In the previous blogs, you have read about Chicken or Egg problem. Online B2B marketplaces are two-sided since they work with buyers and sellers.
Which comes first, the supply or the demand? Chicken or the egg? is a common query among business owners and entrepreneurs.
In many interviews, conferences, and TED talks, business persons and entrepreneurs highlight the chicken or egg problem. But, only a few businesses find the tactics to overcome this problem.
So, before running the two-sided marketplace, you need a proper strategy to handle the chicken or egg problem.
What Is The Chicken Or Egg Problem?
Buyers and sellers are both necessary in a two-sided market. However, each must coexist in order for the other to exist. In a multi-vendor marketplace, the vendors “exist” to sell their goods or services to the customers, and the customers “sign up” for the platform to purchase the goods or services from vendors.
It is hard to choose between onboarding suppliers initially or enticing clients as a starting point if the marketplace has only recently started operating and none of the two are there.
However, you would need to develop a marketing plan while considering the resources at your disposal. One might need to take precedence over the other in your strategy.
Many multi-vendor marketplaces struggle with the same issue. Successful markets have, however, shown the way forward by using cutting-edge marketing techniques to solve the chicken or egg problem.
How to Solve the Chicken or Egg Problem?
Focus on a Specific Niche
You have enough time to deal with and dodge the critical problem when you start slowly. To employ this, you need to
Focus On A Single Community
For instance, your goal is to build an equipment rental marketplace. It is a great marketplace idea. But, if you need all the desired features immediately, the failure rate of your marketplace is higher.
Focus on the single community of users. Nowadays, young people show interest in photography and use the internet more. So, first, offer photography tools (Camera, lens, tripod) for this target audience.
Target One Location
Start by advertising your marketplace platform on the targeted location after researching the local market. It is your time to learn as much as you can about the preferences of local people, add value to them, and effectively enter the marketplace.
To grow your marketplace community, allow your users to invite a friend by providing a special offer on each invitation.
For example, Flipkart is a large eCommerce marketplace where you can find everything from groceries to electronics. But they started only by selling books.
Focus on One Side of Cooperation
Even if you have chosen a specific area and product category to use, you still haven’t caught a chicken or located the eggs. That is where the second approach is helpful.
Where do I begin? Whom will I initially attract? Who comes first, buyers or sellers? According to the peculiarities of your market, you can:
- Target customers, or
- Target service or product suppliers
It is better to get the attraction of the rigid side first. Because when the harder side reaches its peak activity, network effects will kick in, and value will create organically for the ease side.
In most of the marketplace, supply is hard to get. For instance, Airbnb wouldn’t make sense if no property rental owners were employed.
Thus Airbnb starts by attracting property rental owners first. It was safe for the marketplace business because attracting the renter without any property is no use.
So, depending on your marketplace, prioritize your focus side.
Subsidize the Most Valuable side of the Market
Getting the most valued users on a new online marketplace platform sounds like a difficult task. Think of it this way, if the major players start using your platform, more users will quickly follow suit.
Clearly, financial incentives might persuade high-value providers to enter your market. It’s evident that companies like Facebook or Uber were willing to spend money in their early stages to entice consumers of their respective platforms’ existence.
Using Uber as a case study, let’s examine how the system of subsidies functions.
Uber is a transportation marketplace founded in 2009. At their beginning stage, they subside the driver by paying them.
Uber was able to attract high-end service providers by utilizing financial assistance. Users were more open to the notion of ridesharing as a consequence.
By the way, dating services and apps frequently employ financial subsidies. Women can register for free because a majority of their visitors are males.
“It’s not only the chicken or the egg,“ said Thales Teixeira, “you also want to choose the right eggs.”
“The right eggs” are well-known brands, sizable businesses, local market influencers, well-known bloggers, and members of sizable communities, among others.
Discover the “right eggs” and warm them up in your nest by getting to know your clients.
Making a Deal with a Recognized User
Collaboration with well-known people or influential people might be a brilliant move. People with large social media followings could unintentionally draw their fans to your platform.
Additionally, such cooperation makes your brand more noticeable to buyers. You will receive all the exposure you require if you provide a workable solution to the problems that your target audience is experiencing. You may even establish yourself as a thought leader in your industry.
Finally, influencer marketing elevates the tried-and-true word-of-mouth marketing technique to a new level.
According to Daily Mail reports, 53% of millennials trust travel bloggers more than their parents when making travel arrangements. So why not attempt to get some famous people to speak for you?
For example, if you approach a celebrity with 1 billion followers, your brand will be exposed to its followers.
Sell Your Own Goods
Having your cake and eating it too is not possible. The chicken or egg problem makes this old saying even more relevant. It is difficult to draw the attention of both buyers and sellers at the same time without running into the danger of using too many resources or money. You must thus concentrate on one side at a time.
Becoming a manufacturer is the simplest approach to attracting customers. The strategy is straightforward. You develop goods that address the problems that your prospective clients are experiencing. Once you have a sufficient number of users, you invite other providers or sellers to join your ecosystem.
For instance, Pierre Omidyar, the American billionaire and founder of eBay, took the first step in his eCommerce marketplace by selling his own unused products.
Time and Demand Constraints
Marketers indeed have a legitimate motive to employ scarcity to increase sales. Due to the intense market enthusiasm that time restrictions produce, this method always succeeds.
A timer or countdown clock is a good idea to include with a restricted offer to specify the constraints of scarcity. In this method, you encourage consumers to act immediately.
In order to boost sales, the online retail behemoth Amazon began by leveraging scarcity. The bargain of the day feature shows on their marketplace. It denotes a one-day-only discount on a specific product or a condensed group of closely linked exclusive goods.
Setting demand restrictions can help make scarcity techniques even more effective. Customers are compelled to buy since the product’s availability is restricted. Having something rare gives one status, like the ability to purchase something other people can’t.
Another well-known company, Booking.com, has perfected this psychological sales trigger. They cleverly implied that the lodging discount wouldn’t persist for long.
Events to Solve chicken or egg Problems
On your path to success, discuss your concept, business, and plans with the audience on offline and online platforms.
Expand your company’s reach so that potential customers learn about your offering. Attend meetings and chair them yourself. The more people who discover your platform, the more of them will sign up shortly.
For example, Yelp is an online service where you can review any company. Not all the marketplace works only online. By organizing great parties, Yelp combines both business and satisfaction. The users in the Elite Yelp are with status. The individual’s influence and activity define their level. Promote your marketplace in order to solve the chicken or egg problem. Also, participate in and organize splendid events.
Global Tactics to Solve Chicken or Egg Problem
Three global tactics exist in addition to the previously mentioned methods. When luring clients, they are well-liked in marketplaces. Let’s check out each one’s operation to determine which is the most effective.
This seeding tactic entails a business suggesting a product with distinctive attributes to draw in a larger audience. As a result, the value of the company’s bespoke product attracts many clients. The business begins offering its core services after its audience expands.
For instance, the restaurant reservation service OpenTable has introduced software for online bookings. They first created an electronic reservation book. Unique table management and CRM software were made available to restaurants as a subscription service. The software is for managing reservations, waitstaff assignments, and taking notes on frequent customers.
OpenTable attracts numerous restaurants in the city. After the audience grew, the business advised restaurant patrons to use table booking services.
Fill the Empty Seats
This strategy resembles providing subsidies. It draws the supply side to the platform, which leads to the demand side. In this instance, the platform aids suppliers amid slumps in business.
One well-known example of using this approach to resolve the chicken or egg problem is Groupon. They first recommended that retailers sell discount cards on their marketplace to increase sales during quiet times. Groupon would take a percentage of sales if a certain threshold of customers made a purchase from the merchant. The remaining sum would be the seller’s profit.
In October 2008, they struck their first business arrangement. In their Chicago offices’ shop, Groupon assisted in the pizza sale. Twenty customers purchased the store’s Groupon offer of two pizzas for one pizza’s cost.
As a result, Groupon realized that everyone was gaining in the scenario. Groupon marketed its enterprises by offering to fill any vacant seats with current ventures. At the same time, Groupon profited from acting as a middleman between the two parties and drew users with discounted rates.
Make a Platform where Buyers and Sellers Interact
This well-known business tactic draws providers who are also buyers. Many markets that employ this strategy also operate on a peer-to-peer basis. This approach has to have an enormous buyer-seller overlap for it to be effective for your company.
Poshmark is the best example marketplace to use this idea. Similar to eBay or OLX, this is a local marketplace for old clothing sales. Manish Chandra, the company’s creator, concentrated on lone buyers and sellers to address the chicken or egg problem.
Poshmark doesn’t have many users at its starting stage. So, to attract users, they create an app/platform which allows users to sell on them.
There are only 500 users for the first six months. But, the Poshmark marketplace mobile app was active enough with 300 users.
Over one year, the company has become ten times more successful. So first, create a marketplace platform in order to attract more customers.
Chicken or egg is a common problem in the two-sided marketplace. Many successful online B2B marketplaces have also faced and overcome this problem. While creating a marketplace, prepare a strategy to tackle the chicken or egg problem.