While marketplaces may offer an opportunity to gain market share, B2B sellers should review their readiness for the marketplace model. Magnus Meier of SAP and Angela Troccoli of Mirakl write about six vantage points for analyzing that readiness.
It was the American politician and women’s rights advocate Jeannette Rankin who said, “You can no more win a war than you can win an earthquake.” This line of thought is especially fitting for wholesale distributors that need to face the reality of marketplaces posing an increasingly bigger risk for their business. The tumultuous past year has left distributors grasping for any and all opportunities to maintain business continuity and continue to deliver on customer needs. In addition, Gartner predicts that at least 70% of enterprise marketplaces launched will serve B2B transactions by 2023. The competition to secure a sizeable part of their customers’ share of wallet is just about to get hotter.
“A well-defined approach to marketplaces can help distributors keep B2B buyers at the center stage of their business model, offering a sure-fire way to gain market share.”
So, where does the impending threat of more and more marketplaces battling it out among each other leave wholesale distributors whose lifeblood, to a large extent, still depends on their traditional product-centric business?
2020’s in the Rearview—Now What?
The last 18 months have brought on tremendous shifts in business behavior. As more B2B buyers were forced to work from home, distributors had to rely more heavily on digital sales channels to maintain business continuity, and competition for hard-to-get products came to an all-time high. In fact, between March and June of 2020, the year-over-year average order volume for B2B businesses increased by 79.5%. Even more staggering, between the period of October and December of 2020, it increased by 155%.
During this period, many organizations capitalized on the B2B marketplace boom, seizing the opportunity to bring together an array of third-party sellers to expand assortment and better manage out-of-stocks while reducing carrying costs. Buyers wanted to purchase more products and services through digital means and wanted buying processes that were easier, faster, and cheaper. These distributors successfully rose to the occasion by building and launching B2B marketplaces that could support these evolving customer demands. But there’s a catch. Although it is true that B2B marketplaces are a massive opportunity to increase revenue and customer retention, it may not produce the desired outcome in the long run if it is approached as a one-size-fits-all model.
To Marketplace or Not to Marketplace?
To understand the type of marketplace model that is right for your company, one must think about the bigger picture beyond pure product range extension. Bill Gurley of Benchmark Capital eloquently warned “great marketplaces do not simply aggregate a market; they enhance it.”
Let’s face it—not all distributors can be the next Amazon B2B marketplace, nor should they try to be. While some may be destined for marketplace greatness, others may decide to become active participants in existing marketplaces, focus solely on being a solid eCommerce player, or settle on maintaining their status as a personalized, value-added services player in the market. But every organization must decide what role they will play in the ecosystem.
Each approach to eCommerce has its risks and opportunities. For those considering becoming a marketplace owner, it is essential to assess your organizational readiness from six vantage points.
- Go in with your eyes wide open. Analyze your current profitability model and how it stacks up against peers and new market disruptors. Ask yourself: Is our business model contemporary, and do we have built-in scalability and a harmonized sales process with a clean database from which to execute?
- Consider the customer lifecycle—What are the unique needs of our customers today, and how may they change tomorrow? Do we have the tools and resources to create an optimal customer experience that will keep them coming back for more? Do we have the data required to cater to a market-of-one, understanding how we can add value along their customer lifecycle?
- Consider the product lifecycle—Do we have the right tools needed to offer the most relevant products and services in our webshop? Do we have the reporting mechanisms required to track what’s working and what’s not across our eCommerce platform and pivot quickly?
- Rethink the commercial model—Are breaking bulk or becoming a marketplace operator the only two viable options for us? Should we rethink our sales offerings to develop highly personalized utilization, outcome, or subscription-based business models? How may these new offerings be accepted by our existing or future customers?
- Understand the strength of your network—Do we have the proper supplier and manufacturer connections to work as an integrated network across the supply chain? Can we pivot to thinking like a group organization, taking on the role of supply chain orchestrator?
- Pivot to market sensing instead of order taking—Can we use data to sense customer and marketwide behavior, thereby gaining the ability to proactively act on things that did not happen or are likely to happen? For example: does the lack of consumption of specific customer rebates and tail-spend loss in certain categories indicate a larger customer flight risk pattern?
When working through these considerations, it is important to remember that for successful distributors a marketplace platform is not—and should not—be tied to a generic Amazon-equivalent business model. Instead, ask how a platform model can help enhance the unique value you provide to customers through partnerships.
The technical capabilities of a marketplace platform can also provide a different set of benefits, such as serving as a headless engagement platform for customers, simplifying back-to-back orders for customer sales representatives, empowering group sales organizations or cooperatives with a unified order platform. A successful marketplace strategy should be tied to your overarching strategic imperatives and fully integrated into the tactical goals and operational realities that are core to your business. For example, if your organization is focused on reducing its carbon footprint, think about how you might recruit sellers that have similar objectives, or how your marketplace might facilitate a circular supply chain.
How Distributors Can Succeed in the Marketplace War
If done right, a well-defined approach to marketplaces and the underlying technology capabilities can help distributors keep B2B buyers at the center stage of their business model, offering a sure-fire way to gain market share. By aggregating demand and enhancing the way they engage buyers in their market, distributors can create value across their entire business network, thereby solidifying their place in the value chain and avoiding the risk of disintermediation.
Success in the marketplace wars can take many forms and depends on the strategy your business organization has defined. But inevitably, winners and losers will be determined by a distributor’s ability to understand and execute business and technical agility based on what is happening next in a continuously evolving market.
Magnus Meier is vice president and global head, Wholesale Distribution Business Unit, at business software provider SAP SE. Since joining SAP in 1998, Meier has served in multiple international positions, including as a consultant in Germany and manager of industry business development teams in Japan. Connect with him on LinkedIn and Twitter.
Angela Troccoli is senior director, product marketing, at Mirakl, a provider of marketplaces services, where she leads B2B marketing initiatives. Prior to Mirakl, Troccoli worked at computer products manufacturer Hewlett-Packard Co. and pharmaceuticals distributor McKesson Corp. Connect with her on LinkedIn.