The concierge marketplace model: how to match supply & demand

In the very beginning, marketplaces face the challenge of having to build both supply and demand. Marketplaces need both sides in order to connect them, generate transactions, and find initial marketplace liquidity.

Liquidity can be defined as the probability of matching supply and demand on a marketplace. A customer is likely to find the service, rental, or product they’re looking for. A provider is likely to get bookings for their listings. Liquidity is the most important factor for achieving sustainable growth and success as a two-sided marketplace. In fact, after reading this article, you’ll notice that liquidity means much more for the success of an early-stage marketplace than a big initial user base.

In this article, I share the tactics I used to reach initial liquidity for my music studios marketplace Studiotime. The approach we used is often called a concierge marketplace model. Before we dive into the tactics and benefits of the model, a few words about the first step towards marketplace liquidity: solving the chicken-or-egg problem.

While working towards achieving initial liquidity, marketplaces typically face the chicken-or-egg-problem. In order to get around this problem and jumpstart growth, marketplaces often focus on growing the supply side before the demand. With initial marketplace listings, it will be much easier to focus on generating demand for transactions.

Another common strategy that marketplaces use is constraining themselves with location and/or category or vertical. Constraining is an effective tactic that some of the most successful marketplaces used in the early stages. The purpose of the constraint is to limit your pool of potential providers and customers so that you are more likely to match them. Focusing on one location, market, or category allows you to better identify and convert existing and new demand to marketplace transactions.

When launching Studiotime (and still to this day), we constrained the marketplace to music studios only. We focused tightly on the specific niche market so that we could quickly become the largest and most trusted online marketplace within the niche.

Once we had determined our focus and built initial supply, we used a concierge marketplace approach to reach marketplace liquidity and generate and increase bookings in the primary market.

One benefit of online marketplaces is that they directly connect supply and demand without being involved in the transaction. Rather, they facilitate the transaction by offering a platform.

This, however, is easier said than done. To successfully complete a transaction, factors like intent, budget, availability, and trust all play a role. If even one of them is missing, the provider and customer aren’t a good match, and the transaction doesn’t happen.

In order to help increase the frequency of successful transactions, marketplaces typically use what is known as a concierge model. The model is used by marketplaces like Airbnb (Plus), Giggster, and Peerspace.

Using a concierge model basically means introducing a human element to the transaction. On concierge marketplaces, someone interacts with customers, identifies their needs, suggests a suitable provider that is available and matches the two parties on the marketplace to prompt a transaction.

Taking a concierge service approach helps you generate bookings and create marketplace liquidity in many different ways. First, it helps you understand the needs the demand side has in your specific market. Second, it allows you to match demand directly with your best supply, increase the likelihood of a successful transaction, and keep your premium providers happy. The concierge model can also reduce some risks in transactions and bookings and justify an increased marketplace commission. Finally, you can use the success stories generated by this approach to showcase to new audiences.

Let’s look at each of these benefits more closely.

Online marketplaces connect demand and supply directly, but sometimes, a fully automated process might leave the specific needs on the demand side unknown. Customers might be looking for an exact location, price, or other specific attributes that the marketplace entrepreneur won’t know, or only finds out as data through analytics at a later date.

Using a concierge model introduces a support or help representative to identify and understand the needs of demand. This can be done through intake forms, live chat, or other user interaction that offers you more information on specific booking requirements, budget, dates, and other variables.

This is valuable information that demand is specifically providing to a marketplace through a concierge model. Interacting with customers systematically gives you a thorough understanding of what the demand side of your market is like – and how you and your providers can serve them even better. More importantly, you can use this information to connect the demand with the most suitable provider on the marketplace easier and faster.

With the customer’s specific needs and budget given to the concierge team or customer support, you have all the information you need to determine the best fit for them from your supply.

In practice, the marketplace team should frequently review the providers, their reviews, feedback, availability, and other references to determine the best-performing ones. This process should be done carefully to make sure the providers you recommend offer a great experience. Then, with the needs of a specific customer in mind, the concierge agent or customer support can find the most suitable providers and send personalized recommendations and notes to the customers.

Doing this ensures customers are matched with a provider that meets their demands in terms of budget, availability, and trustworthiness. Needless to say, this improves the likelihood of a successful transaction significantly.

What is more, you are making sure your “premium providers” — those who offer the highest-quality spaces, services, or goods through your marketplace — have a premium experience. They get contacted by pre-vetted customers that are reliable, make a good match for their offering, and have a real intent to complete a purchase. Consequently, these providers will also get great user reviews and feedback, which will boost their success on your marketplace even more.

Marketplaces are built on trust. Being trusted within a community can generate your platform significant word of mouth and viral growth.

Trust is built on both sides but typically starts with high-quality, reliable supply. I highly recommend vetting your listings to ensure they are by a legitimate provider or business who will be able to deliver the services that they are offering and an overall great experience for the customer. User verifications, identity verifications, and ratings and reviews are other great tools for increasing trust on both sides.

Concierge models are a great way to add a layer of trust that comes from manually matching two trusted parties. A customer’s trust on your platform is increased when you interact with them personally and recommend reliable providers based on their specific needs. You’re also doing your premium providers a big favor by bringing them pre-vetted, reliable customers.

Manully matching two trusted parties greatly reduces the risk involved with a transaction, such as unrendered services, cancellations, fraud, and other risk factors. Not only does it reduce inherent risks for the marketplace operator, but it also helps ensure the best possible experience and outcome for both supply and demand. This, in turn, will strengthen the loop of positive word of mouth and viral growth on your marketplace.

Marketplaces typically charge a transaction fee or commission from customers, providers, or both. This fee is usually the main revenue for a marketplace and comes from the GMV. The fees vary and are typically anywhere between 3–25%.

As a rule of thumb, the higher the value your marketplace provides, the higher your marketplace pricing can be. Since concierge models provide personalized service and tend to lead to greater user satisfaction, they typically warrant a much higher commission. This is somewhat standard, and even more so with concierge models that are aimed at providing individualized support and services for professionals or businesses through the marketplace.

Through using a concierge model, marketplaces can increase not only transactions, but also the success stories with providers or customers with whom they have a great relationship.

Demonstrating this value through success stories or case studies helps you create external credibility and a marketing narrative. This, in turn, can help increase both supply and demand on the marketplace, attracting a larger audience, awareness, and credibility in the market you operate in.

Increasing bookings and generating liquidity should be the main goal of your marketplace in the early stages. While most marketplaces can quickly onboard supply and generate their first few transactions, many find it challenging to continually increase their marketplace transactions.

Implementing a concierge model is a great way to do so. It helps you learn more about your users, increases the probability of successful transactions, and provides a personalized service that is valuable to the extent that it can also help increase your marketplace revenue.

A concierge model is definitely a more managed and manual process. But in my experience, it is highly effective and well worth the investment.

Not surprisingly, a similar model is used by some of the largest marketplaces today that are for spaces, rentals, and even goods and services. Furthermore, you can start to work with the approach in a relatively light way. Your MVP concierge model can be as simple as creating a form to capture requests, followed by a simple, manual matching and recommendation workflow. Give it a try – this can already result in your next marketplace transaction and create a great opportunity for a success story.

For more of Mike's thoughts on matching supply and demand, check out his video below.