Edited excerpt from Marketplace dynamics: buyer mindshare is key to building a moat by Boris Wertz:
Most marketplaces start off by providing a unique supply of products/services. Demand follows supply, and so the flywheel of supply and demand begins.
However, as a marketplace gains popularity, its supply inevitably becomes less and less unique, as your suppliers seek out opportunities on other marketplaces and competitors look to grab a piece of the pie that you discovered.
In order to minimize the impact of these competitive dynamics, a marketplace can adopt two strategies: protect the supply and protect buyer mindshare.
When it comes to supply, you can give your sellers little reason to seek out other marketplaces. For example, you can lower listing/transaction fees for unique inventory, tie sellers to your site through reviews (which cannot be transferred to other marketplaces), or find some other innovative model like Uber’s leasing model.
Yet while these strategies can slow down the drain of your unique supply to other marketplaces, they won’t stop it altogether. It’s much more effective, and important, to win buyer mindshare.
You need to have the right product mix to become a frequent destination for your customers and build a brand that captures the mindshare of your target audience.