E-commerce expert Alexander Graf provides starting points for creating an enterprise marketplace strategy
B2C online marketplaces such as Amazon and Walmart are a very big deal, with $2.67 trillion spent globally on the top 100 online marketplaces in 2020. That’s 62% of global online retail sales. Unsurprisingly the B2B world, from software and life sciences to chemicals, electronics, and business services, is looking to the marketplace model.
It’s a transition that’s beginning to happen. Gartner has predicted that by 2023 at least 70% of enterprise marketplaces launched will serve B2B transactions, while Forrester explains that B2B buyers only 38% of B2B now make purchases primarily through an enterprise account rep. As the use of account reps dwindles, B2B buyers are flocking to e-commerce sites and marketplaces to fill the void. Marketplaces provide alternative, cost-effective ways to reach new customers and serve existing customers via a digital purchasing experience. Finally, COVID has been a catalyst, as online B2B sales have grown massively due to the global health crisis. During the pandemic, overall US e-commerce penetration saw 10 years of growth in just three months.
Clearly, it would be amazing to supercharge your whole way of doing business, create wider ecosystems and tap into new ways of generating revenue. After all, established businesses will see competition from B2B marketplace innovators and pure-plays mirroring the development of the B2C marketplace sector. Twenty years ago, people said ‘Amazon is just a book retailer from Seattle, they pose no threat to us’!
And finally, the market cannot support too many multi-category B2C marketplaces, such as Amazon. But there is scope for a much larger number of specialist B2B marketplaces, as B2B buying behaviour is very different from B2C. In B2B, there is no single dominant vendor, there’s no Amazon—which means there is room for hundreds of smaller Amazons, serving each vertical and niche market. For individual suppliers, one or two orders a day mean the cost of setting up an e-commerce channel is hard to justify, but now, even in very small niche markets, a marketplace can drive hundreds of orders a day with associated services and subscriptions.
But how to get there?
Towards ‘e-commerce 3.0’
So what is the B2B marketplace model exactly? In B2C e-commerce 1.0, businesses owned the whole inventory, stored it in their warehouse and sold it to customers. In ecommerce 2.0, there is a mixed model: Amazon or its German counterpart OTTO are good examples, selling around half their inventory direct to customers while making 50% of revenue from commission taken from merchants selling out of the marketplace.
Historic e-commerce models worked best for high turnover products, where companies sold thousands of products a day from their own inventory. High value, low demand, products, so-called long tail items, were less commonly sold online. Now, these long tail items are seeing increasing online demand. Previously niche markets are seeing huge growth, creating opportunities to build marketplaces that tap into a critical mass of interest for vertical markets.
Ecommerce 3.0 is typified in B2C by etsy.com or Alibaba. Here, marketplace owners don’t sell any of their own product or stock any of their own merchandise, but instead offer a pure platform for other merchants to use. The inventory risk is removed, while marketplace owners take a percentage commission from the sale.
If you want to be the B2B equivalent, you need to move quickly. As B2B marketplace activity increases, organisations will need to quickly figure out what will influence conversions and purchases in this emerging space. Critically, a B2B marketplace is not just an opportunity to sell more products: it’s a space to offer associated services and subscriptions. Compared with B2C marketplaces, B2B marketplaces can offer a more sophisticated approach to providing product data, addressing security issues or offering insurance. The offer might include integrated services, because when businesses are buying, say, 1000 printers they want to buy the service, not just the product, from installation to ongoing ink supply.
The transition to a B2B marketplace style of working certainly involves technical and cultural issues. For one, it introduces lots of variables that the ERP systems usually cannot handle; B2B marketplace systems need to be able to check availability, update pricing, factor in currency exchange rates, for example. Plus, many B2B businesses are sales-driven, and they may have a hard time getting their sales force to accept that there might be components in a deal that they don’t control, or there might be a sale made over the marketplace, where the sales team did not have a call with the customer so they don’t earn commission. A cultural shift may be harder to manage than the tech shift, in fact.
Here are five starting points to create an enterprise marketplace strategy:
Identify the 10 customers that are already having a problem that you want to solve. At the same time, search for the 10 people in the company that are willing to create something new. When asked, customers often say it’s not just about the price, we need more products, we need a more just-in-time approach, we need more integration into our MRP order management system. Based on those interests, build something that solves these issues for them and creates such a force that customers or employees will be attracted to it.
Success breeds success
A successful project, doing something different, will lead to more cultural transformation than vague directives from on high, because people start to understand when we do it this way, it creates happy customers and a much better work environment.
Break it down
If you spend two years creating a marketplace, too much will change. Maybe the project manager will change jobs, maybe the customer who was initially receptive to the change will put a new person in charge of procurement. Aim to create results within weeks, not months or years. Plan to have four to five sprints, where you can get things done. Car maker Toyota, for example, used this approach to introduce a car selector feature to its website within two weeks, connecting customers to cars that were locked in closed showrooms.
Look for and support B2B marketplace internal champions
Look internally for people that want to create something new, be progressive and focus on customer needs. Most companies have been through such a huge amount of change in the first 12 months of COVID, and now is a good time to use this adaptability to secure the future of the business.
Balance the offer and demand
A successful marketplace must be ‘thick, uncongested, and safe’. ‘Thick’ here means there needs to be enough participants in the market to make it thrive. Avoiding congestion is about balancing the offer and demand side, so that there are not too many merchants selling, or that demand is growing but not being fulfilled, or the customer is not seeing a wide enough selection of products. Safety is when all parties feel secure enough to make decisions based on their best interests.
Without a doubt, the potential of B2B marketplaces is immense—so start thinking now about how to benefit from this next generation of e-commerce.