Optimising your online marketplace requires the right online platform, an effective strategy, and patience
Marketplaces have existed since people first gathered in one place to trade items, and that basic characteristic of marketplaces—having to be located in a specific physical space—remained constant even as marketplaces developed in complexity over the centuries.
But now that limitation is gone. Computer technology and the internet have freed marketplaces from their geographic restrictions, and enterprise marketplaces are increasingly moving online.
For example, the world has been exposed to online (or electronic) marketplaces since the launch of Ebay 20+ years ago – a company that was before its time in recognizing that the internet helps connect players (or as we say at Perfect Channel matching buyers and sellers), in a particular market.
Ebay undoubtedly fulfilled an unmet need by providing a conduit to link buyers and sellers – as before online marketplaces existed, geographical limitations pushed the buy and sell demand costs up as participants were only exposed to local ads for their particular region.
However, optimisation of online marketplaces is far from easy. In addition to the right online platform, you must have an effective strategy, robust analytical technology and patience. A marketplace typically takes more time to seed than most owners initially allow.
Uncertainty about how to proceed is often a barrier to progress toward higher levels of online maturity. Common concerns include:
- What’s the right marketplace design for our online marketplace?
- How can we best use technology to increase the efficiency of our marketplace?
- How can we measure our return on investment?
- Will we be able to maintain optimisation?
The first step that any online enterprise marketplace should take toward optimisation is answering such questions. To determine how to reach optimisation, you need a clear vision of what optimisation will look like for your marketplace, along with knowledge of what’s necessary to attain that optimisation.
Aspects of Optimisation
Optimisation of an online marketplace essentially involves three aspects:
- Developing a strategy for establishing and growing the marketplace – this strategy should be formulated based on expert diagnosis in areas such as auction theory, statistical modeling, financial management, economics, and game theory. This expertise is necessary to:
- evaluate your market opportunity and develop your marketplace vision (new verticals, monetization strategies, etc.)
- choose the right business model (seller transaction fees, listing fees, subscription fees, enhanced services, etc.) and develop a pricing strategy
- select or develop the most suitable transactional mechanism
- develop a plan to speed the growth of the marketplace and a strategy for scaling the marketplace over time
- identify relevant KPIs to track so you can see success in the numbers.
- Implementing and optimising a technology platform for the marketplace – the right platform can generate rapid ROI for a low total cost of ownership. You can build your own platform, but you’ll need a range of internal tech skills, such as UI/UX development and data science. If you lack those internal resources, many prebuilt auction/trading platforms are available. In evaluating platforms, look for these attributes:
- single-to-many and many-to-many transaction functionality
- enhanced search and filtering for discovery
- the capability to accommodate complex product attributes
- customizable branding and UI/UX
- registration, validation, and bidding mechanisms
- API & web-services libraries for ease of integration with customer CRM, ERP, etc.
- buyer, seller, and Inventory matching
- readiness for mobile technology
- transparent auction/trading processes, including transparency to regulators
- rapid deployment capability, regardless of the asset class being traded.
- Monitoring the marketplace for continual optimisation through analytics – real-time predictive analytics and reporting features enable marketplaces to understand what is happening in the marketplace, as well as to foresee what is likely to happen. This is critical as the marketplace begins to scale out and the volume of transactions surpasses what can be humanly monitored and influenced. They also allow for the intelligent matching of buyers and sellers with the right inventory, at the right time. Software is available for this aspect of optimisation, unless you can develop your own. Whatever your solution, you’ll want software that has:
- easy data ingestion and storage, so that you can easily combine internal and external data
- predictive analytics – e.g. applying machine learning and data mining to identify buyer groups, patterns, and behaviors and linking these with your business objectives and assets
- price discovery and optimisation – i.e., identifying the right ‘trading situations’ (or transactional mechanisms), and market conditions for optimal pricing and transaction volumes
- buyer, seller, and inventory matching
- publishing what the ‘market’ price is (indexation), as well as identifying the factors that drive pricing in the market and quantifying their impact on price
- a simple, responsive UI with customizable dashboards and models
- easily searchable data repository with drill-through filtering
The efficiencies to be gained with an online marketplace will vary based on industry, business strategy, marketplace size, and other factors that differ between each marketplace. However, optimisation of one or two of these three aspects is not enough to achieve maximum value for the marketplace. The challenge is to find the right combination of internal and external resources to address each aspect. You need a particular and hard-to-find combination of auction, business, and technological expertise.
At Perfect Channel we have a proven track record of creating custom online marketplaces in various industries. Contact us to find out how we can help you reach new customers, optimize pricing and gain real-time trading insight.
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