3 Ways You Can Develop a Competitive Advantage for Your Marketplace

By: Charles Costa | May 7, 2018 | Marketplaces

One of the biggest challenges you can face as a marketplace operator is finding ways to fend off the competition. As you validate your market and gain popularity, companies are going to pop up left and right looking to get a piece of the market.

In the past, there was a simple solution to this dilemma. Price wars. For companies such as Walmart and Amazon, their sheer size enabled them to push numerous competitors into the ground. Today however, marketplace operators aren’t locked into such battles because they can compete on something else—delivering an exceptional experience.

That being said, while many marketplace articles will tell you to lower your take rate, which are the fees and commissions operators collect from third-party sellers, we’re going to suggest otherwise. As we’ve discussed in a previous webinar, customer experience—not price—is the future of meeting customer needs and staying ahead of the competition.

With that in mind, below are 3 ways you can develop a competitive advantage for your marketplace:

1. Don’t rush to expand

Our first tip for developing a competitive advantage is to avoid rushing your marketplace expansion plans. As competitors pop up within your space, one of the initial reactions corporate leaders have is to rush into new territories.

The main reason for this is because the marketplace sector is a winner-take-all space, meaning the first company to market with a product or solution arguably is going to have an easier time drawing in customers, as opposed to later competitors.

That being said, having the first-mover advantage only works if you’re able to deliver an exceptional experience to buyers and sellers. If you rush to expand, you’re bound to amplify the flaws in your business model, plus you also stand the risk of alienating your existing user base.

When your company hits peak performance, you’ll reach a point where expanding is beneficial to your business. When that time comes, you’ll want to ensure that you fully understand the market you’re moving into. Different regions have different cultures and customs. Just because something works in your existing territory market doesn’t mean you can use the same approach across the board.

2. Leverage artificial intelligence to deliver a 1:1 experience

Regardless of the market you focus on, it’s worth noting that buyers and sellers both want to be treated like the individuals that they are. With that in mind, you can’t rely on traditional messaging technologies to communicate with them. Modern marketplace professionals need to leverage extreme personalization to stand out from the pack. Although it used to be an abstract concept, modern artificial intelligence based tools help make it easier for marketplaces of all sizes to improve their engagement.

While there are a variety of ways extreme personalization benefits marketplaces, the most notable element is personalizing message content. For instance, marketplaces can leverage AI-powered A/E testing rather than standard A/B testing.

With A/E testing, five variants of messages can be tested at once, in an ongoing fashion. A/B testing on the other hand involves testing two variants of messages and selecting the winner based on a small subset of messages (often 10% of a list).

The primary advantage of AI based A/E testing is that each user receives the variant they’re most likely to engage with, not just at one point in time, but through future activities.

In addition to optimizing message contents, extreme personalization enables marketplace operators to precisely time messages to when users are most likely to engage with their message.

3. Don’t leave customers stranded

For the final point of this article, we’re going to briefly loop back to a key idea from our introduction. One of the least desirable things you can do when running a marketplace is engage in price wars. Adding value to buyers and sellers is essential to standing out from the competition.

While there are quite a few ways you can approach this, at a high level, the most comprehensive method is to operate a managed marketplace. These entities involve a hands-on approach to facilitating transactions. Instead of letting the buyers and sellers transact offline, the marketplace carries out the transaction between the two parties online.

In addition, managed marketplaces may provide insurance on purchases, verifying authenticity of goods, performing background checks on service providers, and so on.

On the other side of the spectrum, there are unmanaged marketplaces, such as Craigslist. These properties simply provide an online platform for buyers and sellers to meet. Aside from messaging capabilities, there’s not much else. Although unmanaged marketplaces are relatively easy to run, there’s not much room for differentiation.

Making sense of it all

The marketplace space is a modern day digital gold rush. When one company finds success in a sector, competitors are bound to follow. Given the advantages of owning a marketplace, it should come as no surprise that these properties are dominating e-commerce for a variety of reasons.

With that in mind, fending off the competition can be a daunting task for even the most experienced business owner. While we’ve presented a variety of tips in this article, the common thread of the advice is that you should stay true to your buyers and sellers and deliver value however you can.


To learn more about how the marketplace business model can help improve your profitability, check out The Kahuna Blog. Simply click the button below!

Kahuna for Marketplaces

Sign Up to Receive The Big Kahuna

A Bi-Weekly Newsletter Focused Exclusively on Online Marketplaces

  • This field is for validation purposes and should be left unchanged.

Author: Charles Costa

Charles Costa is a content marketing manager who specializes in helping companies grow, one word at a time. Prior to Kahuna, Charles worked with brands such as Airbnb, Iron Mountain, and IBM on their content marketing efforts.

Charles' work has been featured in the Huffington Post, and he also was a contributor to the developer publication, Sitepoint.

View all posts from this author