Strategy

How to build a marketplace MVP for speed and scalability

George Chang
George Chang October 14, 2021
How to build a marketplace MVP for speed and scalability

One of the goals of any major digital initiative is to quickly achieve return on investment in the form of a minimum viable product (MVP). Marketplaces are no different. Every single marketplace will go through an evolution phase, so how do you scope a productive and efficient marketplace MVP while providing flexibility to adapt to specific requirements?

I have already written about how to build the case for a marketplace business and, in this next article, I will identify the key elements every marketplace needs to scope, regardless of use case. The marketplace journey can require a variety of permutations along the way, but these are the core pillars you will need to launch and start earning revenue. This guide will build the foundation for your Statement of Work and help establish an appropriate timeline to give clarity over your time-to-market.

Financial model

The start of any major project will require an economical model as the basis for a financially viable start. Understanding the key value propositions of the marketplace and how it translates into a business model is essential. You need to ask yourself questions like:

  • What are the key levers of your marketplace? 
  • What are the key cost structures? 
  • Out of those, which are hard costs, versus soft costs? 
  • Of these financial levers, which are considered fixed and which are variable?

Luckily, to help you navigate all these details, I’ve created another resource to help you with our VTEX Revenue Model template. 

Product catalog

Determine whether you are adding brand new categories or augment existing catalogs — or both. Invest some time to understand the dynamics of your category tree, your required attributes and how that translates into a viable customer journey. Keep in mind there is a trade-off between depth of attributes and the amount of product augmentation your existing sellers have in their data sets.  

Seller acquisition

This is the single most underrated element of every single marketplace I have ever run or consulted. How often have I heard the words “yeah, I’ve talked to a few people who are interested”? This is a universe away from actually having a seller who has signed your agreement and even farther away from a seller who has successfully onboarded. Seller acquisition is the first foundational layer, with seller optimization and acceleration coming into play only when it’s robust enough.

We could probably dedicate another article solely for this topic, but it’s important to identify a seller strategy, most likely after you’ve discussed with the category merchants and cross-sectioned it with your customer profile. In parallel, you should create a target list to track your progress towards your desired product offering and seller line-up.

Payment

Traditional marketplaces have to deal with taking payment for the transaction, as well as dealing with fraud, chargebacks, seller payment and reconciliation. Newer marketplaces are exploring opportunities to leverage all the benefits of a marketplace without the additional payment and Merchant of Record liabilities. Good thing VTEX’s marketplace platform allows both methods to fit whatever works best. I suggest using a payment provider that has some strong seller payout functionality such as Adyen for Platforms, which has even additional functions for onboarding and Know Your Customer compliance.

Order orchestration

Whether you are looking at a mixed 1st-party and 3rd-party shopping cart or at a multi-seller shopping cart, order orchestration is a critical element of your marketplace. Start with basic order splitting and routing, as well as capturing the response flows from the seller. 

Returns and associated seller/customer communication should also be included into the basic marketplace MVP flow. Once your requirements become more sophisticated, there are advanced order management features such as advanced exchanges, order rerouting and intelligent order distribution. Fortunately, these are all features VTEX supports out of the box for a great online marketplace MVP.

Operations

In a traditional 1st-party model, the selling organization has full visibility and control over the entire end-to-end customer experience. In the 3rd-party model, these are being outsourced to a trusted partner, however it’s imperative to build in extra controls at the operational level to ensure your customers are being supported seamlessly by your 3rd-party sellers.

This involves measuring high level KPIs such as cancellation rates, return percentage, and seller reviews. Identify a realistic threshold close to your 1st-party KPIs and once these high level KPIs have been established, you can start to implement more granular, micro KPIs to streamline your operations even further and even build predictive models.

Develop your marketplace strategically

Remember, building a marketplace is like any other major digital transformation journey. There has to be a clear vision, a grounded economic model, cross-functional communication and smart project management. Identifying and building the right initial marketplace MVP will help to ensure maximum time to revenue while laying the foundation for new requirements which are sure to evolve. 

In a future blogpost, we will focus on the next natural progression of creating an online marketplace: how to empower and accelerate sellers’ performance.

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