Marketplace Liquidity and Role of Chat

Marketplaces have always existed. So much so that it’s nearly impossible to trace back the exact dates since when they got operational.

Team CometChat • Apr 21, 2020

Marketplaces have always existed. So much so that it’s nearly impossible to trace back the exact dates since when they got operational. A throwback to the good old barter system, when a spice trader had to sell his spices in return for currency in form of coins (Gold, Copper, Nickel, and more). But now we have eBay, Airbnb, Etsy, Craigslist and a gazillion other marketplaces. None of these would have sustained, had it not been for marketplace liquidity.

So, what is marketplace liquidity?

Marketplace liquidity is defined as the percentage of total goods/services present in the market being sold per unit time. It is perhaps one of the most crucial metrics that define the success of a marketplace. That is the sole reason why marketplace owners and operators consider maximizing this liquidity priority numero uno for their teams.

Elaborating on that – marketplace liquidity is used to measure the transactional volume of a marketplace and is considered as one of the key metrics for measuring the success of any marketplace.

To measure the marketplace liquidity, you figure out the percent of all goods and services in the marketplace being sold/bought per unit time. A great marketplace has high transaction volume and velocity along with accelerated marketplace activity.

However, if cracking the code of maximum marketplace liquidity were that simple, every marketplace would be successful, but they aren’t. Are they?

Fret not if you find yourself confused. In this post, we’re going to discuss all about marketplace liquidity, liquidity hacking, why is it important, what are the factors that drive marketplace liquidity and “how to leverage real-time chat for maximizing their marketplace liquidity?”

Marketplace liquidity – why every marketplace owner cares so much about it?

Whenever metrics about success and growth of a marketplace are discussed, “marketplace liquidity” is one of the few metrics that everyone actually cares about.

Let us take the example of an Agritech Marketplace that connects farmers with hotel and restaurant owners who can buy fruits and vegetables without any middlemen in between. But, to ensure the success of this marketplace, just on-boarding the buyers and sellers won’t be enough. You need to make sure that their respective needs are met quickly. The quantity of goods being sold by the farmers or the number of orders made by the restaurant and hotel owners being fulfilled per day or month is the true measure of marketplace liquidity in this case.

In order to increase the number of buyers and sellers, the requirements of both parties are met in a seamless manner. The best metric that would attract more participants, without a doubt, is marketplace liquidity.

To ensure that the demand of buyers (hotels and restaurant owners in this case) is fulfilled, you must make sure that you have on-boarded farmers in a way that everything is available at your platform. At the same time, you need to ensure that the expectations of farmers are met.

That, it’s not about how many users your marketplace has, it’s about how many of them found what they came looking for – which is exactly what marketplace liquidity is about.

One of the most important things that a marketplace can do to boost its liquidity is to build trust among the participants, the sellers as well as the buyers. Building trust is what helped modern-day marketplaces such as Uber and Airbnb garner success and dominate their respective segments. For example, Airbnb used the highly reliable rating system and got home-owners to display pictures in order to verify their listing. Not only does building trust help in adopting participants at early-stage, it also keeps them engaged.

Here’s the correlation between trust and marketplace liquidity:

Using in-app messaging and real-time chat for improving marketplace liquidity.

Expecting people to trade freely with unknowns over the internet still remains tough to imagine. Almost every marketplace has to figure out a way to instill trust in the users, be it the sellers or the buyers and like it not, you’ve got to figure out a way too.

We’ve got a number of options that can help you achieve this holy grail of uniform trust across the whole network. In-app messaging and real-time chats are one of them!

  • Why would the users need to chat? – The way it works is this: a buyer is matched with one or more sellers, and then he has to find a way to figure out the right guy to buy it from. How can he do that? Simple, chat with them. That’s the reason why you need to incorporate real-time chat in your marketplace platform. Let us take another example of Tinder here, you onboard users and match them as per their preferences and geographical location. But for them to let each other into their lives via meeting in-person or connecting over other social media platforms such as FB, Instagram and more importantly, WhatsApp, would still be a long shot. That’s where the in-app messaging of Tinder comes in to save the day, one of the most important features that drives marketplace liquidity for Tinder.

  • **Know the product, know the sellers – ** With real-time communication between sellers and buyers, both parties are able to know each other and the product better, which makes them able to make more informed and measured buying/selling decisions. And once you are able to truly help both sellers and buyers to make transactions that benefit them, marketplace liquidity and all other metrics can be improved exponentially. Let’s take the example of a person, let’s call him Mike, trying to buy a few motor components from eBay. Now, Mike is going to use these parts in his beloved vintage Chevy. Can we really expect him to use parts without making sure that they’re reliable and sold by a legitimate seller.

  • Maybe they just need to talk – Another great upside of having in-app chat in your marketplace is that when a customer is facing the predicament about her buying decision, or what we call the cognitive load, messaging the various sellers can help them streamline their buying decisions as they get much more data/information to base their final decision upon. Hence, the conversion rate will be much higher leading to great marketplace liquidity.

Wait, there’s much more you should know about adding real-time chat SDK in your marketplace:

  • Increased trust: The trust factor can be increased exponentially once you give users the option to engage and interact with a number of sellers and other entities in the marketplace. Take the case of an incredibly successful marketplace such as Airbnb, Uber, eBay, and many others, trust is one of the most important reasons for their success. Before AirBnB “HAPPENED” to the hospitality industry, it was nothing short of impossible to imagine staying at a total stranger’s place in a different city. The same goes for Uber, neither the confidence users have today was there in cabs nor was the confidence to get inside a stranger’s cars. But here we are, all because of the trust in the name. Similar trust can be created using real-time chat SDKs.

  • Human engagement: At the end of the day, the success of the marketplace is triggered only after the network effect comes into play. In order to realize the true potential of the network effect, human engagement is necessary for any platform, especially for a marketplace.

  • Relationship building: Relationship building is yet another thing that having in-app chat helps you with. To make sure you do this, make sure that the customers, as well as sellers, actually find the app helpful. To begin with, make sure it’s technologically robust and responsive. Following this, you should make sure that other features such as sharing of media files are working properly. This can prove out to be an amazing thing for your marketplace, especially if you manage to build long-lasting relationships with frequent buyers and sellers. Not only this, the network effect will be realized once you start building real relationships with the marketplace participants.

Other things you can do to trigger trust in the marketplace:

Of all the things that we’ve discussed so far, you have to understand that the most important thing that deploying a real-time chat SDK can do for your marketplace is building trust. And since creating that level of trust is so instrumental for the success of your marketplace, you should do more to create it, don’t you think?

Let’s discuss some of such items that’ll help you instill trust in your visitors:

  • Reliable and curated rating system: The rating system in any marketplace is very important for the success of any marketplace. First off, start with making sure that the users know about the rating system in your app by making it more visible to them. Second of all, make sure that this rating system actually means something to the users, the sellers as well as the buyers. The third and most important thing that you need to do with the rating system is to truly act on it. The buyers must be rest assured that if they’re not going with a seller less than 4.5/5 star rating, they are actually able to deal with the best sellers available. The same goes vice-versa.

  • Learning from the users itself (consumer science): Use analytics and consumer science to gain as much insight as you can about user behavior and understand their needs and expectations from the marketplace. You can collect data about how and when the users start complaining about late delivery, what are the products that involve frequent reporting, what are the scenarios where the sellers are facing problems and many other cases that might help you create a better experience for the users.

  • Careful curation and maintenance of supply: In a normal product, it is the end-user that we spend hundreds of hours trying to please. However, when it comes to a marketplace, the suppliers and service providers play an even bigger role, and hence need much more care than a usual startup or company would need. Patiently listening to their problems and addressing them in a productive way could go a long way to ensure that your marketplace has the “supply” end taken care of.

  • Streamlined and frictionless payments: Even after the user has decided to take action and buy the said product or services, there is a big task ahead of you – making sure that the experience of making payments (for buyers) and accepting payments (for sellers) is streamlined and totally frictionless. Because it is their money that you’re talking about, and there’s no way they’re going to risk it. Well, “risk it” might be an exaggeration as the worst thing that could happen is they lose custody of their money for a few working days and then the banks and payment gateway providers would take care of it, but you’ll be surprised to see how quickly they abandon your marketplace if these glitches were to happen on a regular basis.

So, this was all you needed to know about marketplace liquidity and how to improve it. Have any questions as to what else you can do improve the user experience in your marketplace, or want to know more about real-time chat SDKs? Feel free to get in touch with us.

Team CometChat

We build chat and messaging SDKs that let you quickly code a full-featured chat experience into any mobile or web app.

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