4 Ways to Beat an Incumbent Marketplace

By: Charles Costa | May 14, 2018 | Marketplaces

Whether you’re just starting out with your marketplace or are more established, it’s a given that you’ll be facing some type of competition. While many traditional businesses are able to coexist with each other, marketplaces are unique in that when one platform hits critical mass, it’s difficult for others to compete.

While it’s true that the first marketplace to hit critical mass in an industry has a significant advantage over competitors, that doesn’t mean incumbent properties are immune to competition.

With that in mind, while many articles will tell you to lower your fees in order to compete, I’m going to suggest otherwise: Customer experience—not price—is the future of meeting customer needs and staying ahead of the competition.

Below are 4 tips to help you get ahead of the competition:

1. Specialize in a specific niche

Whether you’re just starting out or are an established property, it’s essential for you to focus on running a property that addresses the needs of a niche market. The main reason for this is that  you can’t spread yourself thin by trying to deliver exceptional experiences to everyone. Amazon, Alibaba, eBay, and other companies have been there, done that, a long time ago.

By focusing on a specific niche, you can develop a passionate user base by addressing needs incumbents commonly overlook. From there, you can use that momentum to expand into new markets.

Amazon started as a bookseller, but today they’re a conglomerate that even owns a brick & mortar grocery store. eBay is another property which started out by selling Beanie Babies, but eventually expanded into offering an assortment of goods, from collectibles to mainstream merchandise.

2. Build a 10x better product

In the business world, it’s common for brands to build solutions that are “good enough,” and while that works in some cases, for marketplaces it’s far from ideal. This is because marketplaces rely on network effects for success. This means that the marketplace becomes more useful as more people use it. In essence, once the flywheel is moving, users are hooked into the system.

In terms of companies which built 10x better products, look no further than Uber, which delivered a premium experience over the traditional taxi industry. Another example is Airbnb. Although it wasn’t the first company offering home sharing services, it was the first that enabled customers to pay for their stays online via a credit card so that guests and hosts wouldn’t have to handle cash.

3. Offer exceptional customer service

It might seem trivial, but providing exceptional customer service to your buyers and sellers is a relatively simple yet effective way to boost satisfaction and develop a reputation as being a marketplace that cares about its users. Just take a look at the rivalry between Uber and Lyft.

Lyft took off as a marketplace because they were laser-focused on providing a friendly experience for both drivers and passengers. For example, while today the two are fairly similar, early on, only Lyft allowed passengers to tip drivers.

Now you’re probably wondering how you can provide better customer service to buyers and sellers. One tactic I recommend is leveraging artificial intelligence and extreme personalization for marketplaces. The main benefits from extreme personalization solutions are that you can: overcome imprecise email segmentation, perfectly time messages, and reduce cart abandonment.

4. Focus on overall value

As mentioned earlier in this article, marketplaces can’t compete on price, nor can they rely on having unique inventory as a competitive edge. In order to be successful, marketplaces need to deliver exceptional experiences.

One of the realities impacting a user’s experience is the fees they must pay on the site. That said, marketplaces need to justify their take rates (the fees and commissions they collect from their end users).

One of the best ways to justify the fees collected from users is to embrace the managed marketplace business model. This is where the platform operator takes a hands-on approach to facilitating transactions. For example, StockX is a marketplace that verifies the authenticity of goods, and Uber/Lyft perform background checks on drivers.

Making sense of it all

When it comes to running any type of marketplace, it’s important to note that today’s leaders can easily become tomorrow’s laggards. The key to successfully overtaking an incumbent is to  focus on bringing value unlike any others out there. Value and experience trumps all else.


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

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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.

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