Why managing service execution is (or isn’t) important in a marketplace
A marketplace does more than just bringing the right vendors and right customers in touch to facilitate a transaction. It is also responsible for order completion. For a marketplace, an order is usually referred to as complete not when the customer has made the payment, but when the vendor receives the payment. This is a key difference to note between retail and a marketplace.
Retail money flow:
Customer purchases product/service → Makes payment to Vendor (this can be before or after the product/service is rendered) → Transaction is complete
Marketplace money flow:
Customer purchases product/service → Makes payment to platform (this can be before or after the product/service is rendered) → Platform validates if the product/service has been rendered → Platform pays the vendor
Thus in the case of Marketplaces, the process of validating if the product/service has been rendered is a key milestone. This again drastically differs based on if it is a product marketplace or a service marketplace.
Order Completion: Product Marketplace vs Service Marketplace
Products are usually tangible and selling a product involves transfer of ownership. This thus makes it easier to monitor if and when the prouct has been delivered to the customer. 3rd party shipping companies play a crucial role here, because they’re responsible for making this transfer. Lets take the example of a book ordered from amazon. Once you’ve placed an order on the website, you make a payment. This payment goes to Amazon and not the vendor. A shipping company then collects your book from the vendor and delivers the book to your doorstep. It updates amazon once this is done, indicating that the transfer has been completed. Amazon then realeases the funds to the vendor from whom the book was purchased.
Why is it different for Service Marketplaces?
Services are usually intangible and have no necessary involvement of third party for the completion of its delivery. In this case, how does the marketplace know when to pay the vendor? The answer to this lies with the two main players involved ie. customer and the vendor, and has the following scenarios:
- The customer declares the service complete. Some platforms use the information used while booking the service eg. date and time, and send an intimation to the customer at the end of that time period, stating that it will assume the service has been completed until stated otherwise by the client in the next 5-6 days
- In the cases of RFPs (request for proposals) where services are more complex and the timeframe isn’t defined when the purchase is made, the platform usually asks for service completion validation from both the vendor and the customer.
However, to make things more secure and not just rely on trust, it is usually important for service marketplaces to manage the execution of the service on the platform itself. This makes the platform operator knowledgeable enough to act as the trusted third party (shipping company in the case of a product marketplace). Managing service execution is necessary also because a lot of the functionalities of the platform depend on the service and its execution status:
- Can a customer buy/vendor sell the service given the other stated variables ?
- When is the vendor paid?
- When can a customer cancel the service?
- When can a customer request for a refund?
For eg. Let’s say you want to get a haircut at 2am on a Tuesday night. However, no hairdresser in the city provides this service at the time. A service marketplace platform that merely connects you to a hairdresser and lets you make an online purchase without tracking the execution of this service would not ask you details about the time and date of when you need the service. In this case, you’d end up purchasing a service that doesn’t exist or cannot be completed.