With $3.6 Trillion in projected sales by 2024, marketplaces are making their mark in B2B. B2B buyers have clearly embraced them, but is this a model that manufacturers and distributors should adopt for themselves?
Many B2B practitioners believe that the company-owned marketplace model enables B2B companies to meet customers’ demands for broad online assortments in a capital-efficient manner, while avoiding channel conflict. But does this approach generate real results or just distract from broader Ecommerce goals?
Team Game Changer
Martin Rohde, President of Parts Town International
Nick Ostergaard, Senior manager and head of digital advanced services at Toyota Material Handling
Team Shiny Object
Sean Donovan, Digital Channel Manager at MSA Safety
Julie Schulte, CEO & Co-Founder of Chamfr
KEY TAKEAWAYS
Pricing on 1st-party marketplaces should be standardized: Nick Ostergaard said that at Toyota Material Handling, pricing was the most hotly contested part of their first-party marketplace project. “If we let our dealers price however they want, it’ll be a race to the bottom.” So they standardized pricing.
But pricing is not the only driver of customer behavior: Julie Schulte mentioned that price transparency is a customer expectation nowadays, but in niche marketplaces pricing is less of an issue because there tends to be more need for customization and configurability, which drives customer behavior more than price. Sean Donovan talked about how inventory availability mattered more than price, calling it “mission critical” to have products consistently available. Donovan had no issue with allowing price competition: “A market where you have one product and you control the price isn’t a market, it’s a monopoly.”
The biggest challenge of 1st-party marketplaces is getting traffic. Schulte said that companies can compete with a 1st-party marketplace if you have a niche or a complex offering that can’t be found on 3rd-party sites. However, “if you’re going to invest in a first-party marketplace, you’re likely going to be ousted by a focused 3rd-party marketplace that’ll grow in the next few years.” In other words, once there’s demand for your products, a 3rd-party marketplace will spring up to meet that demand. Donovan said his biggest question was whether companies were prepared to invest the resources necessary to pay to acquire enough customers to make it worth the investment. “We get traffic, but the question is how we get NEW customers.”
You may not need a huge volume of site traffic if it’s the “right” traffic. Martin Rohde talked about the opportunity for highly specialized marketplaces: “I saw a marketplace for heavy construction equipment rental. They had transportation options and licenses and other highly specialized items you need for that specialized business. B2B is really a roll-up of lots and lots of niches that have specialized needs. A generalized marketplace can’t handle that.” He noted that in his heavy construction example there may only be a total of 10,000 customers. But if you can get a significant percentage of those, you can run a good business. Ostergaard added that it isn’t necessary to compete with Amazon’s traffic if you get the “right” traffic. In their case, there are customers who care about buying OEM parts so they don’t lose warranty coverage.
1st-Party marketplaces can compete by offering hyper-localization. Ostergaard said that Toyota invested in building a strong, broad network of dealers to participate in their marketplace so they could ensure rapid delivery of parts (something that a 3rd-party marketplace couldn’t offer). Building this network takes time – as Nick said “it won’t happen overnight. You need a strong network of sellers and deep geographic coverage.” Even so, Schulte wasn’t so sure that it was worth the effort. “A company can build their own marketplace, but why would you? If I’m going to sell a product or have a service offering, I should be 100% focused on that, not on running a marketplace.”
The key to success with a 1st-party marketplace is executive commitment. Every contender talked about the amount of people, financial investment and time required to build a 1st-party marketplace, and how many, many companies underestimate all three of these aspects. Rohde said you should ask, “How deeply is your company committed to marketplace as a strategy? If it isn’t core to your strategy, you should use a 3rd party marketplace.” Donovan concurred, adding, “If you don’t have deep pockets, building your own marketplace will be a struggle. I wouldn’t want to tackle this if we were digitally immature. There are far better ways to spend your company’s capital.”