Driving adoption and understanding user behaviour in online marketplaces
Today, we take a deeper dive into approaches and tools that help drive both buyer and seller adoption. We are also going to discuss some ways to help understand user behaviour, as well as considerations to assess future value. Some of the ideas presented are derived from: ‘A Guide to MarketPlaces’ by Boris Wertz and Angela Tran Kingyens.
Every marketplace has a few things in common. First, they all have two sides: on one side is the seller (supply), on the other side a buyer (demand). Second, the marketplace acts as an intermediary and bring these two sides together.
In the initial stages of developing a marketplace, driving adoption by both sides is obviously a very important element in gaining traction for the marketplace. There are many tactics that will help gain the attention of both sides. For instance, implementing a full-blown marketing strategy including promotional materials as well as other activities including roadshows in key geographical locations and meeting with key users.
The article outlines additional considerations that will enhance the marketing strategy and ultimately drive adoption such as:
- Building traction in smaller verticals, such as targeting one geographical marketplace, before expanding into new territories.
- Identifying opportunities to bring unique inventory to underserved markets.
- Creating a ‘network effect’ – a network effect kicks in when a new member is added to the network, as it increases the value of the product or service to all other users such as cost reduction, more liquidity, and a stronger community that develops deeper relationships over social networks.
However, even with a targeted strategy the authors state:
“The earliest days in a marketplace are a tricky time. There’s a chicken and egg problem when it comes to supply and demand: customers need supply, and suppliers need customers. But it’s nearly impossible to ramp up supply and demand in lock step. We’ve found that in most cases it’s best to focus on building up the supply first. That’s because in the early days there’s more incentive for sellers to invest their time. There’s zero motivation for customers to stick around without any inventory.”
- Focusing on unique inventory: target suppliers that don’t already sell online (through targeted marketing and promotion of the website). Oftentimes, these types of sellers will typically also bring along some of their own buyers – helping ramp up your customer base at the same time.
- Convincing existing sellers to list on your platform: again, through actively marketing the website, as well as other tactics such as a direct email campaign to those who use your competitors’ platform.
- Bringing customers to a provider: approach a provider with a customer opportunity already in hand.
Another key aspect that will help drive adoption is creating efficiencies (without changing behaviour) by providing tools that aren’t part of what would be considered the primary marketplace. For example, delivering some value that they might be paying another provider for, including creating an Inventory Management System that allows sellers to press a button to list inventory.
As your marketplace starts scaling, it is essential to understand what works and what doesn’t, identifying where things are clicking on both the supply and demand side and review activity in certain geographies, audience segments, and price points.
However, beyond these basic strategies, there is an increased need to understand the user behaviour and what’s happening in your marketplace – next we zero in on heat maps and data-driven analytics.
Understanding User Behaviour: Heat Maps
In the beginning stages of building your marketplace, one interesting way to understand user behaviour is implementing heat maps to track mouse movements to see how people interact with the system. For example, if you find your users are spending a lot of time on a listing page and their mouse movements show they’re examining attributes of listings, you might consider expanding this area of your offering. Providing better filtering or comparative tools to figure out what assets are more relevant to them.
Another way to help understand user behaviour is using data-driven analytics. There are various ways that they can be used for the benefit of marketplaces. Such as:
- Trading Mechanism Design – Using data science to help pick the right trading mechanism(s) that lead to the best outcomes for buyers and sellers —> more likely to be adopted if the means of transacting suits the markets’ participants;
- Indexation – Publishing what ‘the market’ price is, as well as identifying the factors that drive pricing in the market and quantifying their impact on price, so that buyers and sellers have more information on which to base their own idiosyncratic pricing decisions;
- Forecasting Market Movements – Providing some forecasting on where market prices are likely to go, again so that buyers and sellers have more information on which to base their own idiosyncratic pricing decisions;
- Buyer and Seller Matching – Using machine learning models, working on historical buyer and seller behavioural data, to match sellers only to those buyers with the highest predicted likelihood of placing a bid on their inventory (likewise can match buyers to sellers as well).
Measuring Success and Assessing Future Value
Building and maintaining a marketplace is an iterative process. A large part of which entails regular reviews of tools and processes to assess what is and isn’t working, that will ultimately inform any decisions to keep the business moving. There are three overall marketplace metrics that can help measure success and inform future value.
- Gross Merchandise Volume (GMV) – is the total sales value for goods sold or services purchased through the marketplace over a certain time. GMV is the most important marketplace KPI and we recommend tracking its growth rate on a monthly and yearly basis, and understand its makeup by customer acquisition channel. Revenue is the income that the company receives from facilitating connections in the marketplace – derived from transactions and listing fees, and/or the offering of premium seller services. Business efficacy can also be evaluated by calculating the total customer acquisition cost (CAC), of buyers and sellers as a percentage of revenue.
- Seller Metrics – seller metrics can be categorised into several different KPIs such as: number of sellers, seller growth rate, number of listings, listings growth rate, average price listing and CAC.
- Buyer Metrics – buyer metrics can also be categorised into several different KPIs such as: number of buyers; buyer growth rate, average $ amount purchased by buyer, average number of orders per buyer, average order growth per buyer, and CAC.
In order to be successful every marketplace has to establish itself as an effective intermediary between sellers (supply) and buyers (demand). But first, you have to increase awareness of your brand to stand out from your competitors to help drive adoption. There are a few ways to do this including roadshows and meeting with key users.
Some additional considerations that will help inform the marketing strategy and ultimately drive adoption include: targeting one geographical location to start with, bringing unique inventory to underserved markets and creating a network effect.
Another key aspect that will help drive adoption is creating efficiencies (without changing behaviour) by providing tools that deliver value that they might be paying another provider for such as creating an Inventory Management System.
Once your marketplace starts scaling, using heat maps and data-driven analytics such as the ones outlined above will help you understand how your users are interacting with your marketplace. It is also imperative to iterate your marketplace and explore tools and evaluate current processes to help you decide when and how you’ll iterate to measure success and make decisions about future value.
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