Avoiding Marketplace Commoditization

Most Business-to-Business (B2B) Manufacturers have been contemplating strategies related to B2B marketplaces. This is not a new dilemma for many B2B companies. B2B marketplaces have existed, in different capacities, since the mid to late 90s. In fact, the growth of “Super” Distributors such as Grainger have provided large online industry marketplaces with multi-manufacturer offerings or, should I say, multi-commodity offerings since this timeframe.

While companies with commoditized product lines that enter new markets or brand label their products under a marketplace may experience significant advantages, Manufacturers that are focused on superior product quality or an overall value-proposition, beyond their competition, view marketplaces as a threat to their existing channels while driving product commoditization and cost-based buying decisions.

Channel conflict has always been a significant concern for Manufacturers, especially those operating under a limited distribution model where sales regions are established for each Distributor or Dealer. Marketplaces circumvent these sales territories and are in direct conflict with limited distribution agreements. The impact may seem lower for mass distribution models, allowing channels to sell anywhere; however, marketplaces still threaten the health of these channels, impacting product price points, related margins, and brand loyalty.

This leaves many B2B Manufacturers searching for approaches to maintaining their own digital ecommerce business or a hybrid with a return on investment. They also need consider the risk of not pursing alternatives to marketplaces or the dangers of taking a wait-and-see approach. Most companies cannot afford to sit back and avoid the role of marketplaces within their strategy. If they do, the decision will, most likely, be made for them.

What should I be considering if I am one of these Manufacturers?

B2B Marketplaces do not do everything well!

Amazon, Alibaba, and other industry marketplaces cannot do everything well. Their strength is in numbers and the broad inventory they provide.

Manufacturers and their channels need to focus on the quality of their product(s) and service(s), together, in a manner that builds a value proposition which is greater than the price alone. They need to be “easier to do business with”, providing pre-sale and post-sale value added services that build trusted business relationships and deepen customer loyalty.

Remember, you know your customers and products better than any marketplace. B2B is still about establishing trusted business relationships and selling beyond Maintenance, Repair and Operations (MRO) products.

Consider the following customer business drivers for working directly with you versus marketplaces, if you choose to go it alone.

1. Provide a single point of management and support

Account representatives specialized in your products provide value-add assistance with everything from yearly contracts to product education and overall support. Leverage your expertise in your field and with your products. Your knowledge and ability to provide quality, one-on-one interactions is something marketplaces will not be able to provide. Now offer these services online.

Consider the following types of programs as examples:

1. Selling models that allow for direct sales, but still fed to your Distributors for shipping and service, eliminating channel conflict)
2. Online specialized support catering to Customer needs and reducing risk
3. Online Distributor portals personalized with their contracts, purchase history, product education, promotions, etc...

2. Consistent pricing

Marketplace pricing can be a moving target, fluctuating up and down. Larger accounts need to manage to a consistent price base (negotiated or not) over a period of time.

Consider the following types of programs as examples:

1. Focus on corporate/named accounts programs with an emphasis on building relationships
2. Long term contract pricing programs
3. Volume discount programs
4. Frequent buyer and customer loyalty programs

3. Transparent inventory

Customers need product(s) shipped and received on-schedule. This means that the distributor with the inventory may get the order as opposed to it always being the local distributor. Remember, these distributors not only ship the product but provide additional customer service that the marketplaces cannot.

Consider the following types of programs as examples:

1. Distributor inventory locators
2. Consolidated shipment programs across multiple orders
3. Channel inventory transfer programs
4. Shipping price reductions and promotions

4. Managed, value-add services

Providing services that add value to customers with the management of their product needs and inventory replenishment will build loyalty. Customers should never run out of your product(s), especially if your merchandise is required to keep their plants and assembly lines up and running. Provide them with services that help keep products in stock, recommend products based on usage patterns, and predictive/prescriptive install base management which will reduce costs.

Consider the following types of programs as examples:

1. Vendor managed inventory services maintaining agreed upon stock levels
2. Online personalized portals based on their contracts, purchase history, product education, promotions, and other value-add information specific to their business operations
3. Specialized plant services helping them manage the health and servicing of their installed base of products
4. Superior product configuration for manufacture-to-order and engineer-to-order products. These products are difficult for marketplaces to cover
5. Automated inventory replenishment and reusable stocking orders based on past purchases

5. Better content and data

Customers are looking to understand your product. You can provide this better than any marketplace and it should be leveraged to the greatest extent.

Consider the following types of programs as examples:

1. Knowledge base of product information, frequently asked questions and specifications
2. Product information management focused on enriching your product data.

You also know your customers better than the marketplaces. Work with your distributors to leverage customer data to drive superior Marketing Automation Campaigns, bringing target markets back to you.

6. Flexible, integrated systems:

Larger companies like to directly integrate their backend procurement and purchase requisition solutions with their suppliers sell-side eCommerce solutions. This is often done via online web services, EDI, or other system-to-system integrations.

Consider providing multiple flexible methods for sharing data with your customers.

1. Include integration methods and business intelligence options that cater to the customer's standards and formats
2. Provide multiple integration options for customers to choose from
3. Personalize product catalogs for specific customers (include their product reference or number versus yours)
4. Provide a means for customer systems to integrate directly with yours for data required real-time. Examples include price and availability information

Marketplaces tend to be rigid when it comes to integration options and reporting.

Is there still a case for these Manufacturers to work with Marketplaces?

Marketplaces are not always the big bad wolf that will eat you alive. It can be a win-win situation for many companies.

Do not ignore a marketplace as an opportunity for products that have already reached a point of commoditization. Selling low cost commodity products can build brand awareness and bring customers back to your site for the up-sell/cross-sell and capture of a potential corporate account lead.

In summary, the above tips to avoid B2B marketplace commoditization will build a value proposition that attracts customers to work directly with you versus a marketplace.