are one of the best leads generation and marketing tactics out there. Referrals are extremely low cost, have faster processing times, and normally have fewer objections.
Success Story: How Does Airbnb Utilize Referral Marketing To Boost Sales?
Today, Airbnb is valued at $38 billion and has over 2 million people staying in an Airbnb per night globally. But it did not have overnight success. In 2009, Airbnb was close to shutting down with its revenue flatlining at $200 a week for months. Since then, Airbnb has gained the trust and loyalty of customers by achieving high liquidity. Companies like Airbnb have utilized referral programs to exponentially grow their sales. The Airbnb referral program allows members to earn credits towards their next homes and experiences booking by referring new users to the system.
How did Airbnb utilize referrals to change its business landscape? Growth for Airbnb is about accelerating awareness and driving conversions. Referrals allowed Airbnb to target a new buyer base that they originally were unable to tap. Furthermore, this system allows Airbnb to make each member a sales and brand ambassador that will create more ambassadors (with simply no cost). After the first year, the Airbnb referral program drove 900% year-on-year growth for first-time bookings.
6. 'List & Earn' - a Supplier Commission or a Bonus Reward Promo
Another way to balance a seasonal or product-specific demand is to offer a promotion or a bonus reward to Suppliers, in order to quickly boost supply and meet the demand. Offering decreased (or increased, depending on your business model) sales commission, would make your offering more interesting than your competitors and as a result, engage more consumers - the demand side. Having a wider catalog also increases the customer trust in your brand on both sides.
When aiming to boost supply seasonally, a great way is also to incentivize Suppliers to list more services or expand their offerings. Especially during high-demand shopping sprees like Black Friday or Christmas Holiday, you want to make sure you have enough stock.
Success Story: How did Vestiaire Collective increase its stock by incentivizing supply?
Vestiaire Collective is an online marketplace platform, that enables people to buy and sell luxury, pre-owned fashion products globally. Born in France, the platform prides itself in "a highly engaged activist community and its rare, desirable inventory of 3 million items that includes 140,000 new listings every week“. So how did they reach that despite having a large market competition?
Vestiaire heavily incentivizes Sellers to increase their stock, offering a variety of rewards. Their supply promotions include taking a 0 in sales commission, offering a cash bonus or voucher lotteries. What's more interesting, they also use rewards to urge their Sellers to increase their number of Followers or Product Likes (consumers can mark products as their 'favorite', thus saving the products in their account). Something that can also be translated into urging Sellers to boost their product or vendor reviews.
Here are a few examples of our favorite Vestiaire Collective supply promotions:
The campaign above invites Sellers to list more items, implementing a gamified reward system - the more items they list, the higher voucher they get.
To improve the Buyers' trust and boost visibility, Vestiaire implemented a reward to convince Sellers to increase their following on the platform.
Whenever Consumers are after certain fashion Brands, Vestiaire boosts the supply quickly, offering no sales fees for a short period of time.
Conclusion
Marketplace startups are growing rapidly with no indications of stopping in the foreseeable future. Marketplaces are shaping how business is being conducted. In order for founders to get their marketplace to win, marketplace liquidity will be the answer. Supply-demand imbalance is inevitable, therefore proactivity will allow founders to be the new "Uber for X." Build a marketing strategy with programmable couponing that is well thought through and actually supports your bottom line in the long-term.
Learn more about how you can integrate promotional automation across your e-commerce platforms and leverage contextual incentives to support your business.
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