How to Manage Supplier Quality in a Marketplace

Customer retention is at the center of every successful growth machine. To drive retention in a marketplace, it is critical to invest in supplier quality

There are three key reasons why supplier quality is critical:

1. Retention: Customers who have great experiences on a marketplace are more likely to repeat purchases on that marketplace.
2. LTV: Supply quality can also drive improved customer lifetime value (LTV), because customers who have great experiences are likely to spend more over time than those who do not.
3. Reputation: Brand reputation and trust are highly affected by supplier quality. Consider Craigslist versus Amazon, for example. Where Amazon represents reliable, safe transactions, Craigslist’s reputation is riddled with hundreds of anecdotes that paint a picture of quite the opposite. Everyone and their neighbor has a trove of “buyer beware” stories about Craigslist because of an encounter with an unreliable supplier.

The Why is Simple. The How Can Be Tricky.

Although the why for maintaining supplier quality is simple — optimized retention, LTV, and brand reputation — the how is more challenging to navigate for two reasons:

1. Less direct control: First, consumers care primarily about the quality of the product or service the supplier is providing, rather than quality of the marketplace platform itself. And the product or service quality often lies more in the hands of suppliers than the platform operators, making it more challenging to directly control.
2. Near-term growth trade-offs: Secondly, implementing controls and processes to maintain high quality on the supply side can come with direct trade offs to volume growth. As a result, it’s common for marketplaces to err on the side of growing supply volume to drive growth, especially early in their lifecycle.

The challenge is recognizing when it makes sense to revisit the decision and balance quality with quantity. Failing to embrace this balance could directly impact your long-term growth and customer retention.

But don’t stress! We’ve rounded up a few ideas on how to more easily navigate these obstacles.

Praveen Subramani, Senior Director of Product Management at Turo, the world’s largest peer-to-peer car sharing platform, has spent the last six years working through these complex questions.

In this article, he illustrates how important supplier quality is to Turo’s success and shares different tools and strategies that marketplaces can use to manage and elevate it.

Praveen Subramani is a product leader with expertise in consumer mobility, energy, and marketplace digital products, based in the San Francisco Bay Area. He’s currently Sr. Director of Product Management at Turo, the world's largest peer-to-peer carsharing platform. Previously, he led energy software product management at Nest Labs & Google, drove product & design for semi-autonomous electric vehicles at NIO, and developed new technologies at the MIT Media Lab and Apple. Praveen holds an M.Sc. from the City Science group at the MIT Media Lab, a B.Sc. in EECS from MIT.

Supplier quality impacts a customer’s entire marketplace experience

Many marketplaces have similar customer journey outlines:

• Selection & pricing: Can the customer find what they are looking for, and is it attractively priced?
• Fulfillment: Does the customer actually receive the product or service?
• Product or service quality: Is the product or service what the customer expects, leading to a repeat customer?

Selection & Pricing: The Beginning of the Customer Journey

The impact of supplier quality starts at the very beginning of the customer journey.

“A customer’s assessment of supply quality begins the moment they start interacting with inventory in a marketplace. Marketplace operators need to make it simple for customers to explore their selection and pricing, and efficiently match them to attractive supply.”
Praveen Subramani, Senior Director of Product Management at Turo

The foundation of some marketplaces is selection: can a customer efficiently find the product or service they want? The sheer variety of inventory and broad selection – such as cars on Turo, or homes and experiences on Airbnb – can be a powerful incentive for customers to use these platforms to find unique inventory they can’t access elsewhere. Other marketplaces focus more on matching consumers to a commodity – such as a short ride across town – and thus compete primarily on price. Many marketplaces need to consider both selection and pricing in their product strategy.

Marketplaces can examine demand-side customer engagement, such as search conversion rates, to confirm that the marketplace is meeting the needs of its customers.

In marketplaces where suppliers are responsible for showcasing and merchandising their offering, supply quality impacts whether or not customers believe what they want is on the platform.

Take a listing for a car on Turo or an apartment on Airbnb, for example. If the supplier – the host – takes poorly lit photos or does not describe the features or location in a compelling way, the perfect option for a customer might be right in front of them, but they just can’t see it. Similarly, if many listings are overpriced, customers may lose trust in the marketplace’s credibility and will likely take their business elsewhere.

Without nailing that first impression, it’s unlikely you’ll be successful at acquiring customers in a cost-efficient way.

Fulfillment: The Middle of the Customer Journey

After a customer finds what they are looking for, the next step is to ensure the customer actually receives the product or service, a concept known as fulfillment.

If the supplier fails to fulfill the product or service, the customer experience is ruined – for example, a canceled trip or unshipped package – and the customer can often claim a refund. As a result, the marketplace does not capture the revenue expected from the transaction, negatively impacting your growth. In addition, marketplace providers that take a more managed approach may need to incur additional costs related to non-fulfillment, which can adversely impact profitability. Because fulfillment rates directly impact transactional revenue, this is often one of the leading indicators that a marketplace may have a challenge or opportunity related to supply quality.

In travel marketplaces like Turo and Airbnb, this requires coaching hosts to ensure their car or property is actually available for the dates and times they’re booked for, and avoid canceling trips at all costs. In marketplaces like Etsy, it means merchants need to accurately fabricate or customize the product, package it to prevent it from getting damaged in transit, and ship it on time with a reliable carrier.

Product & service quality: Looping the Customer Journey

Finally, the customer will receive the product or service and determine if it matches their expectations for what they purchased. This is the ultimate test of supplier quality – how well the product or service performs relative to customer expectations can significantly impact customer satisfaction and retention. For example, Praveen and his team at Turo were able to measure higher lifetime revenue and repeat booking rates from customers who reported 5-star trip experiences on the platform.

To fully understand quality, you need to dive into different categories that could impact quality in your marketplace: the what and the why of what makes something a five-star experience. For example, Turo collects structured feedback on a listing’s accuracy, cleanliness, vehicle maintenance, pickup & return experience, and host communication.

Many marketplaces forget that supplier quality is not just about the initial delivery of the product or service, but actually permeates the entire customer experience including post-purchase.

And if you aren’t hyper-focused on quality, you could be leaving substantial lifetime revenue on the table and your brand’s reputation to chance.

With this in mind, it becomes even more important to have a robust set of levers and tools you can use to influence and improve supplier quality in order to support your marketplace objectives.

3 Distinct Ways to Influence Supplier Quality

Most marketplaces have at least three distinct opportunities to influence supplier quality:

1. Onboarding experience: Marketplaces can leverage their supplier onboarding process as a way to ensure preparation and commitment of their suppliers.
2. Incentive structures: Marketplaces can identify and reward target behavior in suppliers or, when needed, can take stronger actions such as lowering search ranking of low-quality suppliers or even removing problematic suppliers from the marketplace.
3. Transparent feedback loops. Marketplaces can help suppliers self-correct and improve by gathering the right feedback and data from customers and providing that feedback to suppliers in a transparent way.

1. Onboarding experience

Marketplaces can leverage their supplier onboarding experience as a key opportunity to set high standards on supplier quality. A thoughtful onboarding experience can help you weed out the low-quality suppliers you don’t want, and set up those who are most likely to thrive for success.

In particular, the onboarding experience can help marketplaces vet two critical aspects about potential suppliers:

1. Commitment: Are they fully committed to being suppliers on your platform?

For example, in Turo’s early days, there were many potential users that were curious about sharing their car, so they would sign up to host. However, when a customer actually booked their car, some hosts declined trip requests or canceled trips because they weren’t fully committed to hosting.

Turo found that a more comprehensive onboarding process could help filter out potential hosts who were only curious, but not committed. The onboarding experience now serves as a valuable product and marketing touchpoint to explain the commitments associated with hosting on Turo to prospective hosts.

2. Preparation: Are suppliers set up for success for their first transactions?

The familiarity of an action and industry regulation are two key factors that may influence how much preparation or training a new supplier needs to be successful.

For example, most people have never shared their car or home with a stranger, so marketplaces like Turo and AirBnB need to invest more time to ensure their hosts are prepared for their first few trips and are thoroughly educated on hosting standards. By contrast, a driver for a food delivery marketplace like UberEats who has previous experience with food delivery or other driving service may need less preparation to be successful.

Industries that are more regulated might require certain types of training or verifications from suppliers as well, such as ensuring suppliers have required credentials such as valid driver’s licenses or have passed background checks.

“We discovered through continued experimentation that Commitment and Preparation are the two most important pillars to get hosts off to a strong start on Turo. We’ve now scaled onboarding to all new hosts, which empowers us to filter out low-commitment hosts and focus more of our time and energy on setting up the highest potential hosts for success through comprehensive preparation.
Praveen Subramani, Senior Director of Product Management at Turo

Marketplaces can use the onboarding experience to educate future suppliers, help them improve, or prevent suppliers that show signals of low intent or low quality from even coming on the platform.

Tradeoff between Quality and Volume

The onboarding experience is one of the easiest ways to see the tradeoff between quality of supply and volume of supply. It can be very difficult for a marketplace to willingly add friction to a sign up experience when they are trying to grow supply volume.

In the beginning, Turo – like many marketplaces – used to optimize its host acquisition funnel primarily for volume. They quickly learned that this wasn’t serving their long term goals, and have since invested in a more balanced approach that harmonizes quality and volume. In particular, Turo used extensive A/B testing to distinguish “healthy friction” – additional steps or education that measurably improve fulfillment and quality metrics – from unhealthy friction, such as complicated UX or extra onboarding steps that don’t drive long term host success.

Now with onboarding implemented for all hosts at scale, Turo continues to address this complexity by having different variants of onboarding experiences in different markets. In newer markets, where a large quantity of hosts is needed to start the marketplace flywheel, the onboarding process can be more streamlined than in mature markets, where they have the luxury of prioritizing for the top suppliers.

After onboarding, there are a set of actionable levers throughout the supplier lifecycle that can help elevate supply quality.

2. Incentive structures

Incentives and disincentives can be a strong lever for quality control in marketplaces. The most important thing to keep top of mind when designing incentive systems is what motivates your suppliers. For most marketplaces, suppliers are primarily motivated by earnings and related themes that can drive earnings, such as improved visibility in search or browse experiences.

Here are three examples of types of incentive structures that you can explore: Product and operations based rewards, dollar based rewards, and disincentives.

Product and operations based rewards

Product and operations based rewards are a great place to start exploring incentive structures. They typically do not negatively impact financial margins in the way that dollar-based rewards do, and it’s often easier to create a positive reward system than it is to implement disincentives.

Examples of rewards include badging in search results and listing pages, access to a premier supplier program, showing listings higher in search results, access to power user tools, and priority customer support.

When evaluating product and operations rewards to consider for Turo, Praveen and his team had two key learnings:

1. Follow the leads: listing visibility and search rank are powerful motivating forces for suppliers. Fundamentally, most marketplace suppliers are motivated by earnings. Marketplaces can drive additional leads to their best suppliers by promoting the highest quality listings in the customer experience, such as search or browse experiences. By incorporating supply quality metrics like fulfillment and customer ratings into a search or browse algorithm, marketplaces can build a direct connection between transaction opportunities for suppliers and the quality of supply.
   
   For example, Turo considers hosts’ 5-star ratings and fulfillment rates in their search rank algorithm, in addition to other factors.
2. Think beyond software: Key parts of a marketplace customer journey can occur out of product, so rewards should not just be limited to the software platform.
   
   For example, at Turo, there are many operational parts of the host journey that are guided by the app, but happen in the real world – cleaning and maintaining cars, managing parking, meeting guests for pickup & return, and more. When things don’t go as planned, such as a guest returning a car late and impacting a subsequent guest’s trip, it’s critical to connect hosts to customer support resources.
   
   To motivate hosts to maintain high-quality standards, Turo created a VIP host support line for their All-Star Hosts, which represent Turo’s highest-quality hosts. They found that continued access to that VIP support line was a major benefit that resonated with their best hosts, and were able to leverage it as an incentive for hosts to achieve and maintain their All-Star Host status.

Financial rewards

Financial incentives, such as earnings bonuses, discounts, and gift cards can help suppliers meet quality benchmarks and incentivize positive behaviors. These can be very powerful short-term accelerators, but are very hard to scale profitably. Long term or at scale dollar based rewards can throw the economics of a marketplace off balance:

“Financial rewards are a powerful tool for incentivizing behavior changes or near-term goals, but should be used sparingly and with thoughtful consideration for counter-metrics. Overuse of financial incentives can create challenges for unit economics in marketplaces, because they can alter the take rate of a marketplace and result in margin dilution for your platform.”
Praveen Subramani, Senior Director of Product Management at Turo

Disincentives

Disincentives or penalties can be highly effective, but also bring unique challenges and tradeoffs with implementation. Many marketplaces, especially in their early lifecycle, are working so hard to acquire supply that the idea of penalizing or removing suppliers is challenging to consider.

However, at a certain scale, the negative impact of low-quality suppliers can outweigh the positive impact of having an additional supplier on your marketplace.

There are various levels of action you can take, from warnings, to a full removal, or something in between, such as temporarily removing a listing from search results.

“The most effective disincentives are targeted at supplier actions that are particularly harmful for customers and your business. For example, we know host cancellations ruin trips for guests on Turo, and cost us money to rebook guests with other hosts. So we hold our hosts to very high standards on cancellation rates, and will even remove hosts with problematically high cancellation rates from the marketplace.”

Praveen Subramani, Senior Director of Product Management at Turo

Turo was able to quantify the long-term impact a canceled trip had on a customer. They found that host cancellations significantly impacted both transactional revenue – because Turo would often shoulder the cost of rebooking a guest with another car – and lifetime value, because guests were much less likely to book again after experiencing a host cancellation.

By contrast, customers with fulfilled trips and 5-star experiences continued to return to Turo, driving customer retention. They found that hosts who regularly cancel on customers actually cost Turo more than the revenue they bring in, even if they occasionally complete a trip and generate transactional revenue.

Creating a reward structure that works for your suppliers and marketplace goals requires a deep understanding of your customers, suppliers, and continued experimentation. While you can learn from other marketplace reward structures, the most effective reward structure for your marketplace will include iteration and customization. Experimentation is essential for progress in marketplaces, since there is often complex consumer and supplier behavior at play. Don’t be afraid to run tests and iterate, to identify what works best for your marketplace and its unique needs.

3. Transparent Feedback Loops

The last type of supplier quality lever that marketplaces can explore is a feedback loop.

If a supplier clearly understands what success looks like and has the data available to see if they are successful, they will self-manage into a higher quality supplier. Transparent feedback loops also make it easier to enable harder parts of a reward structure, like disincentives, because suppliers have sufficient time and warning to adjust their behavior.

One of the easiest ways to build a feedback loop is to create a supplier dashboard, with key performance metrics such as fulfillment rates and customer ratings and reviews. The foundational question to ask when building feedback loops, and choosing what to highlight on this dashboard, is:

What information about marketplace activity do my suppliers need to know in order to manage their businesses and improve?

This information can reinforce positive behavior or highlight areas for changes.

For example, when Turo realized that canceled trips were a key pain point, they wanted to make sure that hosts could have access to how they were performing on this metric.

“In 2017, we introduced a host performance metric called the Commitment Rate, which measures the share of trips hosts stayed committed to, and didn’t cancel. We now hold hosts to very high standards on this metric, but making it transparent in real-time was the foundational first step we made to hold hosts accountable for cancellations and ensure they know clearly where they stand.”
Praveen Subramani, Senior Director of Product Management at Turo

Sharing a breakdown of reviews and highlighting where a supplier outperforms and has room for improvement is a powerful way to motivate hosts to continue positive behaviors, such as thoroughly cleaning their cars after each trip, or prioritizing fast communication with guests.

Throughout a marketplace’s lifecycle – from early stage to operating globally at scale – transparent feedback loops help incentivize suppliers to improve and maintain high-quality standards.

Use these levers to manage supplier quality and drive retention

Supplier quality is a complex and nuanced topic. As a marketplace, you need to actively determine where on the quality-to-volume spectrum you want to operate, and each marketplace will have its own unique challenges and opportunities around quality.

Supplier quality not only impacts every part of the customer journey within your marketplace, but every growth lever as well — acquisition, conversion, and retention. Failing to measure and invest in supplier quality can have significant repercussions in revenue and in brand value.

If you want to create a marketplace for high-quality goods and services, you need to be proactive in setting and maintaining high standards for your suppliers. Supplier onboarding, incentive structures, and transparent feedback loops are just a few of the variety of levers that marketplaces have available to them to manage for supplier quality.

Successful implementation of these levers requires a deep understanding of your suppliers’ motivations as well as a clear hypothesis on what actions drive both the worst and best experiences for your customers. Don’t be afraid to experiment and iterate — your progress counts on it. With a thoughtful approach, you can drive both near-term growth and retention in your marketplace by investing in supplier quality.

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