How to optimise your online marketplace
Utilising the right online platform, deploying an effective strategy … and being patient.
Marketplaces have existed since people first gathered in one place to trade items, and that basic characteristic of marketplaces – having to be located in a specific physical space – remained constant even as marketplaces developed in complexity over the centuries.
But now that limitation is gone. Computer technology and the internet have freed marketplaces from their geographic restrictions, and enterprise marketplaces are increasingly moving online.
For example, the world has been exposed to online marketplaces since the launch of eBay decades ago – a company that was before its time in recognising the internet’s ability to connect players (or as we say at NovaFori, match buyers and sellers), in a particular market. eBay undoubtedly fulfilled an unmet need by providing a conduit to link buyers and sellers. Before online marketplaces existed, geographical limitations pushed the buy and sell demand costs up as participants were only exposed to local ads for their particular region.
However, optimisation of online marketplaces is far from easy. In addition to the right online platform, you must have an effective strategy, robust analytical technology and patience.
A marketplace typically takes more time to seed than most owners initially allow.
Uncertainty about how to proceed is often a barrier to progress toward higher levels of online maturity. Common concerns include:
- What is the right marketplace design for our online marketplace?
- How can we best use technology and data to increase the efficiency of our marketplace?
- How can we measure our return on investment?
- Will we be able to maintain strategy execution?
The first step that any online enterprise marketplace should take toward optimisation is answering such questions. To determine how to reach optimisation, you need a clear vision of what this will look like for your marketplace, along with knowledge of what’s necessary for strategy execution.
Aspects of Optimisation
Optimisation of an online marketplace essentially involves three steps:
Developing a strategy for establishing and growing the marketplace. This strategy should be formulated based on expert diagnosis in areas such as auction theory, data science, business objectives and revenue model. This expertise is necessary to:
- evaluate your market opportunity and develop marketplace vision (new verticals, monetisation strategies, etc.);
- choose the right business model (seller transaction fees, listing fees, subscription fees, enhanced services, etc.) and develop a pricing strategy;
- select or develop the most suitable transactional mechanism;
- develop a plan to speed the growth of the marketplace and a strategy for scaling the marketplace over time;
- identify relevant KPIs to track so success can be seen in the numbers.
Implementing and increasing efficiency of a technology platform for the marketplace. The right platform can generate rapid ROI for a low total cost of ownership. You can build your own platform, but you’ll need a range of internal tech skills, such as UI/UX development and data science. If you lack those internal resources, many prebuilt auction/trading platforms are available. In evaluating platforms, look for these attributes:
- single-to-many and many-to-many transaction functionality;
- enhanced search and filtering for discovery;
- the capability to accommodate complex product attributes;
- customisable branding and UI/UX;
- registration, validation, and bidding mechanisms;
- API & web-services libraries for ease of integration with customer CRM, ERP, etc.;
- buyer, seller, and inventory matching;
- readiness for mobile technology;
- transparent auction/trading processes, including transparency to regulators;
- rapid deployment capability, regardless of the asset class being traded.
Monitoring the marketplace for continuous improvement through data science. Real-time predictive analytics and reporting features enable marketplaces to understand what is happening in the marketplace and to foresee what is likely to happen. This is critical as the marketplace begins to scale out and the volume of transactions surpasses what can be humanly monitored and influenced. They also allow for the intelligent matching of buyers and sellers with the right inventory, at the right time. Software is available for this, unless you can develop your own. Whatever your solution, you’ll want software that has:
- easy data ingestion and storage, so that you can easily combine internal and external data;
- predictive analytics – i.e., applying machine learning and data mining to identify buyer groups, patterns, and behaviours and linking these with your business objectives and assets;
- price discovery – i.e., identifying the right ‘trading situations’ (or transactional mechanisms), and market conditions for optimal pricing and transaction volumes;
- buyer, seller, and inventory matching;
- publishing what the ‘market’ price is (indexation), as well as identifying the factors that drive pricing in the market and quantifying their impact on price;
- a simple, responsive UI with customisable dashboards and models;
- easily searchable data repository with drill-through filtering.
The efficiencies to be gained with an online marketplace will vary based on industry, business strategy, marketplace size, and other factors that differ between each marketplace. However, optimisation of one or two of these three aspects is not enough to achieve maximum value for the marketplace. The challenge is to find the right combination of internal and external resources to address each aspect. You need a particular and hard-to-find combination of auction, business, and technological expertise.
At NovaFori, we have a proven track record of designing online marketplaces in various industries. To find out how we can help you reach new customers, optimise pricing and gain real-time trading insight contact us.
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