“ON THE BIG MARKET EVEN A BAD PRODUCT WILL BE ABLE TO EARN AND GROW”
Roman Kirigetov seven years ago created the Kabanchik marketplace. A few years later he received investment in the project, and then sold it to EVO. Now Kabanchik works in 70 cities of Ukraine, in Belarus and Kazakhstan.
At a lecture organized by the International Institute of Business, Roman told what to consider before launching a marketplace. We publish the most interesting.
Types of Marketplaces
C2C (consumer-to-consumer). When on both sides are private individuals. For example, Kabanchik, Crafta, Shafa, Preply, Doc.ua.
B2C (business-to-consumer). When a business sells services or products to users. For example, Prom.ua, Bigl.ua.
B2B (business-to-business). When a company wants to buy something, it holds a tender, other companies participate in it, and the winner delivers the goods. For example, Zakupki, Rialto.
B2G (business-to-government). When a business delivers services or products to the state. For example, PROZORRO.
What to watch before launching the marketplace
1. High fragmentation of sellers and buyers
It is easier to launch a marketplace where there are many suppliers and buyers, but the market share of each of them is small.
It makes no sense to open a marketplace in a market where several suppliers are absolute monopolists. They will not want to pay an intermediary for each attracted client. It’s easier to make your website and sell it yourself.
2. Relations between buyer and seller: monogamous or market
The value of the marketplace is reduced if the market has loyalty to a particular supplier. Agree, if you liked the doctor, what’s the point next time to come to another? Or why every time hire a new nanny for a child?
This is a monogamous relationship between a supplier and a consumer. If they are, it is more difficult for marketplaces to survive and grow.
We have to pay off customer acquisition from the first order. Therefore, some marketplaces try to take a commission from both sides.
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3. Frequency of purchase or order
The more often the user places an order, the more chances the marketplace has.
If a customer buys a product or service several times a week or a month, earnings on it increase. This opens up great marketing opportunities. Otherwise, it is difficult to build brand recognition and word of mouth growth of customers.
The purchase frequency can be viewed in conjunction with the average transaction check. If you graphically display the frequency of use on the X axis, and the size of the average check on the Y axis, then the most dangerous zone is the bottom left square (a small check and a low purchase frequency).
4. The size of the market in which you work
This is the most important point before launching the marketplace. Be sure to ask how big the market is and what share you can grab from it.
In a large market, even a bad product can earn and grow, and an excellent product in a small market will be useless.
For example, you have an old car in Lithuanian numbers in Kiev. As a product, it is not very, but the demand for passenger traffic in the metropolis is large. Therefore, there are orders in a taxi.
What you need to know before launching the marketplace. 0
Now imagine that you have a Tesla Model X in a rural outback. The product is excellent, but the taxi market simply does not exist there.
For most niches, the Ukrainian market is also a “village in the outback.” Therefore, many will start here, but immediately think about scaling to large markets.
It is important to pass the transaction through yourself. So you add value to the marketplace. In addition, sellers and buyers may need a site to transfer money.
For example, the Upwork job search platform brings together customers and freelancers from around the world. At the same time, they greatly simplify mutual settlements, deliberately connecting the most popular payment systems.
Network effect of marketplaces
A big plus of marketplaces is the network effect. It creates a high level of security for a startup. Adding a new user to the system increases the value of the product for all marketplace participants.
This may be a decrease in the price of attracting a user, improving liquidity, strengthening the community or social relations.
The network effect is of two types: direct and indirect.
Direct – an increase in users directly increases the value for all participants.
For example, social networks such as Facebook and Twitter have a direct network effect: a new user begins to post something and this increases the value of the grid.
In a marketplace where suppliers can be buyers and buyers can be suppliers, liquidity is achieved much faster.
Indirect – the more users use the marketplace, the more motivation for the marketplace to create additional products or goods.
For example, the more users use a certain technology, the more programs are written for it.
How the network effect works on the example of Uber: if the number of drivers grows, the time for feeding the car decreases.