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Online Marketplace: How to Avoid sellers from selling directly to Buyers?

In one of my previous write-ups, I had elaborated the various Revenue Models that fetch some handsome revenue to all ecommerce marketplace owners. One of the lucrative and proven ways of making some BIG money legitimately is to charge a commission on each and every transaction. This is possible in its entirety by owning an ecommerce marketplace. Ecommerce marketplace owners face a plethora of challenges and one of such challenges in the so-called Platform Leakage problem where sellers and buyers circumvent your ecommerce marketplace platform and steer clear of paying any transaction fee. Thanks to this Platform Leakage problem, your expectations often go for a toss.

Solution to Platform Leakage Problem

Offering a Sense of Security

How do you offer a sense of security? Amazon has a fantastic way of offering sense of security. When one of my technical team members ordered for Microsoft Windows 10, Amazon delivered two ISO CDs- One was of 64 bit version and the other was of 32 bit version. Needless to say, he was given genuine access keys to both the ISO files. So, how is this a sense of security? When you are doing justice to the money paid by the customer, you are creating a sense of security. Amazon could have simply offered a 32-bit version while my technical team in fact, needs 64 bit version. But Amazon didn’t. If it is for otherwise, it would have created not a sense of security but a sense of distrust. Ecommerce marketplace vendors should also come up with similar features.

‘Insurance’ is another such feature that creates a sense of security. As an ecommerce marketplace owner, it is your responsibility to insure each and every item displayed by your cadre of sellers. As a consequence, sellers do away with the idea of leaving your marketplace. To instill the sense of security into the minds of customers, come with ‘Guarantee’ claims. Tell your customers that you offer ‘One Hundred Percent Guarantee’ on each and every item. Should any item underperform or fail to meet the customers’ expectations, replace it with a new one or offer cash-back schemes. If you implement this both in policy and execution, letter and spirit, it results in repeat purchases.

A formal agreement or the so-called Non-Disclosure Agreement (NDA) will also make matters better. Mutual parties should abide by the rules documented that are in the Non-Disclosure Agreement (NDA). Should anything wrong happen, either parties should embrace themselves to face the subsequent legal consequences. Non-Disclosure Agreements (NDAs) prevent fraudsters from playing any kind of spoilsport.

Ability to take Financial Risk

Not all sellers will be ready enough to take financial risks. Financial risks are usually associated with shipping costs. For example, imagine a scenario where you (Seller) are in Las Vegas and a customer in Los Angeles has ordered for a costly item. As a seller, it behooves on you to ship the items to the correct destination as quickly as possible. Despite your genuine efforts, dubious buyers can claim that they haven’t received any item. Some other customers may file a dispute and say that they have received a broken item. Some may even demand a refund. So, how do you handle such situations? Reputed ecommerce multi-vendor marketplaces such as Admire come with a high performing module called ‘Dispute Management System.’

Dispute Management System takes care of all such conflicts. It comes with a one-one buyer-seller interaction feature where pre-purchase, during-purchase and post-purchase conflicts will be addressed. Sometimes, secure payment gateway providers such as PayPal offer Seller Protection feature. Financial Risks come under the gamut of ‘Seller Protection’ feature. So, if you have secure payment gateway providers under your ambit, customers will refrain themselves from indulging in fraudulent activities.

Uber’s methodology

In service based marketplaces such as Uber, online payment transactions will obviate financial risks. How? Thanks to the presence of high-crime areas, taxi drivers are often prone to robberies. When a customer pays money online for availing the service, he no longer pays money to the taxi driver. Similarly, the taxi driver no longer carries enough cash with him. As a result, robbers are left with zilch. Travis Kalanick, the CEO of Uber truly deserves a truckload of praise for his vision in effectively obviating such robberies.

Reputation Systems

Admire marketplace has another excellent feature called ‘Reputation Systems’. Sellers who have been associated with Admire marketplace for a significant amount of time and who are in the good books of customers will be placed in ‘Reputation Systems’. How will you know if a seller is in the good books of his/her customers? The answer is simple. Thanks to the ‘Reviews and Ratings’ feature of Admire ecommerce marketplace, by observing the reviews and ratings of the seller, you can come to a decision. There is an advantage to the sellers by making a mark for themselves in Reputation Systems. They can pitch their prices a little higher than other sellers who aren’t in Reputation Systems. This eventually results in enhanced revenue. Customers don’t mind spending an extra buck or two in cases where ‘trust’ plays a vital cameo.

There is yet another outcome that is worth mentioning- ‘Healthy competition.’ A sense of competitive atmosphere will prevail and hence, sellers who haven’t made a mark for themselves will be keen to position themselves in Reputation Systems. Need I say more on the advantages of Reputation Systems?


What exactly do I mean by ‘convenience’? Is it something associated with seamless service? Yes, of course! Automation is a boon that ecommerce marketplaces should leverage to the complete extent. Let me explain this with an example. There is a reputed freelancer marketplace called ‘UpWork’ that hogged the limelight for its convenience and automation. In order to get a freelancer, either parties should negotiate, sign the documents, and get the approval of other authorities concerned. In addition, if the results are delayed or quality is not up to the expectations, there may be a few conflicts.

All such errands are necessary evils without which, hiring a freelancer is impossible. UpWork saves a lot of time by taking care of all such mundane and monotonous tasks. What all UpWork takes is a commission for simplifying such tasks. Hiring a freelancer thus becomes easy and is no longer a matter of days or months but in all certainty, it is just a matter of minutes.

Ease of Reach

One often gets confused between the terms ‘convenience’ and ‘ease of reach’. Thanks to the all-pervading confusion, we end up using one word for the other. Ease of use is all about decreasing the hurdles and making the transactions smooth. It is imperative to understand that transactions can be both monetary and non-monetary. Let me explain this with an example- Brian Chesky, the founder of Airbnb had an embarrassing experience that led to its creation. It so happened that Brian was staying with a stranger who also happened to be his host. Brian forgot to carry enough cash with him and when Brian was asked to pay the rent, he asked his host if he could withdraw some cash from a nearby ATM. The ‘trust’ aspect has gone for a toss and needless to say, the host treated Brian with disdain.

It goes without saying that great men learn from their experiences. Thanks to his bitter experience, Brian introduced online payment systems in his venture- Airbnb. This online offering system obviates the necessity of carrying some cash. As mentioned in one of the above paragraphs, Uber customers do enjoy the same benefit. They have to pay the cash online. Ecommerce marketplaces can simulate the behavior of Uber and Airbnb with a few changes.

Escrow Service

Marketplaces can wear the hats of a middleman and thus offer escrow services. Marketplaces should capture the payment and notify the provider about it. However, marketplaces shouldn’t move the money to the provider unless and until the service requested by customers is completed. However, this Escrow service is besotted with a few challenges and one such challenge is that it is heavily regulated. More often than not, regulations vary from one country to another. Sometimes, regulations vary from one industry to another.

WePay’s Escrow Service

WePay, the reputed payment gateway comes with two services- Delayed Payouts and Tipping Point Payments.

Delayed Payouts

In this type of escrow service, the payment is held for a maximum duration of two weeks or 14 days. Payment is collected from the buyer or customer and is not moved until the service provider offers the service. Service providers must offer the service or at-least initiate the service within 14 days. Otherwise, the money is refunded to the customer’s account. Whenever the payment is held and hence not moved, a sense of urgency crawls into the minds of the service providers. As mentioned in one of my previous articles, the so-called sense of urgency will create wonders.

Tipping Point Payments

In this type of escrow payment service, marketplace platforms collect the credit information from the payers and transactions aren’t initiated until some conditions or thresholds are met. Most of the crowd-funding platforms opt for such tipping point payments. For example, websites such as Brain Pickings collect the credit information from its readers and their cards aren’t charged until a fundraising threshold or a certain minimum amount has been met. This is risk free as the platform is never actually holding the funds.

Communication Strategies

There are a few strategies that keep your business running. One of several proven strategies is ‘the art of beautiful communication’. You have to eloquently express that each and every customer is valuable and hence, your feelings for them are ineffable. A simple message such as We are here because of you. Without you, our site would have disappeared. Our sincere thanks for your tremendous contribution. Never ever use draconian approaches such as Users bypassing the marketplace transactions will be banned.

Never enforce excessive communication barriers. Users need to communicate with sellers before purchasing any items or before opting for any service.

Marketplace cooperativism

Have you ever wondered about offering service providers a stake in your marketplace business? By offering a stake, you are just creating a win-win situation. When service providers are offered a stake, they start working with a lot of dedication and even more devotion. They will be a lot more inclined to provide best service to your customers. While issuing a stake is a beautiful and a radical initiative, offering a small amount of share is another viable alternative.

Reddit, the reputed content community site that has hogged the limelight as ‘the front page of internet’ has announced its noble intentions of sharing as much as 10% of their recent funding round. With this initiative, Reddit plans to utilize its own crypto currency backed by block-chain protocol. Well, it is only a matter of time if this initiative aligns with the community’s expectations. There are a lot more innovative ways of achieving Marketplace cooperativism. Just tickle your grey cells!

Give Value and Get Value

It all boils down to the quote- Give Value and Get Value. What is the value that you give to your target audiences? If your target audiences are individuals or sellers, always focus on the two important parameters trust and security. On the other hand, if your target audiences are professionals, ensure that your marketplace platform has adequate tools to help them run their respective businesses.

Let us Talk

Well, this is some soul searching and mind tickling stuff for today. If you want some insights on any other topic that is related to ecommerce or m-commerce, feel free to drop a comment or two in the comments section. You can reach Steve Watson on +1.302.525.8125. Alternatively, you can drop a mail to [email protected] And yes, keep reading and keep visiting our blog for insights. Cheers!

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