Top 10 Marketplace Mistakes to Avoid in Your Startup

Are you thinking of starting an online marketplace? Or maybe you’re already running one but struggling to attract customers or sellers? With the rise of online marketplaces, it’s easy to get lost in the sea of competition. It might feel like everyone today is starting a marketplace and for a good reason: buying online has skyrocketed since COVID and interestingly people are sticking to their buying habits. Consumer research shows you that a bulk of previously offline shoppers learned how to do it online, found it convenient, and it is a part of their lives from now and forever. Huge demand generated supply. And all of a sudden, every businessman discovered that running a marketplace is not as risky or expensive. Well, compared to running a single brick-and-mortar store. You don’t need to open a factory, rent a warehouse, stock up the store, pay rent, or take care of goods delivery schedules. More so, you can get a custom MVP for as low as $27k and up to $89k. Still, there are risks associated with any startup. If you are worried about those, you can read more about them in our article “Top 10 Startup Mistakes during Custom MVP App Building”.  But fear not, dear reader, for we’re here to guide you through the treacherous waters of online commerce. So, let’s dive into the top 10 marketplace mistakes to avoid and make sure your business stays afloat and ready for success. 

Table of Contents

• Failing to conduct market research;
• Choosing the wrong methodology;
• The Chicken and Egg Problem;
• Not adopting a customer-centric approach;
• Neglecting to optimize pricing strategies;
• Failing to provide clear product descriptions;
• Ignoring customer feedback and not paving the way for UGC (user-generated content);
• Not designing a mobile-friendly web app;
• Not caring about shipping costs;
• Failing to keep up with industry trends;
• Summary: Top 10 marketplace mistakes to avoid.

#1 Failing to conduct market research

Understanding your target audience and competition is crucial when building an online marketplace. Without this knowledge, you risk creating a marketplace that doesn’t resonate with your audience or differentiate from your competitors.

Let’s look into a story about a friend of a friend who tried to launch an online marketplace without doing any research. He thought of a wonderful idea to create an antique furniture marketplace. He thought that: well, those antique items are always pricey because they have the story behind them, and there are people who love those items. And, you know, there was this TV show where people looked through storages and attics and found what they referred to as ‘real treasures’. And during difficult times or times of uncertainty, people lean to old and familiar as a place of comfort. “So it will be a hit,” thought he! 

He immediately invested time and money in creating a platform where users could buy and sell these antique “treasures”. And he didn’t do much щаresearch because he didn’t want to waste time. He must have thought that antique furniture is a pricey item with a history and always found its niche customers. However, he forgot about the fact that folk who hunt antique furniture prefer something else. They enjoy browsing through the markets or yard sales where they can sense the ‘aura’ of the time, hear the story, and haggle. As a result, his marketplace failed to attract any customers. He was left with a ton of unsold antique furniture that he had purchased for the platform. There were some customers in search of something new and different that he managed to attract, and those who looked for a deal; but he completely missed the ‘target audience’. 

Was it a good idea to create a marketplace for the sellers and buyers of antique furniture? Of course, but it would have had to be a completely different positioning, different UI/UX, and promotional strategy. It could have been trendy antique furniture with an old-times vibe for Millennials. Like a marketplace with photos of how it fits in with modern designs or a country-house feel. And maybe there should have been plenty of visuals. Maybe even there could have been an interactive tool to upload a photo of, let’s say, your kitchen and see how a piece of antique furniture fits in. Also, burning a promotional budget on Google and Facebook ads to target generic consumers was not a good idea. His marketer could have targeted the audience more narrowly. For example, he could have done a search of channels with furniture content and sponsor content for “antique”-themed videos within these channels on YouTube, on FB groups, and so on.

The lesson here is clear: failing to research your target audience and competition can lead to an expensive and embarrassing failure. It is one of the common marketplace mistakes to avoid – you have a great idea and don’t want to waste a minute of time on research. It is important to take the time to understand what your audience wants and what your competitors are doing.  Do your research and you’ll be much better positioned to create a successful online marketplace.

#2 Choosing the wrong methodology

IT is one of the fastest-growing and developing industries out there. It comes with certain peculiarities. One of them is that IT is filled with new terminologies, new trends, and new loud words and definitions, and sometimes they come and go in a blink of an eye. But it is not the case for the Lean Methodology. It is not IT-term per se as it is directly derived from physical manufacturing methodology developed by the Japanese. It is actually a post-war novelty by Toyota and it originated as ‘The Toyota Way”. Long story short, you can trust this methodology and its principles are clear and simple: reducing waste, getting only what is needed when it is needed, and quality control. 

Let’s go back to our antique furniture example. Sure, promoting on Google and Facebook is a good way of getting traction for your website. But was it the right time to do it? Of course, not. When you start, you start with an MVP, small and targeted. The goal is to target the precise user to spend less of your budget on marketing and to get really valuable feedback. Then you can improve quickly, and you can generate some positive word-of-mouth. This later will allow attracting both sellers and buyers alike. From that, the process will snowball to create an organic flow of traffic. 

Or, for example, let’s look at feature development under lean methodology. Reviews and rating functionality or product comparison functionality – are those features important? In general, yes, but… at the right time. For example, at the start of your marketplace, you will not have a ton of products to compare, and the reviews and ratings will be a sad sight. So why invest money into developing these capabilities for your marketplace at the start? Lean methodology means eliminating waste and doing things just in time. So, this is another point where our friend with an antique marketplace could have saved some funds.

#3 The Chicken and Egg Problem

The most classic conundrum in the world of startups is the ‘Chicken and Egg problem’. We already talked about it in this article. Here it will be put in the context of launching an MVP for your marketplace. So the problem boils down to this: to have a successful marketplace, you need to attract both buyers and sellers. But to get buyers, there needs to be a critical number of sellers on the platform, and vice versa. So, which comes first? The chicken (sellers) or the egg (buyers)? It’s not an easy problem to tackle and if you read the article Solving the Chicken and Egg Problem – [Tinder, Uber, +22 more], you will see that different companies approach it in a unique way.

So, let’s circle back to our antique furniture marketplace start-up. The owner decided to buy up some furniture as he was too focused on getting the ‘egg’ first. And it was one of the marketplace mistakes to avoid. He thought he would attract buyers first and then the sellers will come later. Let’s fast forward a few months. The owner invested a lot into development, buying up the product to sell, and promotion. He was left scratching his head, wondering how he was going to keep up paying for every product, every customer, and the maintenance cost. The balance sheets looked awful and the business was barely making any profit. Each new step required investment while the revenue had to be reinvested into procuring more products. His hands were tied. 

The moral of the story? When it comes to the Chicken and Egg problem, there is no easy solution. As it was said before, the key term is reaching a ‘critical mass’ – the minimum amount of both sellers and buyers to launch so that sellers see the demand, and buyers have a choice. From that, new sellers will be coming and the base of customers will be growing. You will have your hands free to scale and grow and direct your business to better profitability and revenues. So again, success in the world of marketplace MVPs comes down to getting just the right number of both sellers and customers to start. 

#4 Not adopting a customer-centric approach

This point resonates a bit with #1, but these are two different jobs. Marketing informs promotional activities, branding, and communication while a customer-centric approach is a job of a business analyst and it informs such aspects as business strategy, customer-facing policies and activities, and product development. However, for both of these you need to learn all about your target audience. You need to learn your customer’s needs and desires: their pain points, preferences, and shopping habits. You need to gather this information and use it to guide your product development. You can utilize it to set the tone of your customer engagement practices. Ultimately, you will have a successful start of your MVP marketplace. Your platform will be attractive to both buyers and sellers, who will keep returning and engaging with it.

To make sure you know your customer, you should ask yourself the following questions:

• What problem am I solving for my target audience – sellers and buyers? How can my marketplace make their lives easier or better?
• How can I differentiate my marketplace from what’s already out there and offer a unique value proposition to my target audience?
• What features and functionalities should my marketplace have to make it easy and intuitive for users to navigate and complete transactions?
• How can I create a seamless user experience that encourages customers to return to my marketplace and inspires sellers to promote their goods from my marketplace through their media?
• How will I handle customer inquiries and complaints? How will I make sure sellers have all the functionality they need?
• What support channels will I offer (e.g., email, phone, chatbot)?
• How can I leverage user feedback to improve my marketplace and enhance the overall customer experience?
• How can I incentivize customers and sellers to refer others to my marketplace?

Let’s now circle back to the start-up owner with the antique furniture marketplace. Sure, he ticked some boxes. There was no marketplace similar to the one he created. Also, he made sure all the functionality is there. But there was no strategy and proper tactics to incorporate user feedback so that it can be leveraged. Plus, there were no incentives for users to refer other users to his marketplace. Moreover, the design was rather something a customer had to bear with. Lastly, there was only email customer support which took ages to get any answer. So, for sure, that is something to be avoided if one expects to succeed. 

#5 Neglecting to optimize pricing strategies

Neglecting to optimize pricing strategies is yet another one of the marketplace mistakes to avoid. Proper pricing can attract or deter customers, impacting the success of your business. Here’s how:

• If you price your products too low, some customers may perceive it as a signal of low quality.
• Sellers seeing way too low commission rates may sense that it is because there is no business yet. 
• If you price your services too high, price-conscious customers (and that is the majority now) will leave. They will look for more affordable alternatives. 
• Sellers seeing too high commissions will be either discouraged to join at once or will put up their base prices too high so that the shoppers will not buy anything. 

Let’s look at the example of our antique marketplace. The prices for antique furniture are often higher than mass-market new furniture. And if you go to a market to buy some antique furniture from a person, they will initially start with a high price. The customer would negotiate the price through which process a seller will introduce interesting details about the piece. So that the customer leaves with the feeling that even though the price is high, this piece is worth it. Maybe it was made from exceptional wood which is hard to find these days. Or maybe some special varnish made using an old recipe was used. Maybe even the piece of furniture itself bears a hundred-year-long history. The possibilities are endless to make a customer feel it is worth it on the spot. The process itself is fun and a kind of experience in itself. When it is a website just offering overpriced old-looking pieces of furniture – the value of experience is taken away. So, there had better be something good to come with it to make up for that hefty price tag. 

The lesson is simple: the whole package of the shopping experience must add up to the price the customer pays. The same for sellers who pay commission from the orders – this percentage must be in line with the value-for-money idea.  

#6 Failing to provide clear product descriptions 

Considering the Lean methodology, your vendor will advise you not to include product reviews as a must-have function for the launch. It is a reasonable action to cut costs. Also, at the start, there will not be much of authentic reviews for customers to go through. You probably won’t be opting for a seller-buyer chat functionality at first either. So let’s make sure that the customer is clear about the product with the product descriptions. The sellers must be encouraged to give a good product description. In light of this, having clear product descriptions is where you should really put in the effort and not doing so is one of the marketplace mistakes to avoid.

69% of the shoppers are inspired to make a purchase using social media.  54% of shoppers say they will buy a product immediately on social media if they have the option to click and buy. But for that, they need to have a clear grasp of what is that thing they are buying. Make sure sellers are trained to write beautiful product descriptions. Then, users will buy and spread the word. Having a good product description, they will be able to understand it, use it effectively, and promote it. As an idea, you can develop functionality for it. For example, it can be a feature of the sellers-side functionality of converting good product descriptions to social media posts with click-and-buy options. 

Let’s go back to our marketplace example. The promotion strategy of the posts for the antique store was mainly directed at advertising the marketplace. They contained a selection of products from different sellers with minimal information. The gamble was made on the looks of the products. There was no focus on one or two items with good descriptions. The click-and-buy feature was also missed. 54% of sales were lost right there and then and it was one of the marketplace mistakes to avoid. 

So the implication is that: train sellers to provide good descriptions and use a rule of ‘quality over quantity’ when creating a social media post. Then take those to social media (featuring a couple of items or only one) with a link or even a click-and-buy option. 

#7 Ignoring customer feedback and not paving the way for UGC (user-generated content)

Customer feedback and UGC are two closely connected concepts for the prosperity of your marketplace. They are rapidly rising trends, and if you miss out on them, then your product may not stand the test of time.  You may not have the functionality to embed it in the MVP version but you ought to inspire your shoppers to: 

• record videos of them using products they bought, 
• participate in discussions about the product, and 
• give suggestions and ideas about the products. 

Same as you must train your sellers to create good product descriptions, you should train your shoppers to voice their opinions and talk about the products of your sellers. 

In the antique marketplace example, imagine a channel on Instagram. Buyers could post their pieces of furniture nicely fitted into their homes. They could proudly show off their picks. Some users might think, “If it was me, I would have put it 2 feet left … and maybe I should have it, and I should show how it is done”. And so on. There is a ton of options for how people can engage and have conversations. Creating content around the product is a powerful selling tool. You just need to create a clever way to facilitate all of it to your advantage.

In terms of theoretical background, this all boils down to the concepts of brand authenticity and habitual shopping. Making shopping on your marketplace a part of their life is what you should strive for. Additionally, emotionally attaching and engaging your shoppers is another piece of the puzzle. Your sellers will be getting feedback and helping your shoppers to make the right choice. Both sellers and customers will feel that your brand is taking care of them. Together, it will add up to a genuine spot for a nice shopping experience that improves the quality of their lives. It’s a win-win.

#8 Not designing a mobile-friendly web app

Today, more than half of the users browse the web using mobile devices, but it is not always good for shopping. The cart-rate drop, meaning when users added a bunch of things and just left the page, for mobile devices is alarmingly high. Especially so, for mobile native apps:  90% of carts are being abandoned by the latest reports. In Q2 2021, the rate of abandoned shopping carts on desktops was 15% less than on mobile devices. Specifically, in the United States, the average rate of abandoned shopping carts on desktop devices was 66.1%. For mobile devices, the rate was higher at 80.6%.  So, following the lean methodology, don’t rush into creating a mobile app for your marketplace. Focus on polishing the web experience on mobile and desktop. Make sure your page on a mobile device is as pleasant to shop on as on its desktop version. Most commonly, vendors apply the mobile-first approach that is the web app is firstly designed with the mobile user in mind.

Of course, it doesn’t mean you should not opt for a mobile native app. In some cases, it is often a good first choice when it is based on market research. But developing a web app AND a mobile native app at the start for an MVP is often not the greatest idea. The costs for a mobile native app are generally higher than a responsive web app. Moreover, the responsive web app has a much wider reach and easier maintenance. Developing a really good responsive web app is often the most cost-efficient choice. It will lead to better conversions. From there, you can add a mobile native app to your business portfolio when the time is right.

#9 Not caring about shipping costs

Given the fact that the number one reason for cart abandonment is the final total cost, caring about a variety of shipping or pick-up options is essential. With a customer in mind, it is often possible to organize some pick-up points. Give your customers an opportunity to request delivery for a free or minimal charge.  In addition, the availability of such points can give your clients the ability to exchange or return an item. It is a valued option by customers, in case something goes wrong. If those options are unavailable or too costly, don’t get discouraged. You can still provide shipping options with different delivery dates so that price-conscious customers can opt to wait but end up paying lower shipping fees. 

It is clear that not all marketplaces can go around shopping fees. For instance, it is not an option for the case of our antique furniture example. Therefore, choose the market wisely and think about the total cost rather than only the product cost. For instance, in Germany, the movers’ service would cost around 1,000 euros! It is something one would end up paying for moving a bulky piece of furniture. No wonder IKEA is the most beloved furniture store. Most of its goods are meant to be packaged into small boxes and assembled later at home. And the main thing – it is possible to transport those in a regular car! There is no need to hire a van or a truck with movers. So, make sure you consider the total price. Shipping costs must be in a range so that your shoppers will be comfortable paying them.

#10 Failing to keep up with industry trends

Staying current with industry trends can help you remain competitive. It allows you to identify and capitalize on emerging opportunities. One of the first steps of market research is to look at what your competition is doing. It is an essential step for you to spot trends. Additionally, you can avoid being left behind by your competitors. In recent years, a few customer-driven trends have emerged which are: 

• vertical (specialized, niche) marketplaces,
• social marketplaces where sellers and buyers build trust. 

Uber and Airbnb are one of the most successful vertical marketplaces (though they didn’t start as such, they started as horizontal marketplaces), while Etsy is a great example of a social marketplace.   Uber is a vertical marketplace as it created those niche-focused verticals. They are Uber Eats, Uber for Business, and Uber Freight. Airbnb got into vertical marketplaces with its Airbnb Experiences, Airbnb Plus, and Airbnb for Work. In terms of the social marketplace, Etsy doesn’t just make it possible for makers of handcrafted items to find customers. Etsy fosters a community spirit on the platform. Customers can subscribe to their favorite makers. Plus, there are forums and discussions filled with tips and tricks. Moreover, there are plenty of communication opportunities. It is all built around the social factor of the shopping experience. Remember before we discussed the antique shop example? And there we saw how customer loses the opportunity to negotiate the price and in the process learn more about the item. Well, Etsy is exactly the example, where this problem is solved.

All in all, remember to build an up-to-date marketplace. It might not have all the latest features when it comes to an MVP version. But it should be planned. As soon as initial traction is received and feedback gets factored into the development plan: jump in and make your marketplace a trendsetter rather than a follower so that you can remain competitive, capitalize on emerging opportunities, and meet the evolving needs of your customers.

Summary: Top 10 marketplace mistakes to avoid

These top 10 marketplace mistakes to avoid are critical for the success of any start-up marketplace. As the saying goes, “An ounce of prevention is worth a pound of cure.” By investing time and effort upfront to avoid these marketplace mistakes to avoid, you can save yourself a lot of headaches and heartaches down the road. Make sure the idea you have for your marketplace is adjusted to the current market trends and consumer preferences by doing proper market and business research. There were times when start-uppers would invest in “Barbie” design for their marketplace with all the bells and whistles, but now you need to make sure you follow the lean methodology and do only what is required when it is required. The Chicken and Egg problem is quite classic and twice as big for a marketplace compared to a regular e-shop, and you need to have an original solution at hand. Put your customer first and allow them to buy things on social media from your marketplace. Customers love convenience, they love to communicate and boast about their recent buys, so let them. And teach your sellers to post one or two items with amazingly clear descriptions so that customer does not have to think twice and it is clear what they are paying for. Be aware of the trends and final prices when it is checkout time. Those are the things that determine your sales and, ultimately, the success of your marketplace. 

And remember the famous quote of Benjamin Franklin, “By failing to prepare, you are preparing to fail.” So, let’s prepare for success and avoid these common marketplace mistakes. Now, go forth and create a marketplace MVP that delights your customers, engages your sellers, impresses your competitors, and makes your investors smile. Start with the Custom MVP App version today!