Online markets driving product quality

Prior to the 1850s, farmers and traders in pigs, eggs, grains and other agricultural commodities in mid-western regions of the United States had to contend with high wastage in markets largely brought about by disagreements.

For example, certain farmers would rock up with grains that were unevenly dried or pigs that were too mature. None of the participants got the optimum benefits. The launch and growth of the Chicago Board of trade, a marketplace where buyers and sellers traded agricultural commodities, cured this malaise.

In any marketplace, the quality of goods is a primary factor in buying decisions. To determine the quality of grain requires a process called sampling. Grain probes are used to take core samples, testing for hidden defects including moulds and related problems. Chicago Board of trade’s 1856 resolution used new sampling techniques to develop the first set of grading standards for wheat.

The system was adopted throughout the agriculture industry — improving quality standards nationwide. This is one of the earliest encounters of hidden but the most important value of marketplaces.

In the last 10 years, the world has witnessed the emergence of internet-based marketplaces. These digital marketplaces aggregate service providers like taxicabs, boda boda couriers, merchants or property, cars or even lodging rooms. This includes brands such as OLX, Uber and AirBnB.

Aggregating buyers and sellers of goods in one place, increases the search and discovery efficiency. For example, it is now easier to purchase a cow via OLX than engaging on a roaming journey around Githunguri searching for it.

However, there is even more value when you know that the cow you are looking at on OLX has been verified as one producing a certain amount of milk per day.

One of the most important elements that might not be apparent is the marketplaces’ ability to raise standards and quality of the goods and services being offered. Nothing demonstrates this more clearly than our experience at OLX in the last six months.

Starting with a focus on enabling buyers and sellers of potatoes to trade, we took a deep dive into discovering the key challenges of the supply and demand sides. To put it in context, 60 per cent of the 1,000 potato bags that are shipped to Marikiti every morning from various parts of the country end up in chips outlets in Nairobi. When we asked traders what they believe to be the most important thing for them when ordering potatoes from farmers, they said quality was the most critical thing.

To chips dealers and restaurants, their most important metric is the amount of chips that can be eked out of a single potato after they go through the chips fryer.

On further interrogation we discovered that the surface area of a chip, determines the probability of the chip overcooking to an extent of it becoming too hard to chew while in the hot oil and even turning black to the disdain of customers who want chips that are well dried, not soggy, yet not overcooked.

In the eyes of the largest consumer of Marikiti potatoes, the size of the potato is the greatest determinant of quality and so the price setting standard. The bigger the potato the more ‘clean chips’ you can extract from a kilo of the produce.

This information is unknown at explicit terms to both parties involved in the trade. For example, what’s a large potato? Is it measured by length or weight?

Due to this ambiguity, farmers’ potatoes get rejected by traders or traders purchase potatoes from farmers which restaurants do not like. In our survey of over 50 restaurants, the greatest challenge they have when ordering potatoes in Nairobi is accessing potatoes that meet their quality needs within the value chain.

On this understanding, we came up with an elaborate method of sampling and grading potatoes to enable farmers selling via OLX to send potatoes that met these specific size standards.

The result has been extremely high demand of potatoes ordered through our platform by traders and retailers in Kangemi, which then sell faster to their restaurant customers.

This phenomenon is not different from the standards of cleanliness in Uber taxis or standardisation of the charges per kilometre.

By explicitly setting the standards of potatoes traded on OLX, we are not only reducing wastage but also improving the farmers, traders and restaurant’s productivity.

Elevation of quality of traded goods and services is the holy grail of marketplaces when they scale. A much more hidden and nuanced value proposition of marketplaces than the obvious one of convenience.