The Marketplace Ecosystem: How to Serve Two Types of Customers – Buyers and Sellers
Written by Yapstone
Business //August 16
When you sit down to build a marketing strategy, most resources point you to those
tried-and-true “Marketing 101” steps that tend to apply to almost any business. No doubt you have heard them before: build your brand, differentiate with value propositions, and who could forget everyone’s favorite marketing maxim: know your customer.
But what if your business is a marketplace platform? As a marketplace, you collaboratively connect buyers and sellers. It sounds straightforward and yet if you were to follow the marketing recipe above, the path to defining your customer becomes twice as complicated. Is the buyer your customer? Or is it your seller? Marketplace platforms have the distinct challenge of servicing two distinct customer audiences. The good news is that with some extra care, you as a business owner have the unique opportunity to collect on happiness, loyalty and revenue on both sides of the equation. Are there pitfalls if done carelessly? Absolutely – but double the risk means double the reward.
Which is why it comes as no surprise that negotiating the balance between serving two different customer audiences is often a common mistake made by marketplaces. In this piece, we are going to examine the benefits, drawbacks and repercussions of prioritizing one customer audience over the other and how you can avoid making the same mistakes in your marketplace business.
Building an Audience
“If you build it, they will come.” It makes sense, right? Over the past several years post-bubble, technology companies and marketplace platforms have grown up in a soft, supportive environment where ‘audience building’ was synonymous with empirical success, regardless of the path to profitability. While offering up theoretical plans for monetizing a captive audience, tech start-ups could be bought, sold and funded based on active user counts alone. And what happened next was nothing short of predictable: investor appetite faltered.
Take a look at Twitter. Shortly after Twitter’s 2013 initial public offering (TWTR), share prices soared from $26 to $69 per share. But in recent years Twitter has been on a downtrend with current share price at $16.
Initially, Twitter had all the makings of a healthy, growing company poised to have even more successful IPO. And yet, revenues continued to decline and specifically, advertising revenue floundered. Even in the midst of its slow decline, Twitter shareholders could rely on other key performance indicators that pointed to success. For example, Twitter had traditionally depended on regular quarterly increases in monthly active users, however in late July 2017, Twitter shocked Wall Street with their Q2 earnings report. Twitter’s Q2 total user count stayed flat at 328 million users instead of increasing 4 million as originally expected. Though Twitter did beat revenue expectation, investors were disappointed in the lack of growth in user count and share prices dipped 8 percent.
With the added pressure to see return on investment, tech companies and marketplaces are under the gun to perform on a combination of growth indicators – revenue through transactions, advertising and audience building. With the bar set higher, businesses often turned to prioritizing their buyers over sellers. Buyer-focused positioning can be the most logical decision to tackle first and with the most enthusiasm. After all, your sellers already have the incentive of getting paid, so targeting your buyer will generate demand for both your seller’s product and your marketplace platform. But while you are positioning your marketplace to your buyers, take caution that it is not at the expense of your sellers.
Let’s look at a case study involving TrueCar (TRUE), a marketplace that connects prospective car buyers with a network of 13,000 partnering car dealers located across the country. Here’s how it works: car buyers visit TrueCar.com, find their perfect car and are provided a flat, no-haggle price. If the customer accepts the car and price, they are sent to the TrueCar partnered dealership that owns the car to complete the paperwork and drive off.
At launch, TrueCar’s messaging strategy was positioned squarely in the car buyer’s corner, promising to make the buying process cheaper, easier and less confrontational than traditional car buying. Early television and radio advertisements featured actual customers emphasizing TrueCar’s role in getting the best price possible for new cars. This strategy resonated with buyers and successfully drove transactions on TrueCar.com. So why did TrueCar’s share price nosedive from $24 in August 2014 to $4 just one year later?
TrueCar’s positioning prioritized their buyer and in doing so, alienated their sellers (their partnering dealers). Frustrated that TrueCar was pitting dealers against one another in a price war, major automotive retailers began a vocal campaign against the site and removed their car inventory from TrueCar.com. Losing dealerships meant fewer choices for the consumer and higher prices for car buyers in the TrueCar network. Ultimately everyone in TrueCar’s marketplace ecosystem – buyer and seller – felt the burn.
Fortunately, there is a happy ending to this story. With new leadership, TrueCar went back to the drawing board and created their Dealer Pledge promising to minimize pricing as a focus in their product offering, improve dealer communication and expand opportunities to showcase the dealer in future advertising. TrueCar saw the value in rebuilding the relationship with its sellers, realizing that all three players (buyer, seller, and platform) were critical to the marketplace ecosystem. TrueCar made good on its pledge to sellers and the ensuing changes contributed to share prices rising to $21 in July 2017.
Buyers and Sellers Should be Created Equal
Of course, it is not just positioning that must be considered as a marketplace business. Your value propositions and positioning may be agnostic but don’t forget that the decisions you make regarding product, customer service as well as marketing speak volumes to both sets of customers. Your company-wide initiatives are often analyzed under a microscope and based on your own positioning, will support or contradict your own message. In short, marketplaces can’t just ‘talk the talk’ – they must also ‘walk the walk’ to gain trust and loyalty by buyers and sellers.
To demonstrate this, we are going to examine one Lyft’s most recent initiatives, Taco Mode. In July 2018, Lyft announced the launch of a pilot test to bring tacos to the masses. The new ‘Taco Mode’ campaign is currently being tested at one Taco Bell location in Southern California with full roll-out scheduled for 2018. Here’s how it works: Taco Mode is an optional rider feature available between the hours of 9pm and 2am (aka: prime party hours) and allows Lyft riders to request a driver to take him or her to the nearest Taco Bell.
Riders rejoiced – Lyft commented that late-night Taco Bell runs were always happening, but that no company rules existed to condone or condemn. Seeing the demand, Lyft partnered with Taco Bell for an experiential collaboration to meet this need.
But as soon as riders celebrated and drivers responded, social media lit up with concerns and harsh criticisms spearheaded by Lyft drivers. Many driver complaints were centered around two issues: the potential wait time at the Taco Bell drive-thru and allowing riders to eat (and potentially make a mess) in their car. As Lyft drivers are only fractionally compensated while sitting in a non-moving car, drivers predicted that most of the ride would be spent sitting in line at the Taco Bell drive-thru, netting drivers far less money than they would while picking up new riders and taking them to their destinations.
In addition, drivers are rated and reviewed based on key criteria, one of them being cleanliness of their car. If drivers are out making Taco Bell runs, drivers note that encouragement to eat in the driver’s car is also implicit (who’s NOT going to eat a taco two seconds after they receive it?). Add to that the fair assumption that most riders craving tacos between the hours of 9pm and 2am are under the influence of alcohol, drivers were rightfully concerned about their car interiors, particularly as cleanliness plays a factor in their rating score and future ability to drive and make money.
Drivers complaints ranged from annoyance to outright threats to switch to competing rideshare companies. After a barrage of mixed feedback, Lyft clarified that Taco Mode will be completely voluntary and that drivers can set limits on if and/or when a rider can eat in the car. Still, it is safe to say that Lyft’s Taco Mode was sold as a buyer-focused feature and by allocating significant resources and budget to a campaign that seemingly only benefits their buyer at the expense of their seller, it sends a message to its sellers. Namely, that Lyft as a company is beginning to invest in initiatives that are not in the equal interest of its riders and its drivers.
What are the repercussions of such a campaign? In many cases, after a marketplace has demonstrably favored buyer over seller, the seller’s trust erodes and with it, their loyalty to the marketplace platform. Sellers across the board may raise prices or they may leave the platform entirely in favor of a competitor, leaving buyers with a product or service they cannot afford or zero inventory, driving your buyers and sellers into the arms of a competing business. Market mechanisms of supply and demand can be your worst enemy when balance is offside. And once trust is lost, it is very difficult to regain.
Business Has Become More Personal
The social dynamics of today’s buyer loyalties have changed. The world is smaller now and with the infinite number of companies vying for their business, buyers will consider businesses based on more than just price. One important factor is community. Community for the new buyer goes further than geographic location –buyer’s consideration for his or her community includes the goods and services they consume and the businesses that provide this benefit.
Now more than ever, buyers are acutely aware that when they regularly patronize a business, they are supporting the business owner, the product and the business’s values with their hard-earned dollars. Buyers today are not lacking in options. A loyal customer does business with you because your company fits with their ethos, upholding the same values and tenants that they want to see reflected in themselves. As part of your buyer’s community, you are also part your buyer’s identity.
Because of this broadened sense of community, your actions hold tremendous weight and the decisions that you make are often reflected throughout the marketplace ecosystem. Even the effects of campaigns designed for one customer audience can radiate down the chain. In the case of Taco Mode, a feedback loop has begun – Lyft unveiled the buyer campaign to the public, sellers expressed displeasure, and buyers were given the choice to use a feature that may put sellers in a difficult position.
It’s a complex situation especially as a customer’s loyalty is delicate. Try at all costs to not put your buyers or sellers in a position where they must choose between your business and their conscience. The business will always lose.
While negotiating the balance of buyer and seller can complicated, that’s not say that it cannot be done (and that it cannot be done well). Our last case study profiles a marketplace that seems to elegantly navigate the buyer and seller experience and continues to build a strong community with exceptional revenue growth.
When is the last time you logged into Airbnb? Just one year ago, Airbnb was a platform for home-sharing that opened an industry for a new class of host and traveler. Want to make a little money with a spare bedroom? Need to find an apartment in the heart of Paris for less than €100? Airbnb was your answer.
Upping the ante in Q4 2016, Airbnb announced the launch of ‘Experiences’ – the ability for hosts to not only rent out their space but also monetize their expertise. Hosts could take their passion like teaching a local cooking class or giving a guided tour of the best craft breweries and make a little money on the side. Airbnb Experiences is an ideal marriage, giving guests a custom experience and giving hosts an additional stream of income. And even though non-hosts are welcomed to lead an experience, Airbnb gives preference to hosts as reflected in their billing structure: Airbnb charges just 3 percent to hosts and charges 20 percent to non-hosts.
Working in concert with Experiences, Airbnb also rolled out the ability for guests to search the site without a concrete destination in mind. When asked about the rationale behind removing the destination requirement Nathan Blecharczyk, Airbnb Co-Founder and Chief Strategy Officer said, “I think there is an opportunity to change the way that people do their travel planning, which is also, what do people care about. They care about coming out of the trip with something memorable, something ideally transformative. They care, probably less about where that occurs, as long as they know it is going to be something good.”
Clearly Airbnb is not only listening to what its sellers want but also making product enhancements to stay in line with their buyers. And with that Airbnb went from existing a simple home-sharing marketplace to an all-one trip planning platform for buyers seeking experiences, not just a place to lay their head.
Balancing your marketplace’s strategy for buyer and seller requires some thought and big-picture perspective. As these case-studies have shown, the true art is not simply regarding buyer and seller as distinctive units but seeing the marketplace as an ecosystem with peak output happening when all parties are in synergy.
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