Role of digital technology and information system in preventing marketplace leakage

Abstract

With the rise of platfom1 business models, one critical issue that all marketplaces must address is marketplace leakage. Buyers may use the platform to search for appropriate products or services, but they must complete the transaction outside of the platform. Marketplace leakage refers to the phenomenon of taking actual transactions away from the platform even though the seller-buyer communication is set up by the platform itself. Depending on their business models, different firms experience varying degrees of leakage. The level of leakage is primarily determined by factors such as the frequency of repeat transactions between the same buyer and seller, the level of trust required in the supplier, the value created by the platform, and the quality of goods and services provided by the platfom1. Other factors that influence the magnitude of leakage include the amount or value of the transaction, the need for infom1ation exchange between the buyer and seller, the offline mode of transaction, and the platform's limited scope of augmenting benefits provided to customers. Because there are various types of platform models (such as exchange platforms, maker platforms, aggregation platfom1s, social platfom1s, and so on), the magnitude of leakage experienced by each platform varies, and thus the remedy implemented by each model varies as well. For example, Airbnb limits customerseller interaction by muting their conversation, and the customer only receives complete details about the seller when the transaction is completed. A high number of repeat transactions between the same set of buyer-sellers, a service-based business model, large amount-based transactions, the requirement of offline transactions, and the need for interaction between buyer and seller are a few major factors that affect almost all marketplaces. Various firms have implemented various solutions over the years to reduce the magnitude of leakage from their platform. For example, providing a better experience, lower prices, tracking unauthorized interactions with customers by service providers, ratings, customer service, and so on. They can also implement recommendations such as loyalty programs, enhanced benefits, and monitoring outgoing calls and messages, among other things. New-age digital technologies such as data analytics, GPS, masking, and natural language processing can also help platforms reduce leakage, but in the end, managers must take appropriate actions based on their business models to reduce leakage.