An often overlooked area of online marketplace development is the proper management of a marketplace platform’s categories. Design the structure of your product or service categories wrong and you can say goodbye to (the right) traffic, retaining your sellers, and of course, attracting buyers. But where do you start?

Marketplace category management can be divided into three broad stages: discovery, validation, and optimisation. While discovery and validation form part of the initial design of your category structure, optimisation helps you ramp up the groundwork laid in the first two stages, through activities such as SEO, UX design and marketing.

In this post we will explore how to design your marketplace category structure by focusing on the discovery and validation stages. Read our follow-up post – How to optimise your marketplace category structure for stellar growth – to learn how you can amplify your category design further for enhanced user acquisition, user engagement and sales conversions.

First, let’s have a look at a few factors that make category management challenging for the novice marketplace entrepreneur.

Some challenges of marketplace category management

Marketplace category management can be a complex affair. This is mostly due to the fact that a digital platform lends itself to almost unlimited products or services. Keeping track of all those stock keeping units (SKUs) can quickly turn into a nightmare. 

The highly competitive nature of the online environment has also shortened product life cycles, with continuous product development and regular product updates the order of the day. Your category listings can therefore not be static and need to keep up with changes and trends.

Technically, there are some universal boxes to tick. 

Overall, your product taxonomy (aka category structure) should be discoverable via internet searches. If your marketplace product categories don’t pitch up in Google, customers won’t be pitching up on your platform. 

Buyers want to be able to find the right products or services as easily as possible. That requires a logical category structure that is highly searchable. Tools like filters, sorting dropdowns, and search algorithms have to be designed in a way that delight instead of frustrate users. Relevant details, such as number of product reviews, should be integrated with category page results for quick comparisons. 

Sellers should be able to add their listings to relevant categories in an intuitive and low-friction manner. This means implementing a user-friendly seller dashboard, the right product tags, and suitable fields for product descriptions and images.

Let’s not forget about you, the marketplace owner. You will need an analytics dashboard to track both seller and buyer behaviour. Figuring out which category metrics to track can have a huge influence on your success.

The team in charge of category design and optimisation should be adept at segmenting products, services and audiences; should understand customer intent, product trends, UX design, and user behaviour analytics; plus be able to contribute to marketing strategies, such as search engine optimisation. 

Looks like a walk in the park!

Jokes aside, hopefully this breakdown of the category design process makes it less daunting. Get in touch with marketplace development experts, CobbleWeb, if you need more help or information. Get in touch

Design your marketplace categories: discovery

All marketplaces differ from each other in numerous ways: target audience, value proposition, features, user flow, business model and so forth. It is therefore important to follow a structured design process to make sure you kick off with the right category structure for your particular marketplace. 

The first step in the design process is discovering how your users search. By doing some market research you can make a few assumptions about their product search behaviour. Your market research should indicate if your MVP marketplace requires a category menu or if it will be better served by direct product search or filters.

A case in point, early-stage subscription box marketplace, The Box Hut, did not require a category structure as its product line is fairly straightforward and best represented as an easy-to-browse list.

The Box Hut marketplaces uses a simple dropdown list instead of a complex category menu

By starting with a few boxes and some marketing, The Box Hut was able to prove product-market fit. Going forward, as its catalogue expands, it may start using categories to reduce the complexity of its product list.

For some marketplaces the emphasis should be on a strong search feature rather than a complex category structure. FanPass, an event ticketing marketplace, was faced with the conundrum of thousands of different events which could potentially translate into a very bloated category structure. 

The solution was to implement a strong autocomplete search feature combined with a basic category menu: sport and culture. Analysing the subsequent keyword searches, they were able to refine their categories with filters for popular segments such as football.

Fanpass marketplaces uses powerful autocomplete search to help buyers find listings

The recipe for an effective MVP category tree

In general, marketplace startups should kick off with the minimum categories to make the testing of assumptions easier. Here are a few pointers for establishing your MVP category tree.

1. Start with your product taxonomy. Organise products or services into parent – and child categories so that buyers can find what they are looking for in the least amount of clicks. The flatter your product hierarchy the quicker customers can navigate, select and purchase items. 

2. Avoid the mistake of basing categories on sellers instead of buyers. It’s a common fallacy to think that the more categories you squeeze out of your product or service catalogue, the more sellers will join to boost your product inventory.

3. Parent categories should follow a theme that aligns with how customers conduct their initial search online, for example, weddings, conferences and exhibitions for a marketplace dedicated to event products and services. Keep the top-level category structure simple to make navigation easy and intuitive.

4. Child categories should consist of product families that also follow searcher intent. In the case of the abovementioned events platform that would be product groups such as decor, catering, and venues that are often searched for in conjunction with a theme like weddings. 

Search listening tools like Answer the Public or Google Trends and keyword planning tools like Google Ads Keyword Planner can provide you with valuable clues. You can also have a look at Google’s Product taxonomy which is used in the Google Shopping feed.

Marketplace parent categories should follow themes aligned with online search while child categories should be made up of product families.

5. Another technique to create categories is to identify popular products that share common attributes. That can include categories based on brands (Nike, Adidas), similar products (running shoes, formal shoes), or complementary products (shoes, socks, laces). Avoid getting confused between categories and attributes by using the following rule of thumb: if the term can be used to describe multiple categories then it’s an attribute.

6. The next step is to choose the attribute fields (aka modifiers or filters) for each child category, e.g. colour, size, or location. Buyers should be able to use filters to select their preferred values for each attribute, while sellers should be able to tag their products with relevant values for those attributes. Use product research to discover the most common values for each attribute, e.g. blue, large, London. The more attributes and values you add, the more granular and accurate the search results will be for customers. 

7. You will also have to come up with product rankings for each category’s product listing page. This is necessary to present searchers with an initial array of listings after they chose a category in the menu or search bar. Product rankings are usually based on an algorithm that ranks product listings in terms of attributes such as popularity, promotions, number of reviews, or release date. 

Once you have a category structure in place to kick off with, you need to make it updatable. Your marketplace admin dashboard should include permissions for users with administrative status to delete, add or edit parent and child categories. Listen to your sellers too by allowing them to request child categories. But watch out for unbridled expansion of categories; don’t swamp your buyers with categories that add confusion instead of value.

Design your marketplace categories: validation

Now that you have your MVP category structure in place it’s time to start testing your initial assumptions. That means collecting and analyzing the right metrics. Here are some important ones.

The activation rate measures how users are engaging with your category ecosystem. Use an analytical tool like Heap to help you track user actions and feature adoption. It can provide feedback like “30% of search results sessions were due to the use of filter X” or “1% of converted sessions were due to use of filter Y”. This data can answer important questions such as:

  • Which filters or menu items are used as categories to search for products?
  • Which filters or menu items are contributing to KPIs such as activation or conversion?

The click-through-rate from category pages to product pages is a good indicator if your inventory is aligned with what buyers want.

Analyse search behaviour to see if you should create categories for items with high search volumes. Parking marketplace, MobyPark, noticed that a lot of people are searching for parking near airports like Amsterdam’s Schiphol. It thus made sense to incorporate those airports in their category menu.

MobiPark analysed user search behaviour to create new categories.

For more details on which marketplace metrics to track, check out our post on AARRR (Pirate) Metrics

The next step: Optimise

Once you have collected and analysed the appropriate category metrics you are ready for the next version. Now you can combine your MVP category structure with actionable user data in short cycles of iteration to incrementally improve your marketplace performance. Learn how to optimise your category structure in our next post.

Looking for some help with your marketplace category structure? Speak to the marketplace development experts – CobbleWeb.