Set

Here we will include any kind of marketplace type platform where sellers and buyers engage in transactions on the platform itself. Such platforms usually have a ratings system so that a seller’s reputation is judged by his ratings as rated by other buyers. We will talk about those website or platforms which have such a ratings system in place. Examples: Amazon (E-Commerce), Alibaba (Trading), Freelancer (Coders), etc.

Theory

(1) In order to grow the business on any kind of reputation based marketplace platform, ratings are a must. Such platforms usually rank their sellers higher in their search if those sellers have higher or more ratings. Here “higher ratings” doesn’t mean 4 out of 5 stars vs 3 out of 5 stars. It means stars from 100 buyers vs stars from 50 buyers. So even if one seller has an average ratings of 3.5 out of 5 stars from 200 buyers, and another seller has an average ratings of 5 out of 5 stars from 10 buyers, the first seller will be ranked higher by the platform’s search engine. So if the first seller is placed at the first page of search results while the second buyer is placed at the second page or third page of search results, the first seller will get all the traffic and orders while the second seller will be devoid of all orders.

However, one important point to remember here is that if both sellers are placed on the same page of the search results, for example first seller is placed on number 1 rank while second seller is placed on number 5 rank, buyer will prefer to purchase from second seller as his average ratings is 5 out of 5 which looks way better than 3.5 out of 5. In this case, the number of ratings don’t matter, and second seller will receive most of the orders. But first seller doesn’t have to worry about that, he will still get enough orders to keep his business running profitable and comfortably.

Important point is that without ratings, you won’t get any customers. Number of ratings make all the difference.

I have tested this theory within several platforms, and this is the gist of what I observed.

You can sell the same product for higher price if you have higher ratings. This is even more true for services than products. If your ratings are 100% or 5 out of 5 by 50 people and another guy has ratings of 4 out of 5 or 90% by 150 people, you can charge the customer $600 for the same service that the other guy is charging $200. And you will still keep on getting customers, and you will even get lucky (with no surprises) to get orders from big companies who will purchase your services again and again.

Once again this is tested by me, and I will make a case study for it soon. However, to really build a sustainable business, avoid ripping customers off by charging them too much for something that doesn’t really cost that much.

Problems

(1) How to get orders to build ratings when you really don’t have any initial ratings? Since without ratings you won’t get any orders, so isn’t that a vicious-circle problem?

(2) Is it possible to keep your ratings full 100% or 5 out of 5 forever?

Strategy to deal with the problems: Ethical

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Strategy to deal with the problem: Unethical

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Description and Explanation

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