Merchant Front Office Apps - Setting the Foundation
This is Part 1 of the Consumer Demand Series.Introduction
Part 1: Merchant Front Office Apps - Setting the Foundation
Part 2: Creating Demand with Merchant Facing Apps
Part 3: Consumer Apps
Part 4: The Big Leap to Two-Sided Marketplace
Solving the key job to be done ensures initial demand from and adds to your account control with your merchant customer. The closer your product gets to the target stakeholder, the more opportunity you have to create a control point with them.
A merchant’s key jobs to be done are straightforward: attract new customers and then keep them around. While providing anything to a merchant that helps with these tasks is good, a VSV will want to sell a product that can simultaneously create consumer value. I’ve found that consumer value is created by frequent engagement, high utility, stored value, or data that can be used to personalize future interactions. To increase the VSV’s power, these engagements should be done in a branded fashion. For example, in a point-of-sale system, a consumer may start to recognize the Square or Toast logo that is prominently featured at a merchant’s cash register.
In the table below, I’ve compiled a variety of common front office applications that merchants use to create sales/demand, and their longer-term strategic value relative to consumers. While there are many robust horizontal competitors for each category, a VSV benefits from the integration with its core offering. Mix in industry-specific nuances, and you have strong enough differentiation to ensure victory over your horizontal foes.
Ecommerce
An ecommerce platform is an ideal offering for the VSV, as it captures data across transactions, customers, products, and payments. The first application adopted by merchants tends to be messaging (e.g. email or text) because communication is usually where merchants need the most help. After that, a web presence typically follows—some type of ecommerce or online booking is the natural next step. Online booking allows a merchant to transition from a passive business (waiting for a customer to walk in the door or to call) to a proactive business by finding and driving demand via online advertising.
This is a big and important change! It moves a business from something that merely reacts to the whims of the market to something that forges its own destiny. While it may seem simple, just having a website and a working communication platform can be too much for merchants focusing on building their company from scratch.
Ecommerce is more than just having a “buy online” button—we’re already starting to see ecommerce embedded in every part of the consumer experience. “Order and Pay at Table” by Toast allow consumers to engage with a restaurant digitally as part of the in-person dining experience. Podium allows merchants to transact and collect payments in the flow of service, marketing, and follow-up communications. According to our in-house research, 25% of Brazilian ecommerce flows through messaging environments like WhatsApp. I love these new ecommerce modalities because they:
- Augment the consumer's in-person experience with digital engagement.
- Create additional monetization for the merchants.
- Position a VSV’s value proposition closer to consumer demand.
CRM
The biggest issue that merchants face with customer acquisition is not being able to determine new versus existing customers. Marketplaces—the largest online channels—charge for new and existing customers equally, and while merchants generally are willing to pay the take rate online marketplaces command (and even higher!) for truly new incremental customers, they resent (and can’t afford) paying take rates on their existing customers.
A CRM that actually measures net new customers can solve that issue. The ideal CRM is a dynamic repository for all customer data, not just an in-house email list. It can be enriched by payments data, allowing for unique customer identifiers, basket and SKU data, WiFi and reservation systems, and service delivery data points. This idea was the driving force behind Olo (a restaurant channel manager) acquiring Wisely (a CRM/analytics tool for restaurants) for $187M in 2021.
VSVs have an unfair right to build this product because they already have ownership over the data that a typical CRM would struggle to access. By making the attribution dead simple, VSVs can offer a product that horizontal providers can’t match, not through technical excellence but through data superiority. A VSV marketplace would be able to delineate between net new customers versus returning providers via their superior data.
Channel Management
Online marketplaces dominate in verticals such as hotel and food, or in geographies like LatAm. As a result, merchants need channel managers (e.g., Siteminder in hotels, Olo in food, and Dutchie in cannabis) to simultaneously list their inventory on multiple marketplaces and maintain a single source of truth for inventory management. (Disclosure: Siteminder was a portfolio company at my prior firm, and Dutchie is a Tidemark portfolio company.)
Channel managers also allow merchants to add big pools of demand quickly and easily. For example, a local hotel in San Francisco can tap into overseas Chinese visitors easily and scalably by putting listings on Ctrip via its channel manager. When a VSV offers this product, they can give immediate proof that they are providing the demand merchants crave.
The Phone
The phone is the front door to local merchants. Many service businesses have high demand peaks when they lose orders because they fail to answer the phone. New phone offerings can allow merchants to transition phone interactions to digital, or can provide on-demand assistance in taking orders—the VSV can either reroute the calls to a call center or provide an AI chatbot that connects with merchant’s customers via text. In either case, the VSV gives the company demand that otherwise would be missed.
Conclusion
Front office applications are good expansion opportunities, even if the VSV doesn’t go any closer to consumers. However, the key is to prioritize those options for creating demand for your merchants (Part 2 of this series) and create landing wedges and extend to the consumer (Part 3). If you play your cards right, you will be that much closer to creating a two-sided consumer marketplace (Part 4).
Consumer Demand Series
Introduction
Part 1: Merchant Front Office Apps - Setting the Foundation
Part 2: Creating Demand with Merchant Facing Apps
Part 3: Consumer Apps
Part 4: The Big Leap to Two-Sided Marketplace
CASE STUDIES RELATING TO THIS CHAPTER:
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