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Online Marketplace Startup - Challenges

Challenges that Online Marketplace Startup can Come Across

Founder @ ProductCrafters
Reading Time: 6 minutes

You are about to start your online marketplace. Congratulations! Prepare to work hard and dedicate all your time to it. The main reason why it is so challenging is that you have to handle both market sites: buyers and sellers. But this is not the only challenge that might appear on your way.

Let’s examine possible rough goings and ways to cope with them.

Defining customers

The marketplace can be successful in a long-term perspective only if it solves customers problems. Without providing a useful service, the marketplace won’t last long. That’s why it’s necessary to understand people whose lives you are about to improve. The success of the startup directly depends on customer service.

Defining customers

Solution
Define the larger target audience that has problems which you are solving. However, if people experience the same pains, it doesn’t mean they have an identical context. For example, in the beauty industry, your target audience is women and men who want to look better. Though the list of services would be different for them.

Create an ideal customer profile (ICP). Start with identifying potential customers out of the larger target audience. These are people with a particular problem that your marketplace solves. An ideal customer is a person whose problems you can solve and who is ready to buy your product. 
Let’s get down to how to do this:

Firstly, you need to identify how the market is divided into groups of customers.
Here is the example of market segmentation for beauty service marketplace:

  • Geography: Los Angeles, USA
  • Demographics: 18-35, men and women, annual income $ 50,000, single
  • Psychographics: interested in fashion, beauty, fitness
  • Behavior: use mobile phones for texting, talking and buying, spend time on Instagram and fashion sites, carefully choose beauty experts
  • Benefits: social status, health, emotions

Think over every group of customers and compare them with the goals of your marketplace. Based on this information you can define the most suitable segment for your platform.
If you have already built MVP, the best way to develop an ICP is to analyze existing customers. Start with identifying those customers who love your product and get more value from it than the average customer. Figure out what you know about them: geography, age, gender, budget.

Don’t hustle while building a marketplace platform and don’t invest too much. Especially if you are not sure that your marketplace will attract buyers. Scale your business slowly. It will give you time to adjust to your customers’ needs and build trust.

Read more: Building MVP for an Online Marketplace

Engaging both buyers and sellers

In the beginning, every startup faces the biggest challenge — necessity to attract users. It is vital to get both sellers of services/products and people who are ready to buy from them. Your task is to build strong trustworthy relations with sellers. You also need to attract customers to create demand for the products offered by sellers. Here appears the classic problem — you won’t attract customers unless you’ve got sellers. But how to attract sellers unless there are customers ready to buy the product? 

Engaging buyers and sellers

Solution
Our advice — begin with sellers. It also makes sense to start with targeting a small city or area and find sellers first. Provide them with reasons to join your platform. And they might become interested in starting selling there. Then start getting buyers, as you have what to propose to them and can show that your platform is trusted. At this stage, it’s better to continue focusing on the same area. Only after getting a stable base of sellers and customers you can start expanding.

Getting revenue

It’s important to build an online marketplace platform, make a connection with sellers and get a stable customer base. Yet it will not work properly without a business model. There are different types of marketplaces. Each of them needs to have an elaborated business model to earn revenue. The platform should be profitable for you, convenient for buyers, and lucrative for sellers.

Getting revenue

Solution

  • Make every transaction work for you. It means you should start charging a fee on every transaction that is conducted on your platform. This is a widespread way of getting profit from the marketplace. Sellers usually prefer working with this model. It lets them avoid paying to the marketplace until they get the first profit. This business model is very convenient for owners of the platform too. As all the cash flow passes through their platform, they can be sure that everything is safe. This business model creates a win-win situation. Buyers receive a wide list of product/services and the secure payment system. Sellers, in their turn, can get stable traffic of customers.
  • There is one more fee charged model that leads to growing the revenue — membership fee. This model mostly works for marketplaces that sell expensive products or services. According to it, a number of users are regularly charged for getting access to the marketplace.
    For example, a marketplace platform that provides beauty services follows this business model. There are 2 types of users: beauty experts and customers. Beauty experts can use the platform for free or can pay for the membership. The ones with a paid premium position are displayed at the top of search results. So they have more chances to be found by users and get new customers faster than others.

BeautyAdvisor

Think about the flow of transaction money. You need to have a clear strategy on how to pay to your sellers and ensure them a profit. Pay attention that you also need to know when to transit money from buyers to sellers. It’s quite popular to move money only when you are sure that buyers will receive the products they paid for. That’s why you need to discuss this issue with developers. They can implement the payment system that will guarantee the secure flow of money.

Low conversion rates

Everything seemed to be fine, you had a small, but the stable base of customers. But one day you noticed a sudden drop in the conversion rate. What’s wrong? Why did it happen?
The common reason for a low conversion is that the marketplace platform doesn’t look attractive to customers. Or even worse. They simply can’t find the necessary information there.

Low conversion rates

Solution
If you are getting traffic but no conversion, it’s time to pay attention to the design issues. It’s important to build a platform that looks good. And it’s vital to take care of usability and make sure all the information is easy to find. Also, think about the filtering option. Customers should be able to filter and find only relevant items. Without losing time.

Moreover, you can make developers work a bit more and build an admin panel. It will allow sellers to adjust the interface of the shop up to their needs.

Responsibility for provided products

Imagine that you bought the product online. Unfortunately, it was delivered to you with some damage or for any other reason you were not happy with it. What would be your first reaction? For sure, it’s to address the platform that provided you with this product and try to improve the situation. Customers typical behavior is to direct their anger to the marketplace owners. But are they responsible for it? No, and consequently they can not solve the problem. Unfortunately, instead of making a connection with sellers, buyers contact marketplaces. Eventually, marketplaces can gain a bad reputation due to the fault of one or a few shops. In the eyes of buyers, responsible for the problem is the one who provides information about the product.

Responsibility for provided products

Solution
Marketplaces which take the responsibility instead of sellers, will not last long. It’s vital at the beginning of launching the marketplace to get out a message about the responsible side. You need to communicate with your customers. You can also establish direct communication between sellers and buyers. The most efficient way to do it is by implementing a direct messaging channel. It will connect sellers with customers and let them solve any appearing issue. As a result, the reputation of the marketplace will be safe and sound.

We hope that now you are well-equipped with the necessary knowledge to start building your own marketplace platform. If you have a wonderful idea, contact us and let’s create something great together. Our team has a focus on building online marketplaces. We have already launched a few of them in different business domains: Raisal and BeautyAdvisor.

 

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