This post was written by Alex Ioannides, our Director of Market Structuring & Optimisation
In our last blog we provided an overview of our approach with our clients to determine what analytics they need to optimise their marketplace. Here at Perfect Channel, we divide marketplace analytics into three types:
- Performance Metrics/Price Indices – those that help you understand what is happening in the market;
- Forecast Metrics/Trade Prices – those that assist with making the best decisions for future; and,
- Listing Recommendations/Automated buyer-to-seller matching – those that optimise the performance of potential trades (or live listings) that are already ‘in the wild.’
With those three types in mind, today, we are going to discuss Performance Metrics.
Understanding what is happening in a digital marketplace is far from easy. There can be 1,000s of buyers and sellers trading 1,000s of products and product types, week-in-week-out. There is simply too much information to evaluate and comprehend on a trade-by-trade, product-by-product basis.
This task becomes even harder if you are using auctions as a means of transacting, as is common in many B2B markets. In this situation, you also need to consider the ‘health’ of your auctions – i.e. the effectiveness of the underlying price discovery process – which involves an additional analysis of every bid on every listing and an appreciation of some basic Auction Theory.
“You can’t manage what you can’t measure.” This a mantra that an old boss in Credit Risk Management used to repeat and has stayed with me. With this in mind, we turn our attention to the measurements and metrics – or Key Performance Indicators (KPIs) – that you need to focus your attention on, in order to develop an understanding of what is happening in your market and, ultimately, to be able to manage it effectively regardless of its scale.
Before we discuss these, it is worth bearing in mind that marketplace KPIs are not only tools for management – they are clear and specific targets for optimisation. For example, one of the aims of our listing recommendation engine is to increase the average number of bidders per-listing and the overall sell-through-rate across all listings – two significant KPIs that marketplace operators need to measure and track.
At Perfect Channel we categorise KPIs by the ‘marketplace dimension’ that they measure. For example:
- sales and trading success is measured by sell-through rates (either absolute or relative to reserve prices and expected market values);
- price performance is measured by the average returns to reserve prices (or expected market values);
- competitive tension in the price discovery process (e.g. when using an auction mechanism), can be determined from the average number of bidders participating and competing for a listing; and,
- buyer/seller engagement can be measured by looking at the average number of listings that they participate on, together with the likelihood of finding and participating on an alternative listing when they have been unsuccessful.
Once defined, each and every one of these KPIs can then be pivoted by product and buyer/seller dimensions to drill-into the sources of good and bad performance.
We work with our clients to define and configure the KPIs that make the greatest logical sense for their business. Once we reach this stage, we define a ‘composite performance index’ – a weighted sum of the most important KPIs (where the weightings reflect the relative importance of each input KPI to their business), to track the headline health of their marketplace.
Finally, we make sure that the right information finds its way to the right people in the most accessible format for the stakeholders that will consume and act on the information. This could be an Excel spreadsheet or a real-time interactive dashboard – whatever is most effective.
Next time, I am going to discuss the forecasting of trade outcomes – a key analytics measure that will help companies make an informed decision that will impact the business down the road.
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