Big challenge of marketplaces—satisfying both sellers and buyers

What is an internet-based marketplace company? Usually, it is a website or app-based platform that connects buyers and sellers of a specific product or service over the internet. These companies tend to bend or challenge the status quo of an industry.

Marketplace companies have both advantages and disadvantages. Alpha Catering Services, a food catering and event management company, serves wedding orders every month. Its team is  working on launching a new startup, Alpha 360, which would be a marketplace for wedding vendors. This marketplace would essentially connect a person with vendors like caterers, photographers, venue, musicians, decorators etc. that he/she needs to organise a traditional wedding in Dhaka. However, knowing that some vendors often deliver below expectations, the team did not want to take the responsibility of their performance. Alpha wanted to be a mere marketplace connecting users with such service providers.

A cursory research of similar marketplaces in India was helpful to know assumption of customers about a marketplace providers' responsibilities. Many of such Indian startups were littered with negative reviews on their Facebook page, with customers mostly upset on the vendors they found on such marketplaces. The startup themselves were not at fault; it was the vendors who delivered poorly on the big day. Yet, the customers were placing the blame squarely on the marketplaces. They believed it was the task of the marketplace to ensure the reliability and performance of the service providers. And they were right in expecting so.

Most marketplace startups like to promote themselves as 'matchmakers'.  For example, Pathao, a ride sharing app of Bangladesh, connects people  to riders. Evaly, an ecommerce company, connects individuals  to retailers and Cookups connects persons to homemade food providers. However, the success of such startups depends considerably on how well they can identify and reduce 'risks' in their platforms. It is not enough for Pathao to connect someone with  a rider; that rider must also be a safe, licensed and background-verified driver. Cookups must ensure their home cooks are preparing meals in safe and hygienic environment, not using adulterated ingredients etc. And it can also go both ways. For example, while customers expect not to get cheated when buying a product from Evaly, the retailers on the platform similarly expect proper payment upon delivery of goods. In the same way, Pathao riders can also feel awkward by the company if they become victims of assault or mugging by passengers. So some marketplaces have to insulate users on both ends against risks in trade.

But how can marketplaces reduce risk for its users, beyond the usual background checks? An obvious effective system is ratings. Pathao lets users rate the riders after a ride, so that users know when to avoid the poor performers. Most e-commerce marketplaces like Bagdoom, Amazon, Sheba.xyz etc. also have systems to rate the sellers so that the unreliable ones get exposed over time. Furthermore, by promoting sellers with high ratings, these marketplaces not only help buyers choose the right merchants instead of just any merchant, they also help regulate seller behaviour and provide an incentive for sellers to be compliant, since that will earn them better ratings and in turn, higher sales.

A step above that could be to directly reward high performing vendors. Last November, Uber launched the Uber Pro programme, which rewards drivers with increased earnings and other benefits provided they maintain a 4.85 rating and a cancellation rate not above four per cent. AirBnB, a global online marketplace and hospitality service, also regularly rewards owners who maintain great reviews and post accurate pictures of their apartments on its platform. A similar approach can very well be adopted by our homegrown startups to further reduce risks in their platform.

Any entrepreneur looking to start a marketplace startup, or an 'Uber for X' startup, needs to get out of the mentality that their only job is to be a 'matchmaker' for the market. Rather, from day one, they should be extremely focused on identifying every type of risk that can be faced by the users on both ends on their platform, and introduce reliable mechanisms for reducing those risks. It can be in the form of exclusivity, ratings, rewards, insurance, arbitration system etc. The success of their platforms will most certainly depend on how far and how comprehensively they can mitigate risks for their users.

After graduating from BBA programme of the Institute of Business Administration, University of Dhaka, Asif co-founded and has been leading Alpha Catering Services Ltd. He can be reached at [email protected]