Alibaba & B2B E-Commerce Growth: What You Need to Know

By
Sarah Leung
November 12, 2014

Last week, Forbes featured a report by Sarwant Singh that signaled a fast-approaching shift in the world of wholesale: “B2B eCommerce Market Worth $6.7 Trillion by 2020: Alibaba & China the Front-Runners.” The article is filled with revealing stats, but one stands out--the mind-boggling prediction that over the next five years, the B2B e-commerce market will be double the size of an already enormous B2C market. Alibaba, China’s e-commerce giant, is the biggest driver of the B2B e-commerce growth trend. To put things in perspective, Singh reports that Alibaba is bigger than eBay and Amazon combined (check out our post on Amazon’s entry into the wholesale e-commerce market here). Alibaba is expanding beyond its consumer e-commerce offerings and adjusting its focus to the burgeoning B2B e-commerce market, with a reported current gross merchandise value of $27.28 billion. Alibaba’s growing success as a trailblazer in this space is symptomatic of broader trends that point to fundamental changes in the wholesale marketplace. Here are some article highlights and our thoughts on what they mean for wholesalers:

B2B and B2C E-Commerce: The Differences

The Need for More Flexible Pricing & Shipping

Not surprisingly, B2B e-commerce is a much more unwieldy creature than its B2C counterpart. Singh points out that prices fluctuate often (with customer-specific pricing, volume-based discounts, complex payment terms, etc.), and although volumes are obviously higher than in B2C, they’re also wide-ranging. In addition, shipping rates are often dependent on varying factors, like dimensional weight charges and fuel surcharges.

Regulation and Red Tape

In the B2B world, there is even more added complexity in the form of tax and compliance issues. They’re a constant presence in the sales and fulfillment process and a burden to wholesale operators. As Singh comments, “providers typically employ large staffs whose only responsibility is delivering products and services within these restrictions.”

Marketing to a More Discerning Audience

When it comes to convincing customers to buy a product, the B2B sale is definitely the bigger challenge. Impulse buying doesn’t exist, and clients require a clear understanding of each product’s specifications, profit potential, and the merchandising implications of adding it to their selection before making a purchase decision.

e-Commerce Growth: B2B E-Commerce Hits the Mainstream

Whether in response to the actions of Alibaba or not, more companies are setting up their own independent B2B e-commerce platforms. There’s a noticeable shift away from complex, expensive EDI (electronic data interchange) systems, and a desire to set up more economical platforms where “buyers and sellers can meet from anywhere in the world on the Web to transact goods and services, using only standard PC and Internet,” according to Singh. Within this world of B2B e-commerce are four major business models falling under two categories: 1) one-to-many, and 2) many-to-many.

One-to-Many

These are companies that want to stay in the driver’s seat. In an Independent Direct Model, companies have their own B2B online store where clients can purchase goods. In a Private Consortium Model, companies create their own network that includes suppliers, distributors, retail, procurement, delivery, etc. Singh points out that “the biggest advantage of this is the ability to plan resources on an enterprise- and industry-wide scale.”

Many-to-Many

Many-to-many models involve companies joining a wider online B2B marketplace. This can include both a Private Marketplace Model, in which several companies choose to form an exclusive network, and a Public Marketplace Model, which is open to all and often administered by a third-party. In each of the aforementioned business models, the success of a particular B2B marketplace approach is mostly determined by the operator’s market power. In the case of one-to-many models, for instance, companies with considerable brand equity, massive purchasing power and formidable supply chain capabilities like Walmart can attempt a Private Consortium Model (Walmart Retail Link), where they can leverage those strengths to control the entire purchasing process. Among many-to-many models, private marketplaces can be either buyer or supplier driven, while public marketplaces can be more vertical and industry-specific or horizontal “hypermarkets” like Alibaba and Amazon.

What Does This Mean for Wholesalers?

1. Your Chosen Platform Must Address Complex B2B Challenges

Considering the B2B market complexities that aren’t present in the B2C platforms we’re all more familiar with, there is a lot of room for differentiation among B2B e-commerce platforms. The issues facing B2B companies--from logistics and compliance to product marketing--are very costly to deal with, so the potential business value of a platform that can effectively address them is enormous.

2. More B2B Clients Expect an E-Commerce Experience

We’re all familiar with the ease of shopping online--choosing a product, making a payment, and having it delivered to our door. As more of these processes become automated in our own individual consumer experiences, our expectations of technology increase in other areas. It’s not surprising then, that as automation seeps into the B2B world, more B2B buyers will expect a simple e-commerce experience, and that companies will have a chance to distinguish themselves in this area.

3. Syncing Offline and Online B2B Channels is Key

Despite this desire among B2B buyers to make purchases online, the foundation of every B2B sale remains the same: trust. For those organizations considering B2B e-commerce but still concerned about how it’ll merge with existing sales channels, this should ease their anxiety. In the high stakes world of B2B sales, relationships remain as important as ever. Reps can leverage an e-commerce platform to access information, sell more productively, and improve the customer experience. An e-commerce platform can give reps the tools they need to spend less time with admin and more time understanding customer preferences, upselling, and nurturing new sales leads.

4. Online Marketing of B2B Products Critical to Success

The importance of online wholesale product marketing cannot be overstated. As previously noted, B2B buyers will be looking to gain an in-depth understanding of how a product works before pulling the trigger on a purchase. As B2B business moves online, it’s necessary to include as much product information as possible for rational B2B buyers making decisions based on a checklist of necessary specifications. Unlike B2C, B2B buyers tend to be repeat customers, so providing everything they need to make that initial choice is crucial.   According to this article in Fortune Magazine, analysts were predicting B2B’s move to e-commerce as early as 2000. While those early forecasts (Goldman Sachs projected $4.5 trillion in B2B e-commerce business by 2005) weren’t realized for a long time, reality seems to be catching up with conjecture at last. Companies across every industry imaginable are now integrating B2B e-commerce into their existing processes. What are your thoughts on the rise of B2B e-commerce? Leave your comments below.