10 Smart Ways to Solve Chicken and Egg Problem for Online Marketplaces

The chicken and egg problem has stopped being a merely philosophical dilemma. This expression is also widely used in the business world. So, what is the chicken and egg problem in ecommerce?

In simple words, this term describes the situation when the owner of a new marketplace is torn between attracting two equally essential sets of users to his platform: buyers and sellers.

In this article, you will find smart strategies to kickstart your marketplace. Let the examples of famous brands inspire you to discover unique user acquisition techniques.

The chicken and egg problem in online marketplaces

When you build a marketplace website, you don’t have buyers yet. Consequently, the sellers see no reason to join your marketplace. At the same time, buyers may hesitate to register when your marketplace has a limited list of products or services.

As we can see, your online marketplace cannot function properly without both producers and customers.

All online marketplaces, even the biggest ones, faced this market challenge in their early days. However, the good news is that by applying specific strategies, they managed to overcome difficulties and bring new customers to their platforms.

Now, let's look at the ten smartest strategies the biggest successful marketplaces adopted.

Related reading: How Much Does It Cost to Build a Marketplace Website

How do you solve the chicken and egg problem?

Solving the chicken and egg problem often involves a combination of critical thinking, analysis, and creativity. It's about reframing the question, considering multiple viewpoints, and exploring potential solutions from various angles.

Let’s check some tips in more detail.

1. Enter with significant pre-investment

Before launching your marketplace platform, dedicate ample time and resources to forging robust partnerships with key stakeholders in your target industry. These strategic alliances can serve as catalysts for igniting your marketplace's supply and demand sides. Securing commitments from reputable suppliers or influential buyers establishes a firm groundwork for expansion and credibility.

For instance, when Airbnb collaborated with property management companies in sought-after travel destinations, it ensured a consistent influx of high-quality listings. It elevated the overall user experience, fueling swift adoption and market growth.

2. Attract the hardest side first

Define the hardest side and try to partner with this user category. When one side starts using your platform, the other side will follow. You can check this by testing the sale rates and onboarding process.

When the supply or demand side reaches its activity peak, the other side will see the value to sign in. NFX, a venture firm, calls this phenomenon the “network effect”.

Outdoorsy is an online marketplace platform for users renting a recreational vehicle. The supply was a harder side for them at first. As soon as they motivated RV owners to join, the demand side signed up much faster.

3. Focus on a specific niche

If you have just launched an ecommerce website, you may have dozens of questions. How do you grow your marketplace? What is the best way to make your first profit?

First, you should consider offering various products and services to a broad audience. However, soon, you will realize that this customer acquisition tactic is ineffective for your business.

In fact, it would be more sensible to start a marketplace with a narrow niche. You need to provide value to the early adopters. Then, you can try to expand your market by adding new products, categories, or producers.

Amazon has come a long way from an online store startup that sold books to the largest ecommerce marketplace. Below, you can see the Internet giant's appearance in its early days.

Source: Mashable.com

Another example of a niche platform is an Australian online marketplace for boats, Trade A Boat. This case shows how it is vital to analyze the local market and understand users’ needs. In Australia, people like spending time outdoors, in the sea. With a focus on selling boats and marine equipment, the portal has become one of the favorites for buyers and sellers throughout Australia. At Codica, we helped with adding useful features to the website keeping it on its successful course.

Further reading: How Codica Delivered Boat Selling Website for Trade A Boat

4. Subsidize the most valuable side of the market

For a new online marketplace platform, attracting the most valuable users seems a tall order. However, look at it the following way: as soon as the biggest players leverage your marketplace, other users will follow their lead. Thus, you solve the problem with the supply side at the start.

Surely, monetary subsidies may encourage high-value producers to join your platform. It’s no surprise that brands such as Facebook and Uber started to pay cash for customer acquisition in their early days.

Let’s look at how the system of subsidies works for businesses in the case of Uber.

Uber was founded in Seattle in March 2009 as a transportation network company. At the very beginning, the founders were attracting existing drivers by paying them even if they did not have passengers. With the help of monetary subsidies, Uber managed to gain high-value service suppliers. As a result, users more readily embraced the idea of ridesharing.

By the way, dating websites and apps also often use monetary subsidies for their business. Since their visitors are predominantly male, they offer women free registration on the service.

5. Organize awesome live events

It may be a bit tough to throw a big event to promote your brand-new marketplace. You need to give the target audience a solid reason to attend your meetup or party. Otherwise, they will ignore it.

A solution to this challenge may be finding a prominent speaker or key people in your marketplace industry who can talk up your event. Such a promotion by influencers will motivate the crowd to show up.

How else can you promote your event? According to EventMB, social networks are the most effective tool for event marketing. So don’t hesitate to spread the buzz about your gathering on Facebook, Instagram, or X (Twitter). Thus, you will expand your market presence.

However, one or two posts about the upcoming event won’t be enough. You should always think outside the box. A social media strategy is what will help you convert the followers of your marketplace into customers.

Given all these challenges, you may think that live events are not worth the hassle, but you’d better think twice. They help generate community users and get direct customer feedback on your product.

Besides, meetups cheer up your target audience. People are happier and more carefree. The festive atmosphere makes it easier to build a partnership with new users.

So, if you want to attract early adopters to your ecommerce marketplace platform, include live events in your online marketplace business plan.

For example, Uber organized live events to promote its new UberBoat service. Guests and inhabitants of Kyiv, Ukraine, got a unique chance to join a deluxe yacht trip on August 19, 2018.

Source: facebook.com

Recommended reading: Key Trends in Digital Marketplace Industry in 2026

6. Make a deal with a renowned user

Partnership with celebrities or influencers could be a master coup. People with massive social followings may automatically attract their fans to your marketplace.

Besides, such collaboration helps customers notice your product. First, offer a viable product that fits the pain points of your target audience, and you will get all the exposure you need. You may even become a thought leader in your business niche.

Finally, influencer marketing takes good old word-of-mouth strategy to a new level.

According to the Daily Mail, 53% of millennials trust bloggers more than their parents when booking a holiday. So why not try to get celebrities to endorse your marketplace business?

Sharetribe tells an exciting story about Airbnb’s partnership with world-famous celebrities.

The brand got its fifteen minutes of fame when Mariah Carey decided to use their services when going to Israel. Surely, the Airbnb marketplace grasped the chance to make the most of the first deal with a celebrity. Airbnb offered Mariah a free reservation in return for a sponsored post on social media. This publication on Instagram got almost 45,000 likes.

Source: Instagram.com

Airbnb didn’t stop there. Thus, Mediakix stated that the brand partnered with 37 world-famous celebrities during 2015-2017. Their sponsored posts received more than 18 million likes and 510,000 comments.

As a result, the brand got major exposure reaching the total potential audience of nearly 1 billion Instagram users.

7. Become a producer

You cannot have your cake and eat it too. This old proverb applies to the chicken and egg problem more than ever. It is impossible to attract buyers and sellers at the same time without risking losing too many resources or money. Thus, you need to involve one side at a time in your marketplace business.

The easiest way of customer acquisition is to become a producer. The tactics are plain and simple: you create an initial product that will solve the pain points of your potential customers. As soon as your user base is large enough, you encourage other sellers or producers to join your marketplace.

Apple is a classic example of a company that does the right thing in the market. At first, Steve Jobs was strongly opposed to third-party applications for the iPhone. He intended to create web apps that could be used via mobile web browser Safari. However, when the device attracted many consumers, he changed his mind, and in July 2008, Apple’s App Store opened.

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8. Set a time or demand constraint

Let’s face it: marketers have a good reason to use scarcity to boost their sales. This strategy always works, as time constraints create massive excitement in the marketplace.

It is a sound idea to use a timer or countdown clock with a limited offer to define scarcity parameters. This will stimulate users to take immediate action.

Booking.com is a big name that mastered this psychological sales trigger. The marketplace found a smart way to imply a sense that the deal on the accommodation won’t last long.

Source: Booking.com

9. Find one giant user for the initial supply or demand

You can identify a prominent entity within your target market and concentrate on onboarding them onto your platform. Their presence not only attracts other users but also validates your platform's value proposition.

For instance, when Spotify inked deals with major record labels, it conferred legitimacy upon its music streaming service, magnetizing millions of users.

10. Create exclusive access

It is a great idea to introduce a premium membership or tiered system that awards exclusive privileges or features to chosen users. This exclusivity fosters a sense of privilege and urgency, stimulating interest and engagement.

Consider LinkedIn's Premium subscription, which provides enhanced networking capabilities and advanced job search tools, attracting users to upgrade for elite access and benefits.

Global strategies for solving chicken and egg dilemma

Besides the above approaches, there are three global strategies. They are popular among marketplaces when attracting customers. Let’s see how they work and which one of them is the most efficient.

Use Single Player Mode (Standalone Mode)

Also known as a standalone mode, this seeding strategy means that a company suggests a product with unique features to attract a bigger audience. Thus, the company attracts many customers with the value of its custom product. After the company’s audience grows, it starts providing its primary services.

For example, OpenTable, a platform for booking restaurants, launched software for online reservations. First, they developed an Electronic Reservation Book. It was unique table management and CRM software offered to restaurants for a service subscription. The software allowed for managing reservations, waitstaff assignments, and taking notes on frequent customers.

OpenTable attracted many restaurants in the city. After the audience grew, the company suggested table-booking services to restaurant customers.

Source: OpenTable

Fill Empty Seats

This approach is similar to giving subsidies. It attracts the supply side on the platform, which serves as a lead to the demand side. In this case, the platform helps suppliers during periods of slow sales.

Groupon is a prominent example of this strategy solving the chicken or egg problem. Initially, they suggested merchants sell discount cards on their marketplace to boost sales during slow periods. If a particular number of buyers purchased the merchant’s product, Groupon would take a percentage. The rest would be the seller’s revenue.

Their initial business deal was in October of 2008. Groupon helped sell pizzas in the shop of their Chicago headquarters. The store offered two pizzas for the price of one, and 20 people bought this deal on Groupon.

Source: Groupon

Thus, Groupon discovered that it was a winning situation for all sides. Offering the existing ventures to fill in empty seats, Groupon promoted their businesses. At the same time, Groupon attracted sellers with discount prices and made a profit as an intermediary between both sides.

Create a platform where buyers are sellers

This common business strategy attracts suppliers who are also buyers. Most marketplaces that apply this approach also use a peer-to-peer business model. They have a high overlap of buyers and sellers, which is necessary for this strategy to work for your business.

Poshmark is an exceptional case in which this model is used. This is a platform for selling used clothes locally, similar to eBay or OLX. The founder Manish Chandra focused on individual buyers and sellers to solve the chicken and egg dilemma.

When the company started, they didn’t see many users coming. The company started by creating an app to attract initial users. Poshmark provided an opportunity for customers to sell on their platform.

For the first six months, there were only 500 users, but 300 were active on the Poshmark marketplace mobile app. So, the platform built a community of consumers centered around fashion preferences.

Source: Poshmark

In 2013 the successful company grew ten times bigger over one year. Today Poshmark works with many sellers, including top brands.

Recommended reading: How much Does It Cost to Create a Bidding Website Like eBay?

Marketplaces, where buyers are sellers, can focus on various products. For example, Codica created an online auto marketplace where users buy and sell new and used cars in Africa. With multi-vendor marketplace development services, the platform allows changing the roles when using the marketplace software. The portal grew its audience and accumulated 90+ local marketplaces.

To sum up

The chicken and egg problem is a common challenge for any online marketplace development platform and on-demand startup, even the biggest names faced it in their early days. They succeeded because they brought real market value to the early adopters.

Each ecommerce website is unique, and so are its challenges and the solutions that help resolve them. For starters, you may use the strategies offered in this article, and over time, you will find your way to kickstart your marketplace and attract new users.

The Codica team has vast experience in helping create and grow online marketplaces. Contact us to discuss your project with our experts and to get a free quote.