Identify Marketing Mix for Platform Business
When my company decided to get into the platform business last year, it became a great challenge for almost all departments to prepare the entire platform business support system. As my company has operated only linear business model for many years, it is not easy to turning into circular business model instantly. We are still learning to adjust our strategy and operation. And this process is still ongoing, continuing to improve until now.
As well as in marketing aspect.
While in linear business model marketing focuses on finding leads and customers based on interested products and services, now in platform business, marketing must also leverage an ecosystem to matching offerings that meet customers’ needs (e.g., matching a Gojek driver for a passenger, matching a seller for a buyer in a marketplace platform).
What is marketing role in platform business
As defined by Kotler, marketing strategy is the marketing logic by which the company create the customer value and achieve profitable relationships. Guided by marketing strategy, the company designs an integrated marketing mix as one of the main concepts in modern marketing strategy today. Marketing mix consist of four variables which are then called 4P marketing, namely products, places, prices, and promotions.
In platform businesses, marketing can help to facilitate a supply-demand balance. The three party (buyer, seller, and platform) balance in the platform transaction involves transaction between the platform and sellers, the platform and buyers, and buyers and sellers.
In the initial phase of a platform business, the first priority is attracting more users into the platform, followed by reducing transaction costs for users, and encouraging them to use the platform for transaction. In later phase, the focus in the platform shifts to increasing the value for all users, and repeat transactions as well.
Repeat transaction can generate more and more transactions. Then many transaction will increase the platform potential revenues and produces data that provide future revenue-generating opportunities (yes, big data analytic). Marketing can contributes to increase the number of transactions by attracting and retaining more users to the platform, enhancing the quality of the transaction, and fostering users engagement.
Marketing mix in platform business
PRODUCT
When developing a platform business, we should consider different kinds of platform products. What kind of platform is yours? Deloitte has distinguished four platform products in the business world:
1. Aggregation platforms, which aggregate many resources and help users to connect with the most appropriate resources. These platforms tend to be very transaction or task focused. Example: marketplace platforms like AliExpress, eBay or Telin NeuTrafiX in B2B telecommunication business.
2. Social platforms, which aggregate a lot of people to support engagement among people with common interests. These platforms tend to foster networks of relationships and usually do not involve the platform owner. Example: Instagram, LinkedIn or Facebook.
3. Mobilization platforms, which move people to work together to accomplish something beyond the capabilities of any individual participant. These platforms tend to foster longer-term relationships and take action together. In a business context, the most common form of these platforms brings together participants in extended business processes like supply networks or distribution operations. Example: Li & Fung (the global sourcing company), Linux, or Apache.
4. Learning platforms, which evolving from previous platforms above to facilitate learning and insights exchange between users.
Choosing the right products platform at the initial stage will determine your company’s next strategy. This strategy is also related to the identification of business models, building partnerships, and more specifically marketing strategies.
PLACE
When talking about the platform business’ places, we often refer to the website address or mobile app, because the platform business is associated with the digital technology. But companies that start from linear or pipeline business and turning into platform business, have possibility to build non-digital platforms or operate hybrid.
1. Platform in digital or online place
Platform that built in digital or online place is a technology-based platform in managing transaction between all parties. These platforms are referred to digital platforms, and most of well-known latest platforms are developed using the internet connectivity. A company which developed a digital platform make its online address as its location, that of course, impact to overall marketing strategy.
2. Platform in non-digital or offline place
Platform in non-digital or offline place is the traditional platform between all related parties. We, for sure, have experienced for a long time in the physical and local market, a simple kind of traditional platform. Bringing buyers and sellers together in one place and develop transaction between them is the basic aim of platform development. A company which developed a traditional platform refer its physical address as its location for one variable of marketing strategy.
3. Platform in hybrid place
The hybrid platform involves the combination of both digital and non-digital place. Hybrid platform place is exist when a company has both online and offline product offerings. They can develop from online to offline place, or in contrary from offline to online place. In Indonesia, we see Fabelio that start from online platform in offering its furniture products and later build offline place to improve customer experience by allowing customers to ‘feel and touch’ their products. In the opposite case, companies that operate in countries with low trust in purely online platforms, establish physical platform first and use this to develop their digital platforms.
PRICE
Price variable in platform business is more complex than in linear business. It has different components, such as a subscription fee, a usage fee based on the number of transactions, or a commission fee per transactions.
We want platform users believe that your platform is still attractive by managing the price structure. Some references give a sample of implementation by calibrate and manage both supply and demand at the aggregate level, using tools such as dynamic pricing (surge prices) and customized pricing (digital coupons).
To make your life more difficult, there is also additional complexity that caused by the fact that there are differing parties to determine the prices. A price can be set by the platform (e.g., Grab, Gojek), determined by auction (e.g., eBay, Freelancer), set by sellers (e.g., Amazon, Tokopedia), or negotiated (e.g., PriceWaiter).
PROMOTION
Promotion encompasses all the various ways you reach out to your target audiences or customers. It is important to use different channels to find the best way to reach and communicate to your customers. In general, a company communicates through 3 main channels, namely Owned channel, Paid Channel, and Earned Channel.
Owned channel is a form of communication that owned and used actively by a company (e.g. , website, customer portal, social media, or email marketing). Paid channel is any kind of advertising to boost your campaign (e.g. physical advertising, social media ads, or sponsorship). While earned channel is the coverage obtained by a company with several activities (e.g. digital engagement, social mentions, or testimonials).
All these promotion communications are intended as the strategies to solve one of the biggest challenges in the platform business, which is to achieve the critical mass. I take the following strategies from Murat Uenlue, that come from three of the most authoritative books on platform businesses: Matchmakers: The New Economics of Multisided Platforms, Platform Revolution, Modern Monopolies.
1. Accelerate early supply (with subsidies)
At the initial stage, the platform owner might subsidize or contribute to the supply creation. The platform will be more valuable when a certain amount of supply has been built up and later will attract more users to join the platform. Example: To ensure the supply of drivers, Uber had offered cash incentive to drivers for just having their cars available or waiting around.
2. Accelerate early demand (with subsidies)
Again, offering subsidies for buyers is a reliable way to promote platform’s growth. But, this approach must be performed correctly to avoid backfiring and depend on company’s funding resources. Example: Tokopedia offered (and still offering…) discount vouchers to attract more buyers make transaction in the platform.
3. Use an existing network for support
A company can exploit an existing network as platform growth base. You may offer the same products or services, or you can provide a complementary ones. Example: Facebook started using the Harvard network of students as its first users.
4. Attract high-value users
Even though users are important to a platform, not all users of a platform have the same value. Similar with traditional platform, having an anchor tenant makes a platform more attractive to promote more users to join. Example: Twitter and Instagram maintain their VITs (Very Important Tweeters) and ‘celebgram’ as their anchor users to attract engagements in the platform.
5. Extend existing assets
A platform owner have option to extend its assets (infrastructure, logistic system, property, or plant) into the platform system. Moreover for companies that started from non-platform business and already has strong assets, they can use them as backend of the platform system. Example: When Amazon (as single-sided platform) started to open Amazon’s Marketplace (as double-sided platform), Amazon extended its own systems to provide additional service offerings to the sellers (such as order fulfillment, advertising, payments and more).
6. Start in a micro market, then expand
In the early stage, a platform owner can start in a local market or a niche market and then expand to other target market. Example: Gojek started its services in selected cities in Indonesia, then expand to other cities and now available in other countries in South-east Asia.
7. Provide certainty through commitment
Platform users, especially in supply side, seek certainty that the platform will be able to attract enough buyers so they feel supports from the platform owner. Platform owner need to provide commitment about this support. Example: Microsoft committed $500m for promote its Xbox, to provide certainty to game developers who have significant upfront investments developing games.
The basic marketing mix framework above serves as a tool for marketers to assess and re-evaluate marketing strategies and activities on a regular basis. In other references, marketers should also considers the “process” variable in the platform business as it is very related with automation and systems that impact to marketing roles. Automation in the platform business will reduce costs as well as improve customer satisfaction.
We will see an increasing number of businesses making the shift from delivering products to providing platforms in the future. Companies have to frequently re-examine their marketing mix to adapt the changes in customer needs.
