Few businesses are in a better position to launch online marketplaces than distributors.
The undeniable success of companies like Amazon, eBay, AliExpress and others has everyone from automakers and grocers to film studios and fashion labels launching their own marketplaces. However, the nature of the distribution business gives established distributors a distinct edge.
As a distributor, you’re the touch point between manufacturers (or suppliers) and wholesalers and retailers. Attracting quality vendors can take time for those looking to start a marketplace from scratch, but this should be less of a problem for distributors in the business-to-business (B2B) segment, where marketplace sales skyrocketed 130.1% in 2021. You’ve already got a key ingredient for marketplace success: a strong, trusted network of sellers.
That’s not all. “All large distributors have one thing in common with Amazon: treasure troves of transaction data across products, brands and customer segments that can help them anticipate customer needs and offer alternative solutions,” according to McKinsey & Company.
Distributors may make ideal candidates for transformation with marketplace technology, but it’s still important to follow best practices when building a distributor marketplace. Because even the best idea requires the right execution, follow these three golden rules for creating a successful distributor marketplace.
Rule 1: Build Trust Into Your Distributor Marketplace Processes
Study after study underscores the importance of trust in supply chains. As a distributor, you’re already a trusted partner for the business buyers you sell to, as well as the manufacturers and suppliers you order from. You’ll need to establish that same high level of trust with the buyers who visit your distributor marketplace (and the vendors who will sell on it).
Here are five ways to build trust with your distributor marketplace:
- Establish marketplace standards. Setting standards is one of the main approaches to building trust in a marketplace. Standards spell out what buyers, sellers and the marketplace operator can expect from one another. There’s more than one way to establish standards. You’ll need to create a service-level agreement (SLA), which legally binds sellers to agreed-upon standards, including for shipping and delivery and product quality. You should also draft terms of service for all website users, buyers included.
- Enable user reviews. Eighty-four percent of internet users say they trust online reviews as much as a friend’s testimonial, and 91% read them at least sometimes. Not allowing reviews can alienate consumers in the B2B segment, where 92.4% of business buyers say they’re more likely to buy a product or service if they’ve read a “trusted” review. Another study finds positive online reviews can significantly boost sales.
- Thoroughly vet (and verify) your vendors. Vetting prospective vendors helps ensure you’ll be able to maintain your distributor marketplace standards. (We shared five ways to vet marketplace vendors.) Failure to effectively vet vendors can sink your distributor marketplace. If issues arise, consumers are likely to blame the marketplace operator rather than individual vendors. And, in some cases — like a recent ruling against Amazon — marketplace operators have been held liable for faulty products provided by their vendors. How a customer perceives a seller largely influences their confidence to buy from them.
- Protect buyers and sellers. Marketplace operators should reduce perceived risks for vendors and their customers, and putting protections in place helps. For example, provide vendors with insurance options to cover any damage to products during shipping, and offer buyers warranties, as well as a return policy and purchase protection. That way, buyers can apply for refunds if, say, products don’t arrive as expected.
- Have world-class customer service. B2B companies that are leaders in customer service have higher profit margins, which will be especially beneficial in the early days of a distributor marketplace. Those B2B companies that have invested substantially in improving customer service see revenue growth averaging 10 to 15% as a result.
Rule 2: Don’t Forget About Fintech and Logistics
Any online sales channel must process transactions, but the demands on a distributor marketplace far exceed those for your average online store. These additional requirements fall under two categories:
- Fintech: Multi-vendor marketplaces must process transactions for multiple sellers whose products may be included in a single order, a key distinction from simple online retailers — where the only seller is the owner/operator. This means multi-vendor marketplaces must shoulder a number of additional fintech responsibilities:
- Ensure tax compliance
- Calculate commissions
- Process bulk-order discounts
- Pay out sellers (in their preferred payment methods)
- Enable multi-vendor checkout, so buyers can place a single order that includes products from more than one vendor
- Validate vendors to confirm that they are legally allowed to conduct business on your marketplace (and, if they’re international, in your region)
- Logistics: Distributor marketplace operators often rely on their vendors to fulfill orders and ship products, which means logistics play an outsized role in coordinating operations.
The platform powering your distributor marketplace is crucial in making sure your vendors meet the shipping and delivery standards you’ve set out, which can make or break a business, since 55% of consumers will switch to a competitor for faster delivery.
Here are fundamental logistics functions your distributor marketplace platform has to tackle:
- Manage vendor contracts, as well as orders and catalogs
- Connect with vendors’ various ecommerce systems and third-party shipping services like ShipBob, ShipStation or Shippo
- Track inventory, including multiple catalogs with expansive SKUs
- Ship from warehouses worldwide (without limits on the number of warehouses)
Rule 3: Choose the Right Technology to Power Your Distributor Marketplace
As recently as several years ago, anyone looking to launch their own distributor marketplace faced a huge tech hurdle: a lack of purpose-built marketplace platforms. The most popular ecommerce platforms weren’t — and still aren’t — designed with multi-vendor transactions in mind, let alone B2B functionalities like bulk-order discounts and expansive SKUs.
This left B2B marketplace founders in a difficult position. Either they could try and jumble together a complicated suite of plug-ins to improve an existing ecommerce platform’s performance, or they could undertake a custom build.
Neither was ideal. The former approach is prone to slow loading times, glitches and crashes, and challenges with scalability. The latter, on the other hand, costs millions of dollars and is time-consuming and resource intensive to deploy. Fortunately, today’s new marketplace operators have a third option.
As the popularity of marketplaces explodes — gross merchandise sales in marketplaces leaped 81% annually in 2020, double the overall rate for ecommerce — purpose-built platforms are emerging. Choosing a purpose-built platform is the best way to get your distributor marketplace off the ground.
Purpose-built multi-vendor marketplace platforms boast three core advantages over the alternatives:
- They’re far more cost-effective than a custom build
- With the ability to launch in as few as 60 days, they’re faster to market
- Scalability isn’t a problem, as purpose-built platforms don’t have the same limitations (such as caps on warehouses) as traditional ecommerce platforms
Leverage Your Existing Vendor Network to Digitize Your Business
By continuing to build trust, focusing on fintech and logistics, and choosing a purpose-built multi-vendor platform, distribution companies can increase both product selection and customer reach with a distributor marketplace.
Already, nearly 1 in 3 B2B buyers prefer purchasing from distributors over manufacturers, as they’ve often proven more responsive to customer needs, according to one survey. The added convenience of a distributor marketplace offering should help distributors remain relevant in a fast-changing economy — but only if they have the right tech to respond rapidly to demand.
Remember: other distributors aren’t the only competition entering the B2B marketplace game. Suppliers and manufacturers are launching multi-vendor sales channels, too. Therefore, distributors that delay entering the new digital marketplace economy aren’t just at risk of falling behind — they may get cut out of the supply chain altogether.
Ryan Lee is the Founder & CEO of Nautical Commerce, the complete B2B commerce platform. Ryan has an extensive background in commerce, fintech, and logistics. Before founding Nautical, he launched Apple Pay internationally, served as an exec at Visa, and led product at Turvo and a fintech startup. Ryan is skilled at developing and driving a full-stack cloud technology vision and strategy to increase revenues, grow the client base, and achieve efficiencies in a results-oriented way. His company, Nautical, enables companies to undergo digital transformations using its multi-vendor technology.