Marketplace business ideas are a dime a dozen. These ideas are easy to sketch in PowerPoint, but are challenging to execute. The reality is that a marketplace business has many constituents and quickly becomes a fragile balancing act. That’s why Uber, Airbnb and Etsy are so entrenched and hard to beat.
Just ask Amazon how hard it is to beat Etsy. Since 2015 Amazon has been launching several efforts in the handmade space that Etsy has been pioneering. Meanwhile, Etsy has accomplished the impossible. They have defended against Amazon. They’ve even grown and achieved profitability. Name me another Amazon competitor that has done the same?
So, what are the lessons other retailers can take from Etsy?
#1 Create customer loyalty
Over 80% of Etsy customers are repeat purchasers. This return rate is massive customer retention, and most retailers would be jubilant with 40%.
However, it gets better! During the customer experience on Etsy.com, there’s a big focus on cross-category discovery. This discovery means you come for a hand-printed canvas bag and leave with an additional linen pillowcase.
Moreover, at the heart of the process is data. Etsy measures the A to Z of the customer journey and blends several data sources. The company takes standard metrics such as NPS and combines it with retail measures such as gross sales. Sprinkled throughout the process is some attitudinal data from brand tracking studies.
In short, because they measure the experience, Etsy can optimize the customer experience. So, great experiences bring customers back time and time again.
#2 Make life easier for craftspeople
Etsy has learnt the lesson of Homejoy – an unsuccessful attempt at creating a marketplace for homeowners and cleaners.
However, it just didn’t create enough value for sellers. So what would happen after the first transaction? The buyer and seller would cut Homejoy out of the equation for the second and subsequent transactions.
Etsy creates so much value, similar to Airbnb, that nobody wants to leave the marketplace. The reason? Because it’s too much hassle to go direct. This direct approach is the ultimate test for any marketplace.
There are 3 tactics that make life easier for sellers on Etsy:
- Low fees: $0.20 to list, 5% transaction fee;
- Lots of pain relievers: shipping integration, store management via mobile;
- Plenty of free training and education: check out their Seller Handbook.
#3 Vertical market focus
Etsy is all about discovery and Amazon is all about convenience. So, Etsy has gone all in one-of-a-kind products. This focus also means being a champion of the independent seller. The company has even made public promises to create a positive impact on social and ecological areas. This value-driven approach is a home run with its core community.
The horizontal strategy of Amazon will crush many retailers and marketplaces. However, what Etsy has done is focus on a vertical that values craft more than convenience. Sure, Amazon Handmade will do fine, but the depth of Etsy in its vertical craft means it has plenty of business potential.
If you’re considering a dive into the world of e-commerce, make sure your plan is to build customer loyalty, ensure substantial value creation for buyers and sellers, and a focus on segments that fit poorly with Amazon.