From Niche to Scale: How to Expand a Marketplace

22 December 2023

Veronika Nedashkovskaya

Head of Content

E-commerce accommodates one-third of US businesses, with over 60% going through marketplaces. Although it’s tough to compete with giants like eBay or Amazon, the industry is enormous, which leaves many uncovered niches and regions worldwide.

After creating your own marketplace, you will face certain difficulties. The next challenge is expanding the business. We created a guide for founders covering seven vital aspects you should consider when deciding how to grow a marketplace.

A female business founder  looking at a tablet and business reports and charts showing marketplace performance.

Where to Start?

Scaling a marketplace is a long-term process requiring a thought-through strategy. First, you need to understand when it’s time to grow. The answer is rarely obvious, but there are usually three clear signals.

  1. You are sure you have a product-market fit.
  2. You understand how to launch a product in new markets, whether new categories or locations.
  3. You lose to your competitors in some marketplace metrics and need to defend your position.

Scaling and launching a business are interconnected processes that can significantly benefit from studying real-life successful examples. Analyzing successful ventures provides valuable insights and strategies. Similarly, learning from the experiences of failed marketplaces offers lessons on what to avoid. Furthermore, borrowing standout ideas from industry leaders can lead to innovative and effective scaling approaches. Here are the aspects you should consider including in your scaling strategy.

An infographic describing the most important steps of scaling a marketplace.

#1 Balance Supply and Demand

Marketplaces are usually limited in supply, not demand. Initially, most world-famous platforms like Etsy and Airbnb focused on attracting supply while demand appeared naturally. However, there are areas where attracting buyers is the biggest challenge. For example, dog walking services face the problem of dog owners’ distrust of strangers. At the same time, such services have no problem attracting the offer — from dog owners to students who need extra pocket money. 

Define your business’s specific nature and scale it based on demand and supply in your niche. However, in most cases, you’ll face a supply shortage.

If you don’t increase demand while the supply grows, the order volume will be distributed among more vendors. Once the contractors don’t get enough orders, even the reliable ones will leave the platform. Similarly, a surge in demand not supported by sufficient supply leads to lower service quality and poorer end-user experience.

Moreover, about 40% of marketplaces have different supply-demand ratios depending on the region or product category.

To track supply and demand and figure out where we were constrained, we would watch the marketplace health stats like quotes per loan request, loan requests per user, the competitiveness of rates, and contact rates by market/area. If we were low in a given area, we would work hard to build supply in those areas or turn down demand.”

Nate Moch, Zillow.

#2 Expand Wisely

Some marketplaces decide to go global too early. While it may sound easy, expanding geographically involves significant pitfalls. Airbnb and Uber started with one city and then gradually moved to other locations. The limited area (to start and continue with) can be anything from a district in your hometown to a large city or even a country.

“When we began to scale, expanding geographically was one of our top 2-3 growth levers for both supply and demand”.

Casey Winters, GrubHub.

Apart from more complex logistics, going global has two crucial factors.

  1. International shipping implies higher costs, longer deliveries, and dealing with third-party local or international carriers.
  2. Regional legislation can cause trouble in terms of restrictions, regulations, prohibited goods, or extra taxation of consumers for overseas shipments.

Besides, remember cultural differences and national context if you expand internationally. In-demand products vary drastically in different countries, let alone local contractors, income levels, and rules.

#3 Check Your Vendors

It may seem that online marketplaces only provide some digital space to vendors and can’t be responsible for each transaction. In reality, the quality of the product or service provided by the contractor affects the marketplace’s reputation directly.

Lyft, DoorDash, Airbnb, and other marketplaces that skyrocketed practiced manual onboarding of the early-stage supply. It created high credibility for new businesses and set high service standards customers would note and remember.  

Granting a partner status should become a comprehensive process involving quality assessment and thorough vendor checks. Otherwise, low quality, lost goods, or unanswered messages become the marketplace’s problem. As it’s impossible to eliminate such cases, consider making a risk management budget and creating a strategy for dealing with unhappy customers.

#4 Discover New Niches

Many beginner entrepreneurs make the same common mistake — they want to sell everything right away and forget about the Pareto principle or the 80-20 rule. Typically, in a retail network, about 20% of goods generate 80% of revenue. Having “too much to offer” at early stages may lead to marketplace failure. The most successful examples show that 1-2 categories are the best odds to start. Remember, at the very beginning, Amazon was selling only books

However, discovering new niches when you get your platform up and running is the right way to go. Similarly to Amazon, the leading marketplace in India, Flipkart, started as a book-selling platform. At that time, it was difficult to find vendors providing household, electronic, or fashion products. 

After multiple experiments with selling various products under the electronics category, the company launched a music streaming service which later developed into in-app video streaming. In 2020, Flipkart launched a digital platform accommodating micro-market level B2B and B2C businesses. In 2021, the company’s revenue amounted to 433 billion Indian rupees.

Opening a separate storefront can be a powerful instrument for entering new niches. If you have a fitness coaching P2P marketplace, think of creating a storefront for fitness clothing, equipment, or healthy nutrition. It will allow you to expand the offer dramatically based on the pre-existing platform’s reputation and client base.

#5 Leverage New Tech

Adopting innovative technologies can significantly enhance user experiences, increase efficiency, and attract a broader audience. Leveraging advancements in artificial intelligence (AI), virtual reality (VR), and augmented reality (AR) can play a pivotal role in transforming and expanding a business.

AI is a game-changer for marketplace scalability. Implementing machine learning algorithms allows businesses to analyze vast amounts of data, gaining valuable insights into user behavior, preferences, and trends. AI-driven recommendation engines can significantly improve the personalization of product or service suggestions, enhancing the overall user experience. Additionally, automation powered by AI can streamline operational processes, reducing manual workload and increasing the scalability of the platform.

Virtual reality (VR) and augmented reality (AR) bring immersive experiences to the forefront, providing unique opportunities for marketplace expansion. Visit Designrush to learn more about the benefits of virtual reality for business.

VR can create virtual storefronts, allowing users to explore products or services in a simulated environment, replicating the in-person shopping experience. This immersive approach can be particularly beneficial for industries such as real estate or travel, where users can virtually tour properties or destinations before making a decision.

AR, on the other hand, enhances the real-world environment by overlaying digital information. For marketplaces, AR can be used to enable virtual try-ons for clothing or accessories, visualize furniture in a customer’s home before purchase, or provide additional information about products through interactive overlays. These applications not only enhance user engagement but also contribute to increased conversion rates. On top of that, by integrating AI, VR, and AR, businesses can create intelligent chatbots and virtual assistants. These tools assist users in navigating the marketplace, answering queries, and providing personalized recommendations. The combination of AI-driven insights and immersive experiences creates a more dynamic and responsive platform, fostering customer loyalty and attracting a broader audience.

#6 Know Your Audience

Identifying your target audience and its behavior is crucial for building effective e-commerce marketplace strategies. Moreover, as your marketplace develops, your target consumer also transforms. Any detail in customer behavior can become a game-changer.

Another Indian marketplace, ShopClues, and its ‘commute commerce’ marketing campaign is a showcase example of understanding the target audience and customer needs. After analyzing user behavior, ShopClues learned that customer activity increased during daily trips home from work. The marketplace leveraged this knowledge.

  • They launched a commercial that aired during the usual commuting times.
  • They created special offers valid during the 6-9 PM slot.
  • They shot a video ad about their target audience.

As a result, the traffic on the ShopClues site in the first two weeks increased by 40%. The campaign received the APAC Effie Awards 2016 for outstanding marketing results.

Etsy created a blog called Etsy Journal. Besides useful content with crafty tips for a creative audience, they also promote their user stories.

#7 Build the Community

Whether vendors or buyers, it’s all about people. And people like being part of a community that values its members. It creates customer loyalty and reinforces the marketplace’s reputation. Celebrating and promoting your best sellers by writing case studies and success stories inspire consumer trust and encourage vendors’ devotion

To make your platform easy to use, create your own knowledge base that contains answers to FAQs from sellers and buyers. You can also create a guide or a set of training articles or videos for vendors showing how to optimize their business on your platform.

A miniature shopping cart and tiny shopping bags against the background of a person shopping online on a marketplace.

#8 Keep Testing

The marketplace strategy requires continuous testing of new ideas. Even if most of them don’t show the desired results, new initiatives may lead to unexpected advantages that your competitors have not yet discovered. It includes any insights, from introducing new tools, services, and content to acquiring new strategic partners. Entering into partnership agreements with those involved in your business area creates additional value for both your buyers and sellers. 

If you have launched a marketplace for handmade products, negotiate with local photographers and offer your vendors professional photo shoots for their products, providing them with a competitive advantage in the market. Contact local magazines and trade shows related to your industry. Tell them about your platform.

Marketing hypotheses are based on consumer insights, customer feedback, and market analysis. They are like the key to your target audience. New hypotheses should be constantly put forward according to the research findings. The main point is to remember that no idea is final, and every project evolves. Successfully scaled marketplaces adjust their scaling to these changes.

Final Thoughts

Whether you’ve only decided to create a marketplace app or already have your platform launched but need further scaling, you need an experienced tech partner. Hypothesis testing and business scaling are among the Rocketech competencies we have carefully been crafting with every successful project.

We help businesses analyze their position in the market and define clear goals for further growth. Together with our clients, we look for the best ways to achieve these goals by implementing innovative tech solutions.

Have a digital product in the scaling phase and need an expert team to do it right? We have it.

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