Ways to add value to your marketplace and avoid leakage

We’ve already discussed ways that you can make money from a marketplace, with ‘owning’ the entire process and charging a commission from each transaction usually being the most lucrative option.

The reason this works well is because you are extracting value from everything that moves through your site. It is worth remembering that if you take this route, you need to make sure that in return you are providing your customers and vendors a lot of value in return, otherwise they will invariably find a way to complete their transactions without involving you. This is what is known as marketplace platform leakage and something that all marketplace founders should consider as a potential problem.

How can you avoid platform leakage on your marketplace?

As we’ve already mentioned, there are two parties that you need to provide value to – your customers and your vendors. Your means to do this will depend on your idea and your multi vendor marketplace – whether you’re dealing with high or low value products or services, if you are selling or renting etc. There’s a few ways that you can demonstrate the added value that your marketplace is offering to keep people transacting within it.

Firstly, security is a really big part of marketplace usage. Individuals like to feel safe using your site and this added value is a great way to avoid platform leakage. People are going to be more comfortable using a marketplace with good reviews and a good reputation than they are trusting a stranger.

In addition, if appropriate, you could offer insurance (assuming payment is made through your payment system) in the case of an item being broken or undelivered. This will all encourage people to stick within your site rather than being tempted to deal with each other directly. 

If insurance is cost prohibitive, you could offer a deposit system on rented goods instead where people will pay a deposit that is returned if the item is not damaged. Although if deposits are too large they could put people off. 

For goods being sold rather than rented, there can be problems with items not being received, or broken. This can cause problems for vendors so your marketplace can protect them by mitigating this risk by directly handling all disputes. This doesn’t go without financial risk though, so is another consideration when choosing a payment method as if you choose a payment vendor such as Stripe, a seller protection program is offered as part of the process. 

Sometimes it’s simply enough to have a contract to make everyone feel secure, and behave in the correct manner.

We’ve already emphasised the importance of reviews, they can be a great way of making people feel more comfortable and consequently secure with your marketplace. It gives both vendors and customers an incentive to communicate and trade to the best of their ability as this will increase chances of future sales and transactions. Vendors with good reputations invariably make more sales and are consequently are able to charge higher prices compared to those with no, or poor, reviews. 

Aside from security, marketplaces where all vendors offer professional services, will benefit from other added value. That’s because it would be very easy once a service had been provided, for the vendor and customer to take their business relationship away from your site if they are comfortable with each other, plus the service could be offered cheaper without your commission. 

There are ways to overcome this possibility. For example, become a Software-as-a-Service tool to your vendors so that some of their more tedious business tasks are automated. Once they have used that service they will be less likely to move away from it and lose those tools. 

Or it could be that your marketplace offers an inbuilt scheduling tool if services need to be delivered at a precise time, a tool to manage inventory or one for handling delivery. Whatever it is that makes life easier for your vendor will work in your favour over the long term. And by providing such tools, your commission will feel like a small price to pay in return so everybody wins.

Learn how to add value to your marketplace?

The one added value offering that both vendors and customers have in common is building an excellent reputation. But generally, customers want to see a different sort of added value to vendors. To them, an easy transaction is what’s important. Customer leakage can be reduced by keeping the steps simple in the transaction process, increasing trust, making payment easy etc. 

Research has shown that the easier you make the payment process, the more customers will buy. Similarly, if a purchasing process is too laborious people will simply give up. We talk more about purchasing options and their pro’s and con’s in ‘Understanding the buyer journey on your marketplace’ and ‘Understanding the transaction flow on your marketplace’. 

Along with added value there are a couple of other things that you can take into account when trying to reduce marketplace platform leakage but bear in mind, added value is always going to be the most successful, but these are nice ‘add-ons’.

Firstly, open communication is often appreciated, if people understand that your site only works with commission being paid they may think twice about leaving and enjoy being part of your marketplace community.

Secondly, you might want to make it difficult for people to share their personal contact details with each other, for example, remove phone numbers and email addresses from direct messages (in the way that Airbnb do), or remove the ability to direct message entirely and keep everything ‘public’. That’s not the same as stopping a messaging system altogether as people do need to communicate and that would only cause early frustration with your marketplace platform.

In conclusion, owning your own purchase process goes hand in hand with providing enough value to make people want to keep using you. That may be through security, trust, providing useful additional tools and making the whole process easy. In other words, give something to vendors and customers alike and they won’t want to do any transactions other than through your marketplace.