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The Farfetch Marketplace Flywheel driven by Customer Experience

Pedro Cerqueira
Husband, father, former water polo athlete, now an obstacle course runner with Nikes. Passionate about data and product development.
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The Farfetch Marketplace Flywheel driven by Customer Experience

The Farfetch platform powers a dynamic marketplace that enables the buying and selling of luxury fashion through our digital shopfront farfetch.com. As a virtual connector of consumers, creators, curators and brands, our responsibility as digital "shopkeepers” (e.g. Product Managers, Engineers, Marketers, etc.) is to match demand and supply and oversee all aspects of the digital trading experience to fulfil our mission to build the global platform for luxury.


This article explores the concept of the marketplace "flywheel” to exemplify how the different parts of Farfetch interact and affect each other to keep trade healthy and growing.

The concept of the flywheel was inspired by the "Amazon Flywheel” or "Amazon Virtuous Cycle” supposedly sketched by Jeff Bezos back in 2001. This model leverages customer experience improvements to drive traffic to the platform and third-party sellers, consequently improving the selection of goods and cost structure, decreasing prices and contributing to the flywheel spin.

Think of the flywheel as "an incredibly heavy wheel that takes huge effort to push in the beginning, but less and less effort to keep spinning once initial inertia is overcome” [1].
All Farfetch digital "shopkeepers” should be pushing together to make the flywheel move in a positive direction (e.g. improving customer experience, creating a healthy balance between supply and demand). Incremental concerted changes build the flywheel’s momentum and, eventually, it starts to turn itself and generate its own energy - the point at which a company goes from good to great.

 

A practical example of The Farfetch Marketplace Flywheel Virtuous Cycle


To better understand how the Farfetch Marketplace Flywheel can gain its momentum, here is an example of a complete cycle driven by customer experience improvements:


a. Improving Customer Experience


In the digital world, the effort for users to visit other shops and compare prices is fairly low, which means that the Farfetch teams in charge of the product "shelves” (e.g. product listings and rankings) can use data science based algorithms, like the price meet/beat/lose, to pit against the competition. The end goal should be the optimal pricing display of the merchandise to our customers. In turn, that should provide customers with a more rewarding shopping experience because Farfetch was able to surface the right products at the most competitive selling prices.

b. Increased Customer LTV and Retention 


As a result of an improved customer experience, customers might start showing increased  engagement levels by visiting us more often and by browsing more products. In addition, we start to see noticeable boosts in the conversion rate (what we call "demand”) for the existing customers' segment, which should result in a significant increase in their retention rate, repurchase rate and average basket order value (again, "demand”).

All other things being equal, the latter should result in an increase in the customer lifetime value (LTV), meaning trading is looking good!


c. Increase in Marketing Investment


A healthy relationship between the customer lifetime value for a given cohort (e.g. existing customers) and the cost of acquiring new customers might provide a strong financial investment case to back up Digital Marketing customer acquisition campaigns. We’re funnelling these marketing fueled prospects through the 2 initial stages of the AISDA funnel (Attention, Interest, Search, Desire and Action), by grabbing their attention and interest through appealing ad copy and visual display on paid channels (e.g. Google). This might result in an increased number of visits to the marketplace ("demand”).


d. Acquire Customers and Drive Sales


By landing these prospect visits according to their best expectations and exposing them to a rewarding digital experience, reinforced by a long-tailed marketplace with a wide range of desirable luxury fashion items at fair prices, the expected result should be an increase in the number of new customers, existing customers’ loyalty, global brand awareness and sales ("demand”).


e. Acquire Sellers and Increase Inventory


A growing and more loyal customer base and an ever increasing awareness about the Farfetch brand should draw the desired attention of renowned boutiques and brands, which will be enticed to join the Farfetch marketplace as partners/sellers.

New partners joining could mean an increase in the breadth (e.g. number of distinct new products, categories and designers), depth (e.g. quantity of available stock) and status (e.g. exciting and novel partnerships) of our marketplace offering ("supply”) backed up by robust and scalable production and back office digital tools and operational services.


f. Acquire Customers and Improve Customer Experience


Supply growth is definitely a decisive factor in attracting and acquiring more customers, but as shown by the Paradox of Choice [2], it is proven that an increase in the number of choices available (e.g. more distinct items to choose from) does not translate directly into better results (e.g. sales increase). Equally, onboarding beloved sellers/brands doesn't guarantee customer acquisition and loyalty just by itself.


With this in mind, our digital Product "shopkeepers” in charge of product search, discovery and inspiration are called into action to work with all sorts of human cognitive biases and to continue to deliver an amazing customer experience. Creating products users love based on insights from user behaviour, experience, AB testing data and also from a healthy dose of that "Product gut feeling”.


As new users are taken through the AISDA (search, desire, action) funnel, different Product "shopkeepers” come into play by further increasing the odds of converting prospects into customers by improving the product consideration and checkout purchase experience.


Even if prospects seem to be converting and turning into customers the work is not over! Product "shopkeepers” in charge of delivery and post-purchase have to accompany our new customers through the final stages of the AISDALSL funnel (like/dislike, share, love/hate). The goal is to generate positive feelings, word of mouth and true love for the digital products and services we provide, as well as the items we trade, so that we can turn one-time customers into loyal customers ("demand”).


At this point, the marketplace flywheel finishes one complete rotation. It’s now up to all of our digital "shopkeepers” to use the gained momentum to keep the flywheel going in a positive direction at a sustainable pace for as long as possible.

Why is the concept of the flywheel important?


As you have seen, different "shopkeepers” are pushing and pulling different experience, demand and supply trading levers while impacting a very complex system.


The Farfetch marketplace flywheel is a representation of that system. Just like in any other system, these levers impact the inflows (e.g. interested visitors, sellers) and outflows (e.g. happy/unhappy visitors/customers/sellers), which will affect the system stock (e.g. customer base, sellers’ partnerships, sales). The dynamics between inflows and outflows can then result in either positive or negative reinforcing feedback loops that will make or break a business.


To have the flywheel rotating at a sustainable pace for as long as possible, "shopkeepers” need to not only understand the part of the system they have the power to influence directly (e.g. how can a Product Manager improve the user purchase experience) but also how they can positively impact other parts (e.g. how a customer experience improvement might influence the possibility of a profitable marketing investment down the line).


The need for our digital "shopkeepers” to be mindful of the whole rather than just the parts reminds me of the Indian parable of the blind men and an elephant [3]. A group of blind men who have never come across an elephant before stumbled upon the creature and "start conceptualizing what an elephant is like by touching it”. As each blind man feels a different part of the elephant's body, they describe the elephant based on their limited experience and their descriptions of the elephant are different from each other. This leaves the men suspicious of each other and doubting the others’ honesty. 

Imagine how much better this group could live and work together if they shared the same vision. By understanding the concept of the Farfetch Marketplace flywheel, we, as digital "shopkeepers” are better prepared to avoid pushing levers blindly, unaware of the impact, and instead work together to build the bigger picture that will take Farfetch from good to great!



References:

[1] Good to Great: Why Some Companies Make the Leap...And Others Don’t by Jim Collins

[2] The Paradox of Choice - Why More Is Less by Barry Schwartz
[3] Thinking in Systems: A Primer by Donella H. Meadows



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