Why the time is now for B2B market places

Why the time is now for B2B market places

Why the time is now for B2B market places

There have been many different attempts over the years to set out a convincing case and, more importantly, a convincing execution of a B2B marketplace strategy which resonates. Commerce One is a notable example of a B2B marketplace failed execution back in 2000, since then there have been many failed attempts and some great successes, like Alibaba. It seems like it’s always been “the time of the B2B marketplaces” without it actually being the time of the B2B marketplace, however, times are changing and here’s why I believe the time is now.

It’s not about “amazon scale B2B market places for all participants”, it’s about smaller, discrete marketplaces which serve a private market based on a single seller or group of sellers who each have a ring fenced market but provide a centralised public market for clearing the market or for more generalistic product categories.  The mistake has been to try to create a centralised hub which allows a broad spectrum of products to be sold between many participants, this works well in more homogenous, lower value, product types (like B2C or C2C) but not for scale manufacturing and complex products which have many dimensions. In short, one size (marketplace) does not fit all. Start at the smallest participant scale that delivers value; building out complex buyer and seller liquidity takes time, a lot of effort and is nearly impossible to get to coalesce at a specific point in time to create an inflection point, so build small and grow bigger.

B2B Marketplaces are complimentary to existing sales channels, not always a replacement or as a disruptor of them; the old saying that “you do business with people” still holds true today, but perhaps in different ways.  Creating a digital sales channel gives companies the chance to establish new contacts with customer companies, and share their knowledge and experience of products. Specifically, digitisation allows your buyers great flexibility to match their needs and increases product discovery. It also allows the seller to gather information about the needs of the buyer and understand more empirically about their purchasing and decision-making behaviour (see Data Driven below). As well as to predict how these services can be used more efficiently in the future. What it doesn’t replace is product innovation, personal customer service and difficult problem resolution. Humans are after all the architect of the product being supplied and the consumer adding value – both of these require lateral capability and being able to see an opportunity. The B2B marketplace is the engine, the human element is the fuel.

Data Driven

Becoming Data Driven in the approach to matching demand and supply is now a reality due to the maturity of data science and associated algorithmic intelligence. Data Driven is now about understanding how to affect change in markets to optimise them in the future, not just reacting to backwards looking insight. In other words, you can start to affect market behaviour rather than understand why the market has changed for your product, service, asset or inventory. To boot, you can start to ensure that your sales channel is more than just being representative of manual effort with corresponding effort boundaries. Instead, your sales channel is broad enough that it represents a good indication of market sentiment and you have optimal market reach.

Changes in technology, and its adoption, are also a catalyst for change, they are creating ‘efficiencies’ (which we discuss below) when attached to electronic marketplace transactions. It’s no longer just about optimising supply and demand, it’s about an ecosystem which removes operational friction and provides margin benefits even without any greater participation or market access.

Creating Efficiencies

Logistics, this is a two pronged efficiency, the first takes place ahead of the transaction, it’s about matching products with buyers in a way which has the least logistical impact (and therefore cost) on both sides of the transaction. In other words, you can encapsulate least cost fulfilment and solve for this ahead of time.

The second efficiency takes place post transaction, removing the air gap between products and logistics provider to create a “virtual wholesaler”. Allowing aggregation of the transactions into least cost solutions. Sounds ethereal, but it’s about connecting logistics marketplaces with the product B2B marketplace and then allowing the “platform” to see all transactions so that logistics can be allocated or listed for bids, based on the most efficient routes and aggregation of satisfied demand by geography. It’s an important point that the platform can see all transactions, since there are many reasons why this doesn’t happen right now offline, namely that participants in a transaction want to keep them private. This doesn’t need to change, but having the system see the complete transaction landscape allows it to do the optimisation, this is a benefit you can’t get unless you’re using a digital platform.

Logistics and its inclusion in the overall B2B solution is important because transaction sizes can be, and are highly like to be, more granular based on good demand and supply matching. Ultimately you don’t want to remove the gain from better matching with increased logistics costs. Together the two function well and allow for more perfect markets to evolve.

Finally, the third leg of the tripod is payments. International trade has typically relied on letters of credits or onerous escrow with associated fees to mitigated payment and delivery risk. The advances around both block chain settlement and challenger payment solutions which solve the problem of large payments (i.e. £50 – £200k upwards) are now being deployed to good use. There’s still lots happening in this space, which is great because the myriad of payment obstacles can be mitigated by creating an aggregation of approaches. In other words, there’s no one killer payment solution out there, block chain or otherwise, because of the variety of different payment scenarios. The best solution is to have many available solutions and allow participants to pick the appropriate settlement option to the transaction in question.

Many of the problems associated with adoption of a B2B Marketplace have been mitigated, both the perception of how value can be delivered (small vs big) and the ripple effect on supporting processes which have operational friction (onboarding, logistics, payment and so on).  No matter the industry or sector, everybody is chasing the same goals: Competitive edge and ultimately, growth. It’s about increasing margins by doing more for less cost. It’s about finding new markets and customers. It’s about evolving the way you do business to stay ahead of the competition. These ingredients for success are the same now as they’ve always been. But technology means there’s the opportunity to do business differently and this now absolutely applies to the buying and trading in the B2B arena.

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