Why are there so few B2B marketplaces
B2B marketplaces: the better alternative to the B2B shop?
Platform - blessing or hype
The topics of platform economy and online marketplaces have been the trending topics for a few years when it comes to e-commerce, digitization and the further development of business models. For some it is the only healing thing, for others it is just another hype that has little relevance in the market. The discussions are not just about transaction models in the end customer business. The topics are also hotly debated in the B2B area. But what exactly is it and are marketplaces the ultimate or do you need a more differentiated view? The following article brings light into the dark, at least in the B2B area.
What are B2B marketplaces anyway?
What are we talking about in B2B marketplaces? First, a little dry theory: Apart from classic online shops, where a large number of different customers interact with exactly one provider in an N: 1 model, there are numerous other transaction and sales models in the digital world. This includes B. eProcurement, in which a direct connection between the merchandise management systems of the seller and buyer is established. This is always a 1: 1 relationship. Another model are the supplier platforms, which the purchasing department of large companies uses to systematize procurement. In this model, N vendors / suppliers act with a company as buyers. As with the online shop model, an N: 1 relationship, but with reversed roles.
And then there are the B2B marketplaces or procurement platforms. This is where the suppliers of an industry (e.g. metal processing) or a product group (office furniture) and their potential customers (e.g. metal processing companies) meet in an n: n relationship.
How work theMarketplaces?
B2B marketplaces therefore collect a specialized offer on a platform and thus want to be the central point of contact for a certain customer group. In principle, everyone at Amazon is familiar with the idea and functionality, even if, with a few exceptions, Amazon is a full-range supplier. If the customer is looking for a drill, for example, he can choose from a wide range of offers from various manufacturers on Amazon. The special thing about this is that the products are usually not offered by Amazon itself, but by the manufacturers themselves or intermediaries. Amazon does not act as a retailer, but as an intermediary ... and earns, among other things. via a sales commission on this brokerage. The Contorion or Mercateo B2B marketplaces do not work much differently.
The marketplace operator itself, like Amazon, can be represented with its own products (Contorion, for example, with its own brand Stier or Klöckner & Co. with its steel products on the XOM marketplace of its subsidiary). Then it is a hybrid approach between trading platform and marketplace. With a pure marketplace model, the operator lives only on the transaction commission or registration fees. However, once the marketplaces have been running successfully for a few years, it is very attractive for most operators to get involved as a provider themselves.
No clear demarcation of the models
A very clear definition of what a B2B marketplace is and what is not - or the differentiation from other models - is difficult, the boundaries are rather fluid. Some of these platforms are open, some closed, with some only certain ranges are released for certain customers, with others there are no restrictions. Procurement platforms such as Simple System offer direct entry into the product range and purchase via a classic checkout as well as individually compiled supplier catalogs and direct ordering via eProcurement.
Pure brokerage platforms such as “Who delivers what?” Play a special role, bringing B2B buyers and B2B sellers together through certain products and services that do not, however, enable transactions. Money is earned here by referring the lead or through service fees.
Who benefitsat Marketplace models?
Marketplaces offer advantages for all players. The great advantages for customers are, of course, that they can compare prices and order from a larger and more diversified range than from individual manufacturers. Conversely, providers - regardless of whether they are wholesalers or manufacturers - benefit from a large number of customers who are already bustling around on the marketplace and who do not have to be actively acquired. In addition, you may save yourself the development and operation of your own shop, but more on that in a moment. As a retailer, however, you finance this convenience of being able to sit in your nest with sales commissions and various licenses and flat-rate service charges.
However, the marketplace structure brings the greatest profit to the party that bears the greatest risk, the operator. In addition to the development of the platform, for which there are now many specialized software solutions, the acquisition of customers and dealers is a major challenge at the beginning. Without customers there is no reach for dealers, without dealers there is no customer interest and no orders. Here it usually means to have a long - financial - breath until the construction of the marketplace pays for itself. If he does it at all. Mercateo, for example, has been on the market since 2000, but made a profit for the first time in 2008. At Contorion it is still unclear to this day. Especially in B2B, the advantage often lies in the concentration of market power. For example, behind the Contorion marketplace and the Simple System procurement platform is the medium-sized Hoffmann SE, which is consequently relying on additional digital business - but above all on digital know-how.
According to the latest B2BEST barometer from ECC KÖLN and Creditreform, a survey of 142 wholesalers and manufacturers, 66 percent state that they want to use B2B platforms as an additional sales channel. Around 69 percent would even like to develop a B2B platform themselves or further develop their shop for this purpose. At the moment, 32 percent of these companies are already using B2B marketplaces. This is in line with figures from a Bitkom survey of 500 companies from 2019. Around 45 percent of those surveyed saw B2B sales platforms as an opportunity for their business model. This interest also drives the offer: According to a study by ecom consulting on marketplace development, the number of B2B platforms increased by around 150 percent between 2015 and 2020.
B2B shop and / orB2B marketplace?
As with a B2B shop, providers generally benefit from digital market access. Buyer groups who cannot or can no longer be reached via analogue channels can be tapped in this way. There are also time and cost advantages. Entry succeeds relatively quickly and, as mentioned, without investing in shop development, setting up the associated infrastructure and the ongoing operation of the B2B shop. We're talking about annual investments in the 6-digit range. Depending on the marketplace, there are also no expenses for order processing or setting up your own shipping logistics. The online marketing budget will be much lower than for your own shop, as the marketplace ensures reach. Manufacturers and wholesalers get "free" access to a respectable clientele who are in principle willing to buy. The promotion on the platform, on the other hand, can cost something again, but should not be in proportion to the acquisition costs via Google Ads or other advertising channels. The large reach of the procurement platforms is a curse and a blessing at the same time, because it is becoming more and more expensive for many manufacturers and B2B dealers to use their own SEO measures to counter the good ranking of the platforms.
Evaluation of profitability
When using a marketplace, the lower margin seems to be the biggest disadvantage at first glance. A sales commission of 10 percent and more is certainly no small matter. From a realistic point of view, however, the investment for your own shop and your own marketing measures must also be offset. Ultimately, this is not a disadvantage, but a question of correct economic evaluation against the background of one's own product policy.
The challenge of performance communication
Real disadvantages are, on the one hand, the dependency on the platform provider in almost all matters. On the other hand, there is a lack of opportunities to set one's own portfolio apart from the competition and to communicate USPs such as special quality, additional value-added services or outstanding customer service. For new customers, only the price actually counts - and that is the rather unattractive list price on many platforms. As a rule, individual prices can be set for existing customers, but - as with your own shop - only become visible after logging in. And finally, there is usually a lack of opportunities to sensibly sell products that require explanation. Your own product configurator or the consulting tool cannot be used on third-party infrastructure.
What should you watch out for when getting started
As we have seen, there can be several reasons for getting started. As always in e-commerce, the decision-making basis should not be a gut feeling, but a reliable requirements analysis and cost-benefit analysis. What do you save compared to setting up and operating a high-reach e-commerce solution, taking into account the lower margins, the lower development potential of the customer relationship and the resulting lower sales per customer? Surely you have to work with assumptions here and a very clear conclusion cannot always be drawn. Therefore, it is usually advisable to start in installments, i.e. with a reduced range. However, you will have to reckon with the fact that the operator will also want to have a say. After all, he is interested in further developing the attractiveness of his offer in a meaningful way.
The own B2B marketplace
Marketplaces and online sales platforms are also exciting as a strategic instrument to further expand a strong market position digitally or to secure it for the future. A marketplace offers the opportunity to add suitable products and brands from third parties to your own offer and thus become more attractive. It helps to improve the supplier relationship and strengthens the position against the competition. Just like when setting up a classic retail business, only online and more customer-oriented. Examples of this strategy are Würth's Wucato Marketplace or the XOM procurement platform for the materials industry, behind which the Duisburg-based steel and metal trading company Klöckner & Co stands. This is no longer about optimizing the trade margin. The establishment of B2B marketplaces is above all an investment in the future and a defense strategy against potentially disruptive online pure players. Whether the marketplace is sustainable does not depend on the development costs, but rather whether the respective marketplace concept can spark off in the market.
Marketplaces are also an interesting topic in B2B and not just hype. Whether it makes sense to get started - and above all in what form - depends on a complex situation: digital know-how, budgets, product range policy, target group potential, business expectations, the operator's strategy, etc. must be considered over a long period of time. The final decision always depends on the individual case, but the potential is certainly great enough to deal with it intensively.
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