Online marketplace platforms have been around for quite some time, but there has been a surge in demand for such business models in recent years. The reason is simple; most of them offer competitive pricing for consumers. An online marketplace platform must provide enough value for the partners, sellers, and service providers. This is where the marketplace pricing strategy comes into play.
According to a report, 56% of sellers on Amazon are also selling on eBay. Amazon’s pricing strategy and revenue sharing often push their sellers to find other marketplaces to sell. It is a classic example of how an online marketplace platform can drive its sellers away if the pricing strategy has loopholes.
There are many factors responsible for the determination of a pricing strategy for an online marketplace. Some of them are related to the firm’s internal structure, while others are external factors that may not be directly under your control. Learn: Everything you need to know about building an online marketplace platform.
There are two main categories of factors responsible for the online marketplace platform pricing strategy:
- Internal Factors
- External Factors
Let’s discuss these factors one by one.
Internal Factors That Affect The Online Marketplace Pricing
If you are to build a marketplace with multiple vendors and partners, internal factors govern the revenue sharing and sales price. From the cost of manufacturing goods to brand promotions and even the volume of transactions, everything affects your pricing strategy internally and is easily controllable.
Cost of Goods Sold
The cost of goods sold comes into the picture when you think of profit margins. If you are a multi-vendor marketplace platform, your seller’s marginal costs are the primary factor in deciding what you can charge them.
For example, if you build a marketplace like UberEats and the restaurant owners roughly make 10% profit, you can’t charge a 5% commission because that can drive away your sellers.
So, it is important to precisely gauge how much marginal costs your sellers can bear? And how much can you charge them? But, these pricing strategies can vary in different business models.
Take the example of the e-commerce giant Amazon. As it has many different categories on their online marketplace platform, they charge based on product categories, which can be anywhere between 30 to 45%
Brand positioning is all about how your customers perceive your marketplace. For example, eBay is the most significant online marketplace player ahead of giants like Amazon and Craigslist.
The most interesting aspect of this data is that the marketplace ranking is based on profitability for sellers, customer service, better communication, and ease of use. A brand’s position can be enhanced through better communication with customers and after-sales service. So, your brand positioning will determine your reach among customers, and that is where you can ace the pricing strategy.
If you are a popular brand like Amazon or eBay, you can charge a little more as you have that connection with customers. Simultaneously, if you are an upcoming marketplace with fewer customers, your pricing strategy should be attractive for sellers and buyers.
Brand promotional campaigns are essential for customer awareness and help increase association. But, promotional campaigns are not free, and you need to spend money on different campaigns across channels.
There is no way you can ignore the promotional costs as it is an essential part of your business growth strategy. But, you can reduce these costs through referral programs that drive a higher user base.
Take an example of the Airbnb referral program, the online marketplace platform for rental estates offer $18 per qualifying stay and $10 per qualifying user experience during the stay from each referral. The firm has seen a 25% increase in bookings from these referrals, which can easily beat some of the best promotional campaigns.
Size & Volume Of Transactions
There are two popular types of online marketplace platforms in the market. One type has a higher volume of the small-sized transaction, while others can have a low volume of big-sized transactions. Both of these models can be profitable if you get the pricing right.
You can improve the transaction volume by keeping the pricing competitive. But, many online marketplace platforms employ a Minimum Advertised Price policy. MAP asks your sellers to abide by some guidelines for product pricing, which can drive these profitable partners away. So, either you can keep the MAP not too strict or allow the product pricing decision up to the sellers.
External Factors That Affect The Marketplace Pricing
Most external factors are not under your control, like the competition or purchase behavior of consumers. So, how can these factors affect your pricing decisions? Let’s discover.
Effect of competition
In the modern age of online marketplace platforms, there are multiple channels where sellers list their products, and that is why you need to have a sound pricing strategy. Apart from that, you can tap into a niche market because that can help you achieve a monopoly over a specific user base.
For example, FreeWire is the startup that offers mobile electric charging for vehicles on demand in the US, which is a considerable market for EVs(Electric Vehicles). The business model is unique and specific to the US, creating a monopoly.
Market demand is one of the most significant factors that can affect your pricing strategy, and yet it is not under your control. Market demand primarily depends on consumer purchasing behaviors, which change over time and are never predictable. So, your pricing strategy must be flexible enough to attract consumers based on market demand.
Any online marketplace platform can keep up with the market demand by tracking real-time changes in the buying behaviors and trends. Here, social media platforms can help you engage better with the audience and get more data on the latest trends.
You can also use tools like,
- Fishbowl Inventory
- Conga Contracts
- Lead Commerce
With such tools, you can track real-time inventory stocks, sales, and other data to gauge users’ purchasing behavior on your multi-vendor online marketplace platform.
When you want to build an online marketplace platform, pricing is one of the many things you need to handle. But, if you can strategize the internal and external factors in favor of your business model, it becomes a little easier. Well-strategized pricing can not only help you grow but also solve the classic chicken-egg problem with a marketplace model.
A chicken-egg problem occurs when the new marketplace does not know whether sellers come first or buyers. When your pricing is well in-sync with all the internal and external factors, handling the chicken-egg problem becomes easy. Now you have understood the points you need to keep in mind to build the best online marketplace platform.