Brian Solis, principal analyst, Altimeter
The digital marketplace model has expanded beyond disruptive startups and online titans like Amazon to include commerce communities built by established retailers like Walgreens and Walmart. Marketplaces are set to skyrocket in the next two years, with analysts predicting that they will account for 40 percent of the global retail market by 2020. But, despite the massive growth and success being seen among digital marketplaces, traditional challenges around buyer and seller acquisition and retention remain.
So, where are these marketplaces finding the greatest success in recruiting and retaining the buyers and sellers that are their lifeblood? New research by Altimeter Group and Kahuna around the current state and future of digital marketplaces uncovered the channels and tactics that marketplaces are finding most effective in their acquisition and retention efforts.
Acquiring Sellers: Digital Ads, Search and Social Win
The top four methods marketplaces use to recruit sellers include digital advertising (59 percent), search ads (36 percent), Facebook (32 percent) and email—yes, email (31 percent). Notably, social media peppers the list. In addition to Facebook, Instagram (25 percent), YouTube (18 percent) and promoted social content (17 percent) took the next three top spots.
Retailers that sell both through physical stores and online are vastly more likely to choose advertising as a primary seller recruitment vehicle, our study found. Companies solely focused on e-commerce, however, selected a full range of channels. The least effective means reported were Twitter and offline ads.
Retaining Sellers: Advertising and Unique Value Required
We asked participants what their top three methods were for retaining marketplace sellers. Marketing activities comprises four of the top five spots. Advertising ranks far and away the top investment with 47 percent. Additionally, social media and content follows with 25 percent, which means that marketplaces are aiming to reach sellers where they split business and personal time.
Just below this and above “email campaigns” at 23 percent is “creating standalone value” (24 percent), which encompasses platform performance, enhancements and roadmaps designed to better support marketplace sellers. We expect to see that number rise over time as marketplaces will increasingly need to be more than just “commerce as a service” for sellers.
According to our surveys, sellers disengage from marketplaces because platforms don’t provide “growth as a service.” For any marketplace to grow its value to sellers and buyers, it must enhance the value proposition to both sets continually. The number and variety of marketplaces is only expected to boom, so sellers need tools to compete and to attract customers to grow.
Acquiring Buyers: A Complex Blend of Digital and Traditional
To understand where marketplaces are effectively luring customers, we asked marketplace executives to list their top three buyer acquisition channels. They said the three most effective channels are Facebook, (45 percent), search ads (27 percent) and direct mail and email campaigns (both 23 percent).
But exploring the broader list highlights the greater breadth and complexity of engaging customers. Loyalty programs are still important in our era of modern commerce and rank fourth on our list at 21 percent. Tied with loyalty is YouTube and just behind it in the sixth spot is Instagram at 18 percent. This list demonstrates the power of social media in attracting buyers, with three social networks ranking among the top six.
Interestingly, when we look at the breakdown of marketplaces, those that focus on e-commerce only are less likely to choose Facebook and search ads, and more likely to choose direct mail. Those in consumer services say search ads are a top buyer acquisition channel, while food and beverage services say Facebook is a top buyer acquisition channel.
Retaining Buyers: Social and Loyalty Programs Are Key
We asked participants about the top three reasons buyers leave their marketplaces. A lack of sellers who meet their needs topped the list at 53 percent. Following were logistical challenges including shipping costs and fees added by sellers (49 percent) and large geographic distances between buyers and sellers (39 percent). From there, the list of reasons for buyer abandonment focused on customer experience and engagement issues.
In combating these myriad challenges, social media and loyalty programs are the most effective means of buyer retention, according to our study. For example, Instagram, Facebook, customer loyalty programs and promoted social media content take the top position at 25 percent. Search ads (e.g., AdWords) were second with 24 percent, followed by YouTube with 22 percent. Interestingly, snail mail once again is cited in the top five of effective channels in retention, coming in fourth with 19 percent.
The Experience-Driven Future of Marketplaces
E-commerce and mobile shopping are now just a way of life for a growing number of consumers. As they become more connected, consumers also become more informed and empowered. They’re actively seeking solutions and exploring new possibilities beyond the brands they buy today.
For digital marketplaces, which face the challenge of serving dual masters in the form of buyers and sellers, acquisition and retention efforts that prove effective today might have to shift dramatically in the future. Going forward, marketplaces will look beyond simply connecting buyers and sellers. Instead, they’re going to be creating platforms that deliver complete experiences as their core product or service. Ultimately, everything comes down to experience design and how to help customers not only shop, but also love every step of the process.
Altimeter is a technology research and consulting firm. It was acquired in 2015 by marketing and brand consultancy Prophet.