Customer-to-customer retailers like Amazon, eBay, and Etsy enable small and large businesses to sell online without incurring the infrastructure costs or having the technical skills required to develop and manage an online portal. The e-commerce retailers may never take ownership of or come into contact with the merchandise sold on their platform. Simply, they serve as an intermediary for a fee, typically calculated as a percentage of the sell price. These retailers typically gauge company performance using a metric called Gross Merchandise Value (GMV). GMV allows the marketplace owner to measure growth month-over-month and year-over-year because traditional measures of retail business success rely on inventory or cost of goods sold.
e-Commerce platform providers thrive on maximizing the presence of an engagement between high-quality sellers and potential customers. Increasing the customer base attracts more sellers and more products to the platform; on the other hand, increasing the number of sellers and diverse products attract more customers and increase their willingness to buy. For instance, when China’s e-commerce giant, Alibaba, launched in 2003, the company bought anything and everything sold in the marketplace during its first 30 days to create (pseudo) demand and attract more sellers. More sellers on the platform led to more customers; more customers led to even more sellers, and this trend continued. The rest, as they say, is history! Alibaba finished the fiscal year 2018 with a GMV of US $768 billion! SOURCE This balancing phenomenon of how one side of an e-Commerce platform contributes to the growth of the other over time and vice-versa is called Cyclical Expansion of Marketplace Economies. When an e-commerce platform is focused on growing its supply-side of the equation, it typically wants to evaluate the Seller Churn Rate. Customer Churn Rate is calculated in much the same way, but for this article, we will review eClerx Digital’s approach to managing seller churn rate and GMV.
The goal of these e-commerce platform owners is to keep GMV high and seller churn low. Additionally, predicting future GMV as well as the true potential of sellers allows e-commerce retail marketers to create strategies for hyper-targeting.
To accurately forecast GMV, a customer-to-customer e-commerce retailer will first need to calculate its Current GMV. The Current GMV creates a benchmark and baseline against which to monitor Seller-focused strategies. Understanding the drivers of GMV such as trends, segments, pricing and competitor information, as well as their degree of influence is also important. eClerx Digital takes an exhaustive approach to drive analysis by creating a list of all possible variables. Then, we systematically exclude the less significant ones through rigorous variable selection as well as reduction processes and techniques. This list includes variables from transaction data, channel mix, category mix, customer intelligence, competitive intelligence, and promotion and campaign history among others. A machine-learning-based Attribution Analysis is then used to drive time-series forecasting to give the e-commerce retailer Seller-level GMV forecasts. The e-commerce retailer can go a step further to understand the seller-level share of wallet value by analyzing sellers’ merchandise volumes and portfolios on competitor platforms using competitive intelligence services such as those offered by eClerx Digital.
Modeling Seller Churn Rate
As with forecasting GMV, it is first important to understand the current Seller Churn Rate. Creating risk profiles of sellers who have churned in the past is possible by discovering and feeding historical data into machine-learning-based pattern mining and look-alike models. Once sellers who have churned are identified, analysts are able to evaluate the drivers of churn through attribution and sensitivity analyses. From this point, creating propensity scores and survival models to rank sellers who are likely to churn from the platform in the future, act as an early warning system to help retailers mitigate churn with more targeted retention and engagement strategies.
Creating Strategies using the Valuable-Vulnerable Matrix for Sellers
Once present and future GMV and Churn rates are determined, sellers can be grouped into one of four categories based on their value score (GMV), risk score (likelihood of churn), and strategies to maximize those relationships can be applied. The graphic illustrates this idea.
Low GMV – High Risk Seller Quadrant
The strategy for sellers in this quadrant is to engage and shift into one of the other three quadrants. A few options to do this are: Maneuver the drivers of churn; gain GMV stability and increase activity with this seller group.
Low GMV – Low Risk Seller Quadrant
If managing tight budgets, this group can be placed low on the priority list. A nurture strategy is most effective in this instance. To elevate this group into a higher GMV category the e-commerce retailer can enable learning with other groups, optimize the customer targeting efforts for the seller as well as provide competitive intelligence.
High GMV – High Risk Seller Quadrant
They are valuable yet vulnerable. Therefore, this group requires significant attention so a win back strategy can be applied. Consider activities that reduce their effort to sell and improves the selling experience. Offering incentives that optimize their margins is also an effective strategy to win back sellers.
High GMV – Low Risk Seller Quadrant
Sellers in this category are the ones customer-to-customer e-commerce retailers want to maximize. One way to drive incremental loyalty is by optimizing operations to supplement insights, tools and other analytics support for value-added services to the seller.
Hyper-targeting is a proven marketing communication method for improving seller engagement. A hyper-targeting campaign considers the unique situation of the seller group and delivers a relevant message. Additionally, by analyzing the seller segments and calculating the ROI of those segments, marketing spend is optimized. eClerx Digital recently helped an Online Travel Agency (OTA) reduce churn by 5% and increase revenue by 8%, year-on-year.
Digitization has created a new marketplace for businesses and individuals to sell their goods and services with little to no technology investment of their own. This partnership creates a unique supply and demand equation for the online platforms. A systematic approach to measurement, analysis and forecasting enables the platforms to not only understand which side of the equation deserves the most attention, but it also creates a road-map for hyper-targeting to either the sellers or customers. This thoughtful approach to business and marketing management creates a valuable experience to all platform users and leads to higher engagement and increased revenue.