Marketplaces Are Transforming the Traditional B2B Pricing Paradigm
The complex world of B2B pricing is changing—and online marketplaces are driving the disruption.The Amazon Business marketplace reached 1 million customers in 2017 and surpassed $10 billion in sales in 2018. This growth has analysts predicting that Amazon Business could become bigger than its consumer marketplace in the future. What’s more, Amazon Business is creating new B2B buying and selling habits, most of which have carried over from Amazon’s transformative B2C marketplace.
Vulnerabilities in Traditional B2B Pricing
Let’s consider the existing B2B eCommerce environment. Traditionally B2B sellers have published a public list price on their websites and then implement private customer pricing for companies with the greatest price sensitivities. So while there maybe a public price listed, negotiated prices will be different from buyer to buyer and prices will be prioritized for frequent, high-volume purchasers.
This price opacity has been critical for B2B companies—it enables them to optimize and adjust their prices according to the sensitivity and dedication of their customers. Ultimately, this is how B2B sellers have historically driven the bulk of their profits. However, Amazon Business has begun to cut into these margins.
Marketplaces Drive Value for Long Tail Products Through Price Transparency
Today, most B2B companies benefit from very high margins (and are very protective of those margins). In fact, these margins were one of the key reasons Amazon was attracted to the B2B market in the first place.But Amazon Business offers price transparency, which has become a serious threat to traditional eCommerce sellers. Amazon Business offers a single, competitive public price for all buyers.This isn’t a problem for core products where big companies have negotiating pricing with their suppliers. However, it’s a problem for sellers of long tail products of which their buyers are less price sensitive; buyers have less market awareness of these products due to price opacity, which creates incentives for competitive, transparent pricing.As we’ve seen in B2C markets, online marketplaces quickly expand assortment while driving down prices.
5 Pricing Threats Amazon Business Poses to Traditional B2B Sellers
B2B companies want the most competitive prices, very high levels of service, short delivery lead times, and reduced costs for logistics. These are marketplace offerings that will cause long-term damage to most existing suppliers of long-tail products. Even companies that sell products at highly negotiated prices will suffer as customers find better options and perks in Amazon’s B2B marketplace.
The following are five key competitive advantages offered by marketplaces that pose the biggest threats to traditional B2B sales:
Clear, Competitive Pricing – B2B buyers still need products for which they have not negotiated prices, but they don’t have visibility of real potential savings beyond sellers’ list prices. (This, despite knowing discount opportunities are in place for other buyers). Marketplaces offer competitive, transparent prices on non-core products companies nonetheless need.
Widespread Adoption – In a 2018 B2B Online study, researchers found that 87% of B2B buyers already buy regularly through online marketplaces. Adding competitive elements to owned marketplace environments drives competition and improves the atmosphere for buyers—even with prices publicly listed.
Competitive Service Costs – the price of a product doesn’t mean much if buyers don’t factor in the cost of delivery and service-level agreements (SLAs). These prices can be very high for B2B buyers, especially for big and cumbersome products. Amazon raises the competitive stakes by offering discounted or even free delivery.
Volume Discounting – Despite its transparent pricing, marketplace buyers that buy in bulk can achieve discounted prices—as well as personalization, product bundling, and other customizations—just as with traditional B2B eCommerce. Unlike quotation, marketplace-based volume discounting is scalable as suppliers input different prices per volume thresholds. Quotations remain stagnant in buyers’ and suppliers’ histories with one another—these buyers have few opportunities to improve these rates.
Accessibility – Perhaps online marketplaces’ greatest advantage is its status as a one-stop shop for buyers. Price is a critical factor in all purchases, but consolidating buyers’ administrative tasks—especially for non-professional buyers, for whom buying is not a core activity—has great value for SMBs, especially. Garages with non-professional buyers—professionals with other responsibilities—need a wide variety of spare car parts, for example, will want to simplify the buying process.
Expanding on Traditional B2B eCommerce with Marketplace and Dropshipping
Today, B2B eCommerce sellers can launch their own marketplaces. In doing so, they gain a serious competitive advantage—Amazon Business does not have the level of expertise and experience they offer in each category.
These new B2B marketplace operators can differentiate their eCommerce products from marketplace products without encroaching on their existing pricing models. The eCommerce products are those that they already buy and sell regularly. These products are typically their high-volume products, the ones with which they have the most expertise, and the ones that are the most price sensitive.
By opening a marketplace, B2B sellers can open new categories and expand their assortment, some of which will be complementary to their core eCommerce offerings. These companies continue to offer price-sensitive products on which they can have very strong price control; they can open their marketplaces to long tail products, even while minimizing administrative costs and work such as pricing.
Maximizing your share of B2B sales, while meeting business buyer expectations
B2B companies that build upon their core products & inventory with long tail marketplace offerings add exponential value to their business buyers.
Amazon Business and Alibaba have already recognized the vast opportunity in the long tail B2B sales, and B2B price transparency. It is not long before procurement teams start leaning heavily on Amazon and Alibaba, bypassing inefficient RFP processes and legacy procurement technologies.To remain relevant for the new business buyer, B2B companies need to launch their own online marketplace. In doing so, they’ll not only quickly offer more products and services, but also start to navigate the journey from price opacity to price transparency.
Ready to begin? Launching your own marketplace is the fastest way to create direct relationships with customers. Start growing your business now to become more scalable and profitable than ever.