- Good incentives most commonly include things like cash, ownership, status, membership, and priority. A good incentives program includes a whole package of incentives that collectively drive motivation, and ultimately retention and growth.
- Incentives that allow people to look ahead toward what they might achieve and receive for future action is always a good motivator.
- Marketplaces have four distinct user types. Each user type requires a customized combination of incentives to accelerate growth and create long-term retention.
This article is part two of our Village Fundamentals series on designing incentives for marketplace platforms. You can read part 1 - Why Marketplace Platforms Need Incentives, here.
Don’t Find Yourself Juggling on a Unicycle
Usually, designing platform incentives goes something like this:
You’re the CEO. You found product-market-fit and your business just grew, like, 500%. (Yay.) But suddenly, your accountant tells you you’re absolutely hemorrhaging money (not yay)… and you have no idea why. Not because you’re a bad CEO, but because you’ve been busy–as you should be–keeping the app up and the servers running.
So, you raise some cash to extend your runway, then you immediately build out an operations team to tell you what the heck is going on and stop the bleeding.
A month later, your new ops manager comes to you with a spreadsheet and says, “Wow, look at this. We are spending like a bajillion dollars per new user, and our churn rate is 40% month-over-month.
She does some napkin-math with you, and says, “Look, we could save half-a-bajillion dollars by paying users $50 bonuses to be online every weekend.
“Great, do it,” you say, and you go back to thinking about your app and your servers.
Then, a year later, you need to become profitable.
You look back at your P&L, and realize that, crap, this whole time you’ve been running this insane $50 bonus program you forgot about. Turns out it was horribly thought out and was basically like lighting money on fire. Also, churn is still really high.
Or, maybe something like this:
You’re the CEO of a mature platform business. You have big revenue and nearly-positive operating profit. But then something bad happens.
Google invests $1B in your competitor and claims it’s “using AI.” Or an exec does something dumb and there’s a PR disaster. Or there’s a recession, VC money dries up, and you have to take a really hard look at your P&L.
Naturally, you and your staff write up a Big Plan, you spin up a Loyalty Team, and then assign someone on the C-Suite as the Executive Sponsor. Your Executive Sponsor pays McKinsey $2 million to help them design (basically) an Airline Medallion Program retrofitted for your business.
A bunch of data scientists run A/B tests for six months to “get the numbers right,” Brand & Marketing dress everything up in fancy comms that make people feel good about themselves, and your engineers drop some flashy features in the app. Finally, the Big Plan launches.
Twelve months and $10 million later, you have a totally ok loyalty program. Then, maybe (or maybe not), you spin it down in two years when the bad thing goes away.
Either way: you’re not doing anything bad or evil, and you’re not bad at building a business. You’re just caught juggling on a unicycle. In particular:
- You’re facing a hard business problem and so you’re caught on your heels, and
- You’re being asked to design a platform incentive program, which is extremely hard to do and, as we previously established, has never really been done before!
You don’t have to find yourself doing two difficult things at once, however. Like most things in this world, the right planning, analysis, and technology can bring your platform into the future with some chunky profit margins and many happy users.
Your Guide to Profitable Growth via Great Incentives
This article series is designed to help you turn marketplace platform incentives into a powerful, competitive engine driving your business. Not something hard you only think about when–as they say–shit hits the fan.
We will start off by introducing you to each of the four distinct user types that a marketplace platform business must contend with. Then we will discuss the specifics on how to position your marketplace for profitable growth.
Throughout the series, we’ll cover the components of the world’s winning incentive programs, plus we let you in on a new tactic to implement into your marketplace that levels the playing field with the unicorns. Automation.
But first, why trust us?
My team at Village knows incentives. It’s in our blood. We have worked over the years with leading global marketplace companies like DoorDash, Uber, Faire, and Braintrust. We have been insiders to see how those marketplace companies have designed and built incentives programs that have powered their massive growth.
We also know the technology and tools that power good incentives. We’ve built or bought a version of just about everything to do with incentives being used by marketplace platform businesses across the world today. We know the good, the bad, and the ugly about the products on the market, and have done our fair share of winning (and losing) to get that knowledge.
So, if you’re wondering how to run a global marketplace without telling anyone what to do, we have answers, and we’re here to share.
👇Critical components of incentive programs of the pros.
Introduction to the Basics
Marketplace business leaders understand that good incentives are a lot more than just moving dollars. A good incentive can be anything that motivates or inspires people to buy or sell something, or to perform a set of behaviors.
Good incentives most commonly include things like cash, ownership, status, membership, and priority. A good incentives program includes a whole package of incentives that collectively drive motivation, and ultimately retention and growth. All the components must be considered in tandem to design a successful program.
The most successful programs combine both financial value and personal gratification incentives. For example, neither DoorDash's Top Dasher or Airbnb's SuperHost programs are about money alone. Both recognize top suppliers and make those contributors feel like they are a key part of the platform's long term success. (Which they absolutely are.)
Consider both short and long term goals. Map out what you want your users to do in their very first month engaging with the platform; in their first year and even five years down the road. Plan your goals BEFORE launching your incentives program. Incentives that allow people to look ahead toward what they might achieve and receive for future action is always a good motivator. Consider long and short term goals and tactics to achieve those goals early on.
The Holy Marketplace Quaternity (yes, that actually is the word for Trinity, but Four)
Marketplaces have four distinct user types, and every platform business must contend with at least one–if not all–of them.
Each user type requires a customized combination of incentives to accelerate growth and create long-term retention. We are going to do a deep dive into each of these four user types in subsequent articles in this series. Your marketplace may have any combination of the types described below. Follow along in the series to the ones relevant to you, and learn how to implement a winning incentives program unique to your business that will drive profitability.
The Holy Marketplace Quaternity includes Specialized Suppliers, Interchangeable Suppliers, Shopper Buyers, and Solicitor Buyers.
Type #1 - Specialized Suppliers
These are suppliers that are not easily swappable with another supplier, such as restaurants or specialized engineers. If you order nachos on DoorDash and get ice cream, you wouldn’t be happy–which means restaurants are specialized suppliers. Examples of this supplier type include: Uber Eats’ restaurants, Upwork’s software freelancers, Etsy’s artisans, or Faire’s merchants.
Type #2 - Interchangeable Suppliers
These are suppliers that may be swapped with little-to-no impact on the end-user experience. If you order nachos on DoorDash and the your delivery driver gets swapped with another, your experience is mostly the same–this means delivery drivers are interchangeable suppliers. Examples of this supplier type include: DoorDash’s Dashers, Uber’s UberX drivers, or Amazon’s last mile delivery contractors.
Type #3 - Shopper Buyers
These are buyers who are coming to your marketplace to browse an existing set of products/SKUs, select one, and buy it. Sound obvious? Good! Most consumers fall into the shopper-buyer category. Here’s your rule of thumb: if a buyer didn’t have a say in how it was made, they’re a shopper-buyer. If you’re buying something on Amazon, you’re probably a shopper-buyer.
Type #4 - Solicitor Buyers
These are buyers who do, in fact, have a direct say in what they’re buying. There may be practical or legal reasons for being a solicitor-buyer, but a rule of thumb is that any time an RFP is issued, or that a buyer is considering multiple suppliers based on their ability to deliver a custom product, they’re a solicitor-buyer.
Examples include large corporations or government agencies soliciting bids for contracts, like a full website redesign. Or, you might find yourself as a solicitor-buyer when you’re soliciting quotes for a personal project on Thumbtack or Etsy.
A Warning About User Types
In the real world, it’s never totally black and white that a supplier is “specialized” or “interchangeable.” Although less common, buyers can also blur the line between “shopper” and “solicitor.”
For example, there are very real differences in many so-called “interchangeable suppliers;” some delivery drivers perform measurably better than others. Similarly, there is some level of swapability among Specialized suppliers; e.g. there are probably 2-3 restaurants in your area selling nachos of comparable quality.
The distinctions help, however, when designing reward programs, which is why we use it here. But anyone running a marketplace should consider the nuances in their specific use case and may want to cherry pick components from both supplier types.
Village is your Guide to the Marketplace Quaternity. Not sure what user types your business has? We can help you figure it out. Village offers a comprehensive, simple to set up suite of products to get your incentives on point and delivering value to everyone in your marketplace.
Sneak peek into the next article, where we’ll be discussing Specialized Suppliers 🤫
Specialized Suppliers often have nuanced business goals, in addition to being more profitable. These additional goals they bring to your marketplace platform give them their own unique psychology and perspective.
In the future installments of the series, we will discuss these three top incentives for specialized suppliers in your marketplace:
- A tiered loyalty system for suppliers. Think “top performers” or “most trusted” categories.
- A points-driven rewards program where suppliers can “buy” non-monetary goods (like higher search ranking) with their rewards points.
- Long term upside sharing, like partial revenue share.
Here at Village, we spend everyday thinking about how marketplace platforms can better align incentives & embed structural advantages. If you think Village might be the right fit for your business, reach out and let us know you're interested.