Did you miss our panel on B2B marketplaces? Watch now.
The astonishing growth of B2B marketplaces brings opportunities and threats to distributors. Even deciding to enter this channel requires a carefully crafted strategy upfront to ensure a positive customer experience. On the backend, data can make or break your effort.
Dakotah Kirchenwitz of Distribution Strategy Group recently hosted a panel of experts to share best practices for third-party marketplace sites:
- Ryan Lee, Founder, Nautical Commerce
- Tracy Buelow, Vice President of Category Management, Zoro
How Do You Know When It’s Time to Move into Marketplaces?
The benefits of B2B marketplaces for distributors are clear: Broader reach, additional sales, new customers and brand exposure are a few. But how do you know when to move that direction? It’s tough to “dabble” in this space because the commitment it takes to build the channel and launch it is labor-intensive.
Determining the right moment demands a strategic approach. Ultimately, distributors rely on market analysis, industry relationships and internal readiness assessments to make informed decisions around this channel.
Buelow said understanding how marketplaces fit within your broader sales strategy is critical. “It’s another channel; make sure it’s integrated into the overall company strategy as you start to go down that path.”
“Marketplace is a journey,” said Lee. “You don’t go from zero to a hundred instantly.” He suggests enabling drop shipping first before jumping into a full-fledged marketplace. “I would start with just digitizing orders internally and then expand.”
This allows distributors to get their feet wet and learn how this channel can expand; it also provides insight into what buyers are interested in purchasing. “You do have to have an overarching strategy around your engagement,” Lee said. “It doesn’t have to be instant. You can start by digitizing your offline orders and running that through what would normally be an ecommerce engine or a marketplace engine and get your internal teams acclimated.”
What Should You Look for in a Marketplace Partner?
The latest McKinsey data suggests that 50% of organizations have or are planning to invest in B2B marketplaces. There are now hundreds of third-party sites to select from, or organizations can build their own.
Buelow said Zoro is looking for “a wide assortment of products that help fill in gaps where we’re looking to fill a need for our customer base. Well-known brands are great because if customers are searching for them, then there’s demand that we can help capture.” She also mentioned the critical need for strong fulfillment capabilities. Today’s customers expect products as quickly as possible, and just as importantly, they want an accurate promise. “Even if it’s a long lead time, we want to ensure that we’re delivering against that promise.”
Lee agreed. “Whether you’re doing marketplace participation, or you want to stand up your own site, it’s incumbent to aggregate demand, meaning bring the buyers. That is ultimately the responsibility of a marketplace, to unlock that pent-up demand and build trust in the ecosystem.
“If you really think about what ecommerce and marketplaces do, they remove the friction to buy, and that’s really, at the end of the day, what you’re trying to do.”
Where Data Fits Into the Equation
But before distributors can move forward, panelists agreed that data cleanliness is paramount. Clean data ensures that product descriptions, pricing and specifications are accurate, reducing the risk of customer dissatisfaction and returns.
It also enables customers to find products more easily through search filters and categories, improving the chances of sales. Any company with a successful ecommerce site will tell you data matters for everything from pricing consistency to inventory management.
“It’s a journey,” Buelow said. “We always try to understand upfront as much as possible what kind of product data distributors have access to or if there are third-party services that they use or pull their own product data. Some industries are very good at it, such as the automotive industry.”
Good product data starts with the manufacturers, and distributors have long lamented the challenges of getting perfect information upfront. “It’s interesting because quality data informs the customer,” Lee said. “Nobody’s going to purchase a product if they don’t trust it. Good clean information is the difference between an order and someone passing and going with a competitor.”
The B2B Marketplace Channel Tech Stack
Marketplace technology has evolved rapidly, as have the tools distributors use to manage product data, sales and fulfillment. “In the past, you must cobble together 12 or 13 different systems to build a marketplace,” Lee said. “The integration work was expensive, but so was the technical footprint and the labor force that managed the integrations and data streams. The operations team had to jump into those 12 or 13 systems. There were mega queuing issues.”
Today, the systems are more modern and user-friendly, and these platforms are designed to orchestrate a transaction end-to-end in a more labor-efficient way.
“One of the most expensive ways to operate a marketplace is to go in and say, okay, let’s try to cobble this Frankenstein together,” Lee said. “Any deficiencies, we’re just going to throw people at it. That is your most expensive way to do it. It’s critical to ensure that whatever platform you choose can orchestrate in a labor-efficient way because it’s not just platform fees; it’s the total cost of ownership. If you have an army of people that must operate it and an army of tech folks to keep things running and integrated, that is hidden costs.”
Legal Considerations for B2B Marketplace Sales
There are legal considerations when opening a marketplace channel, from how you structure your organization to tax compliance and data privacy to consumer protection and contractual agreements. “One of the most interesting challenges is when distributors have geographic contractual applications,” Buelow said. “They have regional limits and territories where they’re allowed to sell. The ecommerce world is available to anybody online.”
Lee said distributors also need to consider global laws and regulations.
Online marketplace rules are changing at the local, state and federal levels, even as we write this. Compliance requires choosing a third-party vendor carefully. “You must have the right teams in place to understand your policies and procedures around that to protect yourself. So, you must stay on top of those and consider what that does to your business model,” Buelow said.
Marketplace Trends to Watch
Personalization and self-service are two trends in the B2B marketplace channel. Customers expect B2C-grade Amazon-like experiences, with intelligent tools that improve their experience.
Buelow thinks personalization is critical because “you have more and more products put in a single place. It becomes harder to navigate. You want a broad assortment, but you want it to focus on just the 10 things you need. Using prior sales and customer data to personalize the experience is a big step.”
Lee said the changes he sees are the addition of in-platform advertising, allowing the site to monetize like a Google or Facebook, particularly for specialized and curated marketplaces.
He believes the technical merits of these platforms will help sell “the ability to subscribe, the ability to sell warranties and certifications, and the ability to add service delivery to products. Why couldn’t a plumbing gear distributor aggregate a list of trusted regional service providers to complement that product sale? There are many different levers that add value, and I think that’s the key to what every marketplace must do.”
Potential Marketplace Pitfalls
B2B marketplaces offer tremendous opportunities for distributors but also have potential pitfalls. One common challenge is increased competition, as these platforms often bring together numerous sellers, intensifying price wars. Maintaining brand identity and differentiation becomes crucial.
“It does require leadership investment and alignment in that direction,” Buelow said. “Then it goes into what Ryan said — you must digitize product information. You need to be able to transact electronically to trade orders. All those things require technology investment to ensure you can do those things behind the scenes.”
Another pitfall? Failing to have buy-in from process owners on the operations or sales side. “I’ve seen marketplace or digital transformation initiatives get gummed up when you have internal resistance to the change,” Lee said. He recommended a deliberate crawl-walk-run approach to start slowly, let stakeholders see the successes and then expand. This careful approach could go a long way toward mitigating resistance by a reluctant leadership team.
“We’ve been in corporate initiatives where people have spent a whole bunch of money expecting something to happen at the two or three-year mark, and then the project ends in tears because what they expected and what was delivered were two separate things,” Lee said. “And I think the crawl-walk-run approach allows you to de-risk it and find a slight adjustment in the plan at much shorter increments than waiting to the end of the road to figure that out.”