“The Ends Justifies the Means”
‘The Uber of’… Yes, I went there. And many are literally going there in the hair and beauty industry with listing sites and marketplaces.
Personally, I have nothing against marketplaces or listing sites. I use Just-eat. I use Airbnb. I use Hailo and Uber. Of course I can see the merit in them.
But there are nuances and unique trends in every industry, and hair and beauty is a relatively extreme example of this. So the concept of taking a template marketplace model from one industry to another is not just over-simplified, but when adopted by SME and sole traders, it can be downright dangerous.
From early on, Phorest Salon Software served the industry as a POS (point-of-sale) system with some added functionality including stock, SMS and email reminders, some basic marketing features, and of course appointment management. Essentially an all-in SaaS platform to manage and grow a salon.
A couple of years back (2010), we saw an opportunity to start a listing site ourselves when we had hundreds of salons on our platform. This was to drive online bookings and reach out directly to the consumer. We did exactly that and from the outside, Zanadoo appeared to be very successful in Ireland and the UK. It was doing triple digits growth month-on-month in bookings, revenue and adoption by businesses.
But something wasn’t right. Only after a number of months when we had collected a large dataset, it dawned on us that what we had done wasn’t right for the salon owner. It went against everything we stood for. We pulled the plug leaving only the use of the booking widget for the salon to put on their own website.
— PhorestSalonSoftware (@thephorestword) March 31, 2016
Why Marketplaces are Not in the Interests of Every Industry
The fastest growing salons focus on retention. Not to make it sound simple (because it really isn’t in a deep-discounting culture), but the recipe for success is to get your clients back in more often, spending more and generating referrals?—?not focusing directly on getting new clients. This promise of ‘discovery’ (new clients) is the worn track of many marketplaces, but is often greatly misunderstood by the vendors listing on them.
Focusing on discovery often translates to chasing new clients, spending to acquire them and losing them when they walk out of the door. A profitless hamster-wheel and a soul-destroying experience. This is when salons hit the panic button and turn to things like daily deals.
Taking last March (2015) alone, I ran a report on almost three million transactions that went through our platform. Of the thousands of daily deals contained within that, the ‘best’ daily deal for any salon, had a retention rate of less than 3% and the salon made virtually nothing on it if you use the rule of three visits makes someone officially a client. It also probably filled valuable slots that loyal paying customers would normally fill!
Listing sites and marketplaces are not much better when it comes to salons but they have a much more Machiavellian approach. Let’s take the UK’s largest salon marketplace. For the purposes of this post, let’s call it ‘welltreated.com’. A client searches for ‘hair salons Kent’ on Google. This listing site appears as one of the first results:
- The client clicks through and selects a salon
- They select a service and a stylist
- They then pick a day and time
- They are booked in
‘welltreated.com’ charges the salon 20% on the first service, but only €1/£1 per booking thereafter. Sounds OK right?
Not really. That client is sent newsletters (or push notifications) with promoted salons of the month with salons that paid for a premium listing and offers. Although they will not say it, it is of course in their interests to move people from salon-to-salon to get that 20% as often as possible on the first transaction. Other techniques include sending discounts for a salon to clients that already goes to that salon but are not using the listing site i.e. ‘let’s get them booking through our site instead’. This presents HUGE problems when loyal clients find out that newbies are getting services 30% cheaper and salon owners are often forced to say “Oh if you want special offers you should book through welltreated.com.This destroys average spending rates among clients that were already profit-making for the business before they started using that site.
For more on how listing sites work, you can check out a post I did on the Phorest Blog here
Maybe You and ‘WellTreated.com’ Just Didn’t Get it Right?!
Yes. We explored that too. An Irish salon marketplace ran an experiment with us in 30 prominent salons nationwide (independents not franchise) for roughly 12 months. They sold us the promise of “ we’re different” and that they were focused on retention.
We did an API so it talked to the salons appointment book on Phorest real-time and we could explore the behaviour of clients that booked through the platform. We looked at the 551 bookings made through it since the start of the experiment (which in itself is low) and investigated the behaviour of these clients.
Not surprisingly, we were appalled:
- 78% of clients never booked a third time
- Only 1.5% ever came back more than three times
Somewhat better than daily deals I guess, but let’s be serious…
— PhorestSalonSoftware (@thephorestword) March 24, 2016
Maybe You are Missing Something that the Salon Owner Isn’t?
Again, we thought that could be possible too. So we sent a survey to our clients with four simple questions:
- Have you in the past or are you currently listed on a marketplace or listing site?
- Out of 10, how would you rate your experience of the service and its benefits?
- Any other comments?
Almost 380 salons responded (please note if you answered no to the first question, you were asked to not answer 2, 3 and 4).
It was overwhelmingly negative:
- Over 50% of salon owners rated their experience of the benefits 3 or less out of 10
- 80% rated it between 1 and 6
- Only 5% rated it 9/10 or 10/10
- Approx 59% of the 88 comments at the end were negative and approx 20% were neutral
Full results here: http://www.slideshare.net/secret/8WKNP31LdbEHTD
There were two common themes in the positive comments and five in the negative:
(image of positive and negative themes)
OK We Get It?—?What’s Your Point?
Almost every gathering of startups I speak at or attend, has an equivalent idea like we had for Zanadoo. Marketplaces for gyms, dentists, grind teachers etc. But what works for taxi drivers who are not focused on retention does not necessarily work for bakers or chiropodists, or gyms!
To me the scary part is that many of these founders consider one focus group or a phone call to two or three professionals in the field with a ‘If we build it, will you use it?’ approach to be sufficient research in trying to change an entire market’s model?!
Question to the (potential) Marketplace Entrepreneur: As a (potential) founder of a marketplace, ask yourself this: what is actually best for the industry and the business owner? If genuinely yes, (based on REAL data and behaviour) then more power to you. Hailo is a good example of this model working.
But if you do not know, or worse know that it isn’t in the interests of businesses in that industry, do not fool yourself into thinking it is disruption. It isn’t. You are just commoditizing a service in the short-term that creates a lack of value and appreciation for precious time and often a specially-learned craft. That is nothing to be proud of and cannot be sustained. It is, as Machiavelli stated, a case of the end justifies the means for you.
Question to the Businesses on these Sites: Have you actually explored what value these sites add to your business beyond the immediacy of the new customer? If not, please do.
We need to understand that marketplaces are a very particular model that work in particular industries. Do not be ‘The Uber of…’. Find something genuinely original that adds value to a vertical and then you may just be on the way to building something that can last for generations!