Independent alternatives to popular third-party marketplaces like Amazon are emerging, and some distributors have found meaningful success selling through them. This has many executives wondering if they should build their own marketplaces.
We discussed this topic in an episode of Wholesale Change, our weekly live show.
What is a marketplace?
A marketplace is an ecommerce site where products or services are provided by third parties and transactions are processed by marketplace operators, such as Amazon or eBay. Instead of a classic distributor model, where you have one seller managing the inventory and the fulfillment, you have many sellers transacting in one location. Outside of Amazon, a few popular B2C and B2B marketplaces include:
- Google Shopping
The channel value proposition of using a marketplace is efficiency through superior assortment and a reduction in the number of transactions customers need to place. Marketplaces like Amazon Business bring together many manufacturers and distributors to sell their merchandise alongside the products the platform operator sells on its own.
A few examples of successful B2B marketplaces include:
- Digi-Key has built an electronic components industry marketplace on Mirakl software. They’ve become a destination for buyers looking for electronics, even just as an informational resource.
- Culitrade is a marketplace for the food equipment buying group SEFA (Supply and Equipment Foodservice Alliance). They offer a broad selection of products and services that couldn’t be offered by an individual company.
- Zoro, an online division of Grainger, offers a supplier partner program for industrial supplies. Zoro touts a collaborative relationship “to reach new customers and increase sales.”
The popular notion concerning marketplaces is that they must span multiple verticals and provide an extraordinary assortment of millions of SKUs, and that single-vertical marketplaces won’t work. However, data suggests that this isn’t necessarily the case.
If you have a reasonable assortment of “stocking stuffers” along with your core vertical products, it may work. Buying groups like SEFA, for instance, are a natural fit for marketplaces because they operate using similar processes and have strong relationships in the industry. Also, marketplaces like Culitrade expose sellers to much less risk than “hybrid” marketplaces operated by merchants selling their own goods. It’s not possible for Culitrade to exploit its sellers’ data because it doesn’t carry inventory, offer fulfillment, etc. It operates the marketplace without competing with any of its sellers.
So … should you build your own marketplace?
Not every distributor can build its own marketplace. If they all tried, it would take us back to everyone running their own ecommerce websites and wouldn’t make much of a difference. Here are a few considerations:
- Multiple distributors can collaborate. The potential here depends on the sector, as some are more consolidated than others. In industrial supplies, for instance, the fragmented market means there’s a lot of room to introduce a marketplace. It also depends on the market and competitive landscape. What’s more, competitors will need to work together, share information, and discuss market size and dynamics to be successful.
- Marketplaces with the widest assortment may be the best candidates. For this, we mean assortment in terms of actual inventory, as opposed to access to product data.
- Buying groups may be a great foundation for marketplaces. They can provide a wide assortment, have strong supplier relationships, they are based on industry collaboration, and they follow similar processes.
Learn more in our episode of Wholesale Change, “Should You Build a Marketplace?”: