Starting a marketplace is a climbing task on its own. But scaling a marketplace to more significant heights needs numerous pre-requisites and excellent business etiquette. Moreover, if there’s ever a good time to scale up your online marketplace, this is it. According to research, in 2021, the top online marketplaces worldwide sold goods worth US$3.23 Trillion. Also, sales through online marketplaces like Amazon, Alibaba, eBay, and other big players accounted for two-thirds of eCommerce sales globally. But where do we start at?
Scaling Online Marketplaces- The First Steps
When scaling a business, multi vendor marketplaces differ from a regular eCommerce store. The significant difference between the two is that you have to work with both sides of the supply chain for a marketplace. Another major difference is the network effects. The number of sellers is directly proportional to ease of customer acquisition, as more buyers are likely to shop from a marketplace with a wide range of products. However, to create this virtuous cycle, marketplace owners must first decide whether to expand in the existing market or enter new markets.
In this blog, we’ll answer that question and more to help you pilot into the rapid growth of your multi vendor marketplace.
The Marketplace Owners’ Dilemma – Expand in Existing Market or Enter New Markets?
Expanding the existing market or entering new markets is a common question in the minds of the marketplace owners after successfully generating the first phase of sales. Both the options have some pros and cons. Anyone or both can apply to your business model and scaling aspirations.
So, which one to choose?
Expanding in your existing market is undoubtedly the easiest & fastest way to scale a marketplace. You already know your target audience, competitors, and the overall market. You have generated the first sales with your current business model, so the only thing you have to do to scale is to expand your product range. But, there is a downside to this approach. You’ll reach the growth limit faster than you imagined. So eventually, you’ll have to enter new markets to scale your marketplace further.
Entering new markets will have you stumble harder initially, but it’s also more rewarding. You can tweak your current business model that suits unique market needs, for starters. Moreover, it’s virtually far-fetched to reach growth limits with this approach as there are countless opportunities in the industry. However, keep in mind that you don’t spread yourself too thin in too many markets all at once because it will only lead to unnecessary investments with zero returns.
Janet Bannister, the founder of Kijiji.ca, a popular classifieds website based in Canada, firmly believes that the most efficient and low-risk way to scale a marketplace is by mixing both approaches.
Uber, for example, followed this exact approach for scaling its service. Firstly, the company started offering rides in San Francisco, and after ten months, in New York. Once it succeeded, it applied the same tactics in new locations and eventually entered international markets, starting with Paris. Once the company gained critical mass in local and international markets, it decided to go deeper into the existing markets by launching a new service – UberEats.
The takeaway here is that having a delicate balance of both approaches is the optimum way to scale a marketplace while considering the following best practices to scale your eCommerce business.
10 Key Points to Consider for Scaling Your Marketplace
1 – Balance the Demand & Supply Chain
All marketplaces from now and beyond need to be customer-centric to thrive in this hyper-digitized era. Customers are the building blocks of an eCommerce business. If there are no customers, a marketplace dies. But, to attract customers, you’ll have to focus on the supply first. You can grow supply in your marketplace by inviting more sellers to join your marketplace. This brings us to our second point.
2 – Build your Customer Base
Once you’ve built a robust supply chain, the next step is to make your customer base. Fortunately, attracting customers to your marketplace is a reasonably easy task compared to attracting sellers. You can kick off with a newsletter, launch hard-hitting marketing campaigns, and roll out promotional offers. The point is not just to acquire them but to retain them. You can only build a solid customer base if you attract new customers and make them loyal buyers of your marketplace, which is the basis of our third point.
3 – Instill Trust in Customers
Once you have sufficient products in your marketplace, attracting visitors becomes relatively easy. However, the hard part is to turn those visitors into loyal customers. And to make that happen, you need to instill a certain level of trust among your visitors. Some ways to achieve this are transparency, customer-friendly policy, reviews & ratings system. For instance, Uber developed a review and rating system for both drivers and riders. This, in turn, helped the company to get rid of low-rating drivers, while the drivers could also check the ratings of customers before offering a ride.
4 – Enter New Niches
Once you’ve developed a strong core in one market, move to introducing new product categories and entering new niches. It is always wise to start small and grow from there. Amazon, for example, initially focused on selling books when it was launched in 1994. Bit by bit, the company expanded its customer base, established its brand name in one market, and then introduced new product categories. Today, Amazon is one of the biggest online marketplaces across the globe.
5 – Don’t Pivot Too Frequently
Scaling a marketplace is no piece of cake. It takes a humongous amount of time & effort to realize the outcome. And if you change your plans too frequently, you’re unlikely to see any results. Consistency is the key here. You need to build a solid foundation in each new market you enter, and building a foundation takes time.
When Uber was launched, its goal was to steal the customer base of a yellow taxi, and it did so by undercutting the fare. And even if the company was losing money initially, it didn’t switch from the plan until it successfully acquired a solid customer base. Today the company has finally established a solid foundation across the world.
6 – Target High-Value Customers
Another way to acquire a massive customer base and scale your marketplace is by figuring out high-value customers and targeting them first as they act as a magnet to other visitors. For instance, to target high-value users in its initial days, the marketing lead of Tinder personally visited numerous college campuses and convinced the girls to join the platform. Then she saw male fraternities, and after showing them a lot of familiar faces, they joined the forum as well.
7 – Pay More to Earn More
Paying the most valuable side of your marketplace isn’t a flawed approach but rather an effective tactic to encourage user activity. You need to figure out the most practical side (supply/demand) of your market, and whoever is more valuable (buyers or sellers) accredit them for their participation.
When Classpass was launched, it identified its most valuable side, the supply side, and subsidized them. It paid the gyms in its target markets upfront to join its platform.
8 – Build a Solid Community
Building a solid community around your marketplace can be beneficial to a great extent. It allows you to get closer to your users, generate more activity, and exchange knowledge. The good news is, there are lots of strategies you can use to create a solid community around your platform.
Yelp, for example, regularly throws a lot of parties across the United States for the “Yelp Elites” users. These parties ultimately motivate other Yelp users to become more active on the platform to join the Elite community.
9 – Reach Two Sides at Once
Sometimes, attracting buyers and sellers at the early stage turns out to be quite tricky. To make things easier, you should look for opportunities that allow you to meet them where they are. Look for the target audience who can act as both buyers and sellers.
Etsy leveraged this strategy perfectly when it noticed that people who make handmade goods are also the people who are highly likely to buy them. So, it reached out to this user group and successfully created a loyal customer base for its marketplace.
10 – Maintain Uniqueness
To succeed in the marketplace industry, you need to stand out from the competition. Understand the buyers’ mindset and approach them with unique offerings to attract them.
When Airbnb started its journey, there were a lot of well-established competitors. Yet, Airbnb was able to steal the show with its unique offerings. Unlike other companies that only allowed full space rental, Airbnb provided an option of shared space rental, and people loved it. And this unique offering is a significant reason Airbnb was able to compete in the market and succeed as well.
Summary
Although, every strategy mentioned in this post might not apply to your marketplace. All you need to do is take a look at your marketplace, keep the above strategies in mind, and identify the strategies that will be best suited for scaling your marketplace.
If you haven’t launched your marketplace yet and are looking for a solution to get started, we highly recommend trying RocketBazaar.
RocketBazaar is the most popular, enterprise-class Magento multi vendor marketplace solution equipped with every feature you may ever need. It is a fully customizable, highly flexible, and reliable marketplace solution that lets you create a multi vendor marketplace like Amazon & eBay.
