In simple terms, B2B marketplaces are online platforms where companies buy and sell products in bulk. There are many different types of marketplaces, and each comes with its own set of core functions and benefits. When an eCommerce business joins one of these commercial platforms, they open themselves to a considerable boost in revenue potential and new networking opportunities.
There are some companies that have their concerns regarding B2B marketplaces, and rightly so. They are unsure whether their time and money spent on becoming a strong seller on a marketplace are worth it, will the marketplace damage their brand, and will they be competitive and unique enough to stand out from the crowd.
Digital marketplaces are not a new concept – they have been around since eCommerce began. There are currently more than 300 B2B marketplaces in Europe alone, and that is up from the mere 20 back in 2010. Studies have shown that this B2B boom is only just beginning, with projected sales on B2B marketplaces accounting for 30% of all global online B2B sales by 2024.
The primary purpose for B2B sellers joining marketplaces is their ability to reach large captivated audiences, which are almost impossible to find elsewhere. As a result, marketplaces have teams of experts dedicated to creating complex algorithms, creating easy to shop interfaces, and generally trying to make the best online B2B seller and buyer experience possible.
It can be a daunting process for companies to weigh up the pros and cons of investing the time and energy to succeed on one of the giant marketplaces. This guide aims to provide the basic knowledge to better understand the B2B marketplace industry and gauge whether it is something a business may want to consider joining.
WHAT IS A B2B MARKETPLACE?
Similar to conventional B2C marketplaces, B2B marketplaces are where companies buy and sell products all in one place, usually in bulk. Their processes aim to simplify and streamline transaction processes which can otherwise be unnecessarily complex and time-consuming. In a B2B marketplace, the buyers and sellers are typically brands, manufacturers, suppliers, wholesalers, and other businesses.
B2B marketplaces can also be a fantastic way for organisations to network with other companies and strengthen their communication and business practices. However, as one size does not fit all, there are a few different types of B2B marketplaces to suit the requirements of sellers and buyers.
Here are some examples of the main types of B2B marketplaces currently online:
- Vertical and horizontal marketplaces – Vertical marketplaces, also called "vortals" (vertical portals), specialise in a single category of products or a specific industry. Horizontal marketplaces are the opposite, selling products and services of all different kinds – appealing to the needs of buyers across various sectors and industries.
- One-to-many and many-to-many marketplaces – One-to-many marketplaces are managed by a single purchasing company. For example, a large company may set up an eCommerce marketplace where their suppliers can be granted access and submit bids and quoted for what they are requesting. Many-to-many marketplaces are a more familiar concept, they are where the buyers and suppliers are from different entities, and the marketplace is managed by a third party. Marketplaces such as Amazon Business and Alibaba.com fall within the category of many-to-many.
- Local and global marketplaces – When it comes to geography, B2B marketplaces are differentiated by local and global. On local marketplaces, companies only supply to their local market. In contrast, a global marketplace will facilitate the exchange of goods with no geographical boundaries. Understandably there is more risk and challenges with managing a thriving global marketplace – it has to deal with the added issues related to international payment processing, cross-border trade and logistics, language and cultural barriers, plus much more.
Apart from choosing which type of B2B marketplace is best suited to a business, the business models and sources of revenue for such marketplaces should also be considered. Here are the three most common business models in B2B marketplaces:
- 1. Commission-based business model – This popular model involves the marketplace operators getting a commission percentage of every successful order. It is usual for a marketplace to charge different cuts depending on the product type, category, order volume, sale value, and other trade variables.
- 2. Subscription-based business model – Some marketplaces charge a seller's membership fee to allow them to use the platform and gain access to the buyers visiting the site. This model is standard with the more dominant B2B trade marketplaces, where they have a lot of repeat customers. There are often extra benefits added to subscription packages to entice more sellers. For example, it could include account management services, advertising features, fulfilment assistance, and access to exclusive categories.
- 3. Listing fee business model – The B2B wholesale marketplaces that follow this model tend to request sellers to pay an added amount as a listing fee for posting a product to see. This is similar to a pay-per-view model which you see on video streaming platforms.
ESSENTIAL FUNCTIONS OF A B2B MARKETPLACE
There are many features and functions of B2B marketplaces. However, the most successful platforms have one feature in common – they understand the competitive advantage they have to offer and rely on their digital tools to maintain it. As a result, the best functions found on the marketplaces tend to be pretty similar across all major platforms. One of their main competitive goals is to provide an enjoyable experience for their users so that they become the go-to marketplace.
Some of the main functions of marketplaces include:
- Multi-vendor capabilities – A key function of any good B2B marketplace, multi-vendor capabilities allow organisations to control their page and information. Sellers want and should have access to manage their profiles. This will enable them to be in control of tailoring their content information, contact details, pricing and general role management.
- Self-service functions – Some companies prefer to place orders themselves directly with the seller rather than deal with a customer service representative. A well-designed marketplace will have features that facilitate a self-service model for companies with this preference. In addition, B2B marketplaces need to be highly responsive and intuitive to create a place that sellers and buyers will want to use. For example, when a business is searching for a solution, it will often need to collate quotes, make product comparisons, submit orders and track shipments. A quality marketplace should be able to support these essential functions.
- Security functions – As with any digital platform, cyber security is of top importance. Users want to know that the marketplace is protecting their data, information security, and confidentiality. There is a requirement for all users to feel secure and protected when using a marketplace platform. They do not want to be worried about data breaches and confidential information being stolen.
- Search navigation – It can be incredibly frustrating having to spend time searching for a product on marketplaces. A key function of any B2B marketplace is filtering and searching for specific items and sellers. Well designed platforms will have easy-to-use search functions that allow buyers to filter in multiple ways to find products and their availability as quickly as possible.
- Flexible workflows – There is a huge need for B2B marketplaces to offer flexibility as a cornerstone of their platforms. Markets and industries can change very quickly, and eCommerce functions need to be able to adapt alongside them. For example, buyers and sellers need their marketplace to be flexible and customisable so that they can personalise their onboarding strategies, amend order submissions and processing practices and restock supplies when required.
- Integration options – Companies invest a lot of time and money into their digital tools, so they will want a marketplace that can plug into what they already have. The most successful B2B marketplace has the capability to collaborate with other software solutions. This provided a more streamlined process and improved experience for buyers and sellers.
THE ADVANTAGE OF USING A B2B MARKETPLACE
B2B marketplaces can be a fantastic resource for companies wanting to transform their selling or procurement business processes. With the assistance of a digital network, organisations can streamline their business functions and network with other like-minded businesses to help grow and develop their businesses.
Using an online platform can help alleviate some of the costs associated with online marketing, so eCommerce businesses can focus their efforts on securing large orders and growing their bottom line. The main advantages that sellers can enjoy from using a B2B marketplace include:
- Ease-of-use – The online community that comes with using a B2B marketplace means that it is easier than ever to connect with other companies and conduct business. Using a fully digital platform makes it simple for eCommerce businesses to advertise their products and services to secure new customers. In addition, with digitalisation being a priority for most businesses, implementing processes that support virtual and secure business transactions will help them stay ahead of the competition.
- Greater profits – B2B businesses that sell their products at wholesale prices tend to incentivise bulk orders. The larger order quantities result in businesses that can secure higher cash levels more quickly. Furthermore, with so many buyers and sellers all on the same B2B network, marketing costs can often be reduced as it is easier to connect with and advertise products to more companies.
- Better sense of security – Many businesses prefer to conduct their bulk orders through the B2B marketplace as there is a sense of security due to the contracts made via the platform. These contracts create a sense of security for buyers and sellers since both parties are more inclined to follow through on their agreement. In addition, as most B2B networks are entirely digital, there is a digital trail for every order that can be tracked and monitored at every stage. This provides transparency for all involved throughout the entire process – from enquiry to invoice processing.
- Greater market potential – Online B2B marketplaces provide companies with a quick and easy way to target a substantial number of buyers and sellers across multiple markets. With the flexibility offered by most of these networks, businesses can showcase their expertise and authority within their given industry. B2B marketplaces also save company time spent on researching and seeking out new potential customers as it connects you instantly with buyers.
THE DISADVANTAGES OF USING A B2B MARKETPLACE
Though many benefits come with joining a B2B marketplace, there are undoubtedly some disadvantages. Understanding a few of the common challenges businesses face when first joining such online networks will help organisations make an informed decision on whether it is the best commercial choice for them.
The typical troubles businesses face when conducting business on a B2B marketplace include:
- Complex set-up – Those new to a B2B network can find it hard to understand how to find and retain customers. It can often take some thorough research and time-consuming work to figure out how to best appeal to customers on the marketplace and stand out from the competition. Getting to a position where orders are consistently flowing through and at a large enough scale to support basic business functions can take some time.
- Most solutions are expensive – Gaining new leads in a marketplace is more often than not a very expensive and lengthy process. This means that most manufacturers will need to factor in the high costs of digital marketing budgets, in addition to the costs of joining the business network.
- High level of competition – Due to all the potential advantages that come with being in a B2B marketplace, they have become a highly competitive landscape. With some networks having thousands of buyers and sellers all in one place, the competition for reliable sales is fierce. There will be numerous businesses offering similar, if not identical, solutions – so finding a way to be unique and stand out is crucial to online platform success.
- Limited sales – Although B2B businesses can experience high levels of sales, the available pool of buyers is drastically reduced once individual consumers are taken out of the equation. There are fewer potential buyers to advertise products and services to. The competition for sales, negotiations and contracts can restrict profit margins – especially when buyers are lost to other competitors.
By finding the right way to utilise B2B marketplaces, whether that is selling products, entering strategic partnerships, or investing – it is possible to make a decent profit off these platforms. Although their primary cause is for businesses to have one place to buy and sell products, they also come with a community which can offer some useful insights and help improve your business operations.
Marketplaces are very much a key part of the B2B market future, and their users have an opportunity to play a central role in crafting what that future looks like. They can help turn them into more competitive and dynamic spaces that support fair trade and make them inclusive for companies of all different sizes and industries. Most marketplaces are changing due to the impacts of evolving markets, sustainability concerns, and fintech advancements.
B2B marketplaces are here to stay for the long run.
FREQUENTLY ASKED QUESTIONS (FAQS)
Why do companies use B2B marketplaces? Many companies choose to use B2B marketplaces as it offers an online community where a vast pool of buyers can be accessed in one place. In addition, the platforms can also help businesses, through the many available features, to conduct various business processes all over the internet, thus increasing company productivity.
What is the difference between a B2B and B2C marketplace? The main difference between B2B and B2C is their target buyer. A B2B company sells products or services to other businesses – which will often go on to resell. In contrast, a B2C company sells directly to the end consumer. So a B2B marketplace is where businesses go to buy and sell from other companies, and a B2C market is where products are sold by companies or manufacturers directly to the consumer.
How do marketplaces make money? The majority of marketplaces charge a commission from the transactions that take place on their platform. This can be an incredibly lucrative business model when the platform facilitates the cooperation between service providers and customers. The sellers on marketplaces are usually willing to pay a decent transaction fee if they feel they are getting value and mutual benefit from the platform.
Why do B2B marketplaces have restricted access? Restricted access is seen as one of the most powerful features of trade marketplaces. They restrict visitors from fully viewing the marketplace to protect its safety. By getting visitors verified by asking them to sign up reduces the platform's accessibility and protects its content from being stolen. Security is one of the most critical aspects of the marketplace, and users need to feel safe. Interested visitors will always sign up, so it does not impact the number of new members.
What is the biggest B2B marketplace in the world? The largest B2B marketplace in the world for wholesale goods is currently Alibaba. It was founded by Jack Ma and Peng Lei in 1991. The Alibaba marketplace is seen as having a highly sophisticated platform and has an aggressive approach which has kept it at the top of the marketplace competition for many years. It has become particularly popular as a platform for Chinese manufacturers to promote their products and services. With sustainability now being at the forefront of many companies' values, it will be interesting to see how Alibaba adapts.
Are B2B marketplaces sustainable? The rise of sustainability-focused B2B marketplaces comes as no surprise, with green initiatives rising as one of the primary concerns for consumers and corporations alike. Moreover, these eco marketplaces are forming simultaneously with the rapid growth in global ESG implementation. Existing B2B marketplaces are also well-positioned to cash in on the ESG and sustainability concerns, with many of these commercial platforms aiming to offset carbon footprints.
Can selling on a B2B marketplace damage a brand? Many companies that are focused on creating or maintaining a particular brand image have concerns about marketplaces. It is true that these platforms offer potential customers a limited brand experience, and it is one of the major reasons why well-known luxury brands will often choose not to list their products on third party marketplaces. On the other hand, Wunderman Thompson (US advertising company) research reported that only 15% of consumers' total online shopping goes through a branded website, compared to 36%, which occurs via Amazon. So, while marketplaces may not be able to deliver an exceptional brand experience, they do have the potential to generate a massive amount of traffic and revenue via their website.
Why do some merchants lose money on marketplaces? One of the biggest mistakes sellers make on marketplaces is miscalculating their selling prices. They are tempted to drop their prices to be competitive and end up selling at a loss. Perhaps the area which is most overlooked is commission. Most marketplaces will charge a commission for every order that is placed. Sellers need to remember to add this to the purchase price. There are plenty of handy online commission calculators to help businesses figure out the best formula for pricing.