4 Challenges That Marketplace Businesses Face, and How to Overcome Them

Ever hear of the 'chicken and egg' problem? Your marketplace business may be facing this challenge already.

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By Anand Srinivasan • Sep 18, 2015


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Starting a marketplace business is hard. For one thing, you have two sets of customers: buyers and sellers. And, without a quality list of buyers, you cannot convince the sellers to get on board. Without these sellers on your platform, buyers have no incentive to use your service, either.

This is called the "chicken and egg problem" and is one of the biggest challenges marketplace businesses face.

Related: 4 Harsh Marketing Lessons From 4 Small-Business Owners

But chickens and eggs are not their only challenge. An array of others, some of them unique, await any marketplace business. Here is a list of some of those challenges and ideas for how they may be overcome.

1. Product presentation

In a typical ecommerce business, the owner retains control over the way the product and its details are presented to the customer. It is not uncommon for these owners to hire models and professional photographers to help create the accompanying promotional images. However, in a marketplace setup, business owners have little control over how their products are presented. The problem, according to Mark Dorsey, co-founder of Bonanza.com, is that in the online space, a lot of sellers are still "learning their craft."

Solution: Bonanza worked out an educational system that guides sellers through the process of creating a successful listing, tutoring them in how to create good photographs, ad copy and other features they need. The website also offers online image-processing tools for sellers to convert amateurish product photos to high-quality product images.

2. Customer service

Conventional ecommerce stores have a centralized customer-management system which makes it easy to field customer queries. As a result, when it comes to buyers' experience, the buck stops with the store owner. In a marketplace, however, buyers who are unhappy with the product or service one of the sellers provides will typically direct their ire toward the marketplace, instead of the respective seller. This is a recurring problem which can often escalate into a PR problem or a social-media backlash.

Solution: According to Sean De Clercq, CEO of Kickfurther, the answer lies with setting up the right expectations among buyers. He points out that a marketplace cannot survive if it is expected to perform the duties of its constituents. Companies like Alibaba and eBay are successful because they have been able to communicate to buyers that when a product or service defect exists, it is the factory or seller, not the platform, that is responsible. Creating an expectation that both sides are responsible for fulfillment of their objectives is critical for the growth of a marketplace.

Related: One Way to Navigate the Business App Marketplace

3. Supply-demand gap

The chicken-and-egg problem of growing buyers and sellers at the same time is just one part of the puzzle. Oftentimes, marketplace businesses will face scenarios where the gap between supply and demand is startlingly high. For instance, a seller that provides a huge chunk of sales may back out, leaving too many customers and too few sellers. On the other hand, a corporate buyer may opt for another platform, leaving sellers high and dry, with little in the way of returns.

Solution: According to Justin Knechtel, VP of marketing at Swap, an online consignment marketplace, the solution lies with the marketplace business building a solid relationship with customers (both buyers and sellers). This way, when something does not work out as planned, customers will still be ready to extend a long rope.

4. Trust

While building relationships is a great way to earn trust from buyers and sellers, this alone may not solve the problem. Once buyers realize that, while your marketplace business is trustworthy, but your individual sellers may not be, a trust deficit may arise. And that may impact the conversion rate on your platform.

Solution: The first part to this solution lies in properly vetting the sellers in order to prevent buyers from potential scammers. Shaun Savage, the founder of GoShare, a marketplace that connects pickup drivers with customers who need hauling, says that a transparent peer-review system is an absolute must. One way to accomplish this may be to ask customers whom you have worked with to review your business on services like Yelp. When new customers see these reviews, they may be more willing to give your product a try than they would have in the absence of verifiable third-party reviews.

Related: Online Marketplace Abe's Market to Start Funding Organic Businesses

Anand Srinivasan

Founder, Hubbion.com

Anand Srinivasan is the founder of Hubbion, a free-to-use project management tool for small and medium businesses. He is the author of How We Did It.

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