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We're sharing a guest blog post from our community EIR Blake Hirt covering demand promiscuity. This was previously shared as a post in the community here.
Hey EM, I’m continuing my series of posts on what I believe to be the anatomy of a successful marketplace.
In this post, I’m going to provide an overview of my fourth criterion: demand promiscuity. I’ll define what this means, why it’s so important, cover examples, and share tips you can leverage for your marketplace.
Demand promiscuity refers to the tendency and desire of users to switch between different suppliers. In other words, they do not stay loyal to one supplier. This dynamic is present in all of the largest marketplaces. Airbnb users don’t want to stay in only one home, Uber users don’t want to ride with only one driver, DoorDash users don’t want to order from only one restaurant, and Amazon users don’t want to buy from only one vendor.
"You’re looking for customers with high promiscuity, for lack of a better word. You want your marketplace to serve customers who want to engage with different suppliers over time.”
-Casey Winters, Growth Advisor
In a previous post, I wrote about the importance of network effects. Network effects do not exist if users only want to transact with a single supplier. If that were the case, adding more supply would not make the platform more valuable. Network effects and demand promiscuity are highly interlinked.
As salacious as it sounds, you want your demand to be highly promiscuous. The demand side of your marketplace should not care about interacting with the same supplier over and over again. Monogamy is not your friend.
This is because users are then incentivized to leave the platform. Why would I keep paying a platform to connect me to a specific supplier that I already have a relationship with? Maybe you have some features to keep them on the platform, but bells and whistles are often not enough.
This is the primary reason why certain types of marketplaces will never become massive: home cleaners, therapists, and financial advisors are all prime examples. After a user finds their supplier of choice, network effects disappear, and they leave the platform.
I've never seen a single successful marketplace where the same supplier and customer consistently and exclusively transact, yet I see many founders creating marketplaces whereby exclusivity is often a feature and not a bug from the perspective of the customer. This is a big mistake. I think it’s the most underrated and overlooked component of building a successful marketplace.
“If you don’t have ‘demand promiscuity’, you don’t have a marketplace. The entire point is to drive suppliers to compete with each other on service, price, flexibility, et al. so that the average quality improves as a result.”
-Adam Miller, Growth Advisor
Ideally your users naturally want to be promiscuous, otherwise you likely have an uphill battle on your hands. Assuming they do, but you’re not seeing it in the data, there may be a few problems to solve.
“If this doesn’t happen organically, then it means your marketplace has one of several problems — 1. either your supply isn’t diversified, plentiful, or social ‘proofed’ enough that it’s worth trying other options, 2. you have a liquidity/matching problem (two sides can’t find each other even though they’re each in need of each other), or 3. you have a supply quality problem (anything outside of the best vendors aren’t worth trying). All three can lead you to a place where the marketplace isn’t adding enough value to qualify as a marketplace and increases the likelihood of gray market transactions and eventually being cut out by the parties involved.”
-Adam Miller, Growth Advisor
In other words, you may need to increase the number of suppliers, ensure those suppliers are high quality and desired by your users, and/or decrease friction so that your users can more easily find and transact with supply.
You can start by improving your search rankings and filters, as well as showcasing user reviews or unique qualifications of new suppliers. Next, you can ensure that new suppliers are highlighted in the product, on social media, and/or in your lifecycle marketing. User education can sometimes go a long way.
The biggest mistake to avoid is designing a marketplace for users who are looking for a monogamous supplier relationship, and being blind to this dynamic. If you’re early in your journey, and your goal is to build a massive business, you can cut your losses and find a better marketplace opportunity.
At the same time, you still want to optimize for the user experience and solve the users’ problems. You don’t want to force unnatural behavior.
“I think some mistakes I’ve made (also seen others make) is pushing new supply or service providers on users and this jeopardizing being less relevant, off-putting, and even compromising recommendations and suggestions.”
-Mike Williams, prev. Founder of Studiotime
If you’re finding that your demand-side users really want to transact with a single supplier, it’s probably best not to fight it, but rather to recognize that you’re more of a lead generation business, not a marketplace. You want to build the right product for your customer, not try to fit a square peg in a round hole. Lead generation platforms have a lower ceiling, but they can still be solid businesses.
A final common pitfall is assuming that more supply automatically drives promiscuity. If the supply isn’t meaningfully differentiated or desired, users won’t care. Deep user research can help ensure you’re on the right track.
Now that you have a good understanding of demand promiscuity and its importance, it’s time to put your marketplace to the test. Don’t make any assumptions.
First, simply ask your users what they’re looking for. Do they want to transact with a bunch of different suppliers, or are they simply looking for one to fill their needs? I rarely see this question asked explicitly, and the answers may be illuminating.
Secondly, if you’ve launched, dig into your data. Analyze the number of sellers that each of your users is interacting with. The higher, the better. Then, look at retention rate by number of suppliers per user. I’d be willing to bet they’re highly correlated.
Lastly, think strategically about how to improve demand promiscuity for your marketplace. The tips above are a good starting point, but the tactics for your marketplace may be idiosyncratic. Brainstorm with your team, add some experiments to your product roadmap, and start executing.
Promiscuity may not lead to a healthy romantic relationship, but it does lead to a healthy marketplace. When your demand wants to transact with many suppliers, you get higher engagement, higher retention, and better unit economics, forming a strong foundation to build a huge business.
Special thanks to Adam Miller and Mike Williams for their input to uplevel this post. For further reading, check out the links below.
If you have any thoughts or questions, feel free to reply to this post or reach out directly.
You can connect with Blake to discuss this post in the Everything Marketplaces community here. A big thanks to Blake for also being an active EIR in the community, where he is often sharing his marketplace experience, insights, and helping early stage founders.
