B2B e-Commerce Models: Key Differences Between Direct and Marketplace
If you’ve read the reports, heard the news, and considered the impact, you’re probably already planning to incorporate a B2B eCommerce channel into your wholesale business’s sales strategy. Giving retail buyers the ability to place orders online at their convenience will soon be an industry standard. What you may not have considered, however, is the decision to operate through a Marketplace Model or a Direct Model. A B2B eCommerce marketplace is exactly what it sounds like: brands sell their products wholesale in an online marketplace right alongside their competitors. The Direct Model, on the other hand, involves a brand creating a B2B eCommerce portal dedicated only to their products. Let’s take a look at the differences between these two e-Commerce models in more detail.
The Marketplace Model: Increased Visibility, Fierce Competition
Discoverability & Competition
There’s often a belief amongst smaller wholesalers that leveraging the Marketplace model will lead to increased visibility for their brand. In many scenarios, this is true. However, competition in a marketplace tends to favor larger, more well-known brands. In a marketplace, all brands, regardless of their size, are stacked up against each other and the ability to stand out in a sea of competitors is limited. In a scenario where retailers are browsing a marketplace looking to buy, big brands have a major competitive advantage against their smaller competitors simply because of brand recognition. What, then, can a small brand do to compete in a marketplace and stand out from other brands? One strategy small brands try to use is to leverage unique marketing strategies to out-position their competitors, but a marketplace’s rigid templates are often unable to accommodate particular font treatments, colors, videos, and other brand-specific assets.
e-Commerce Models: The Differences
The Pricing Game
Many small brands respond to the pressure of being transparently compared against competitors (particularly larger ones) by cutting prices. However, price is often an indicator of product quality, and by slashing margins, smaller brands end up with less capacity to invest in innovation and marketing. This situation leaves them at an even greater disadvantage to larger brands that can compete on the strength of their brand and the perceived quality of their products. In addition, the effectiveness of price reductions is further diminished as other brands enter the marketplace and pursue a similar pricing strategy. Devaluing your product by competing aggressively on price is a scenario that no brand wants to optimize for, but is often considered a necessary evil in the Marketplace model.
Brands that lack efficiencies of scale may find that complex Marketplace models allow for a superior customer service experience for their buyers, as many smaller brands have not established fulfillment processes that are as sophisticated and cost-efficient as those of a marketplace. While brands should consistently be working to improve their shipping and fulfillment processes in-house, it can be worthwhile to take advantage of the scale of complex Marketplace models while those capabilities are being built.
New Customer Acquisition
The best, highest value customer relationships your brand has are ones that order frequently, merchandise your products well and correspondingly have a high lifetime value (LTV). Your goal is to find more of these star customers. Customers that discover you on a marketplace website are taking a chance on you and your brand and, accordingly, are placing smaller orders. It’s a transactional relationship very different from your core customer relationship. New customers acquired from marketplaces require close monitoring to ensure that they are successful and economically viable for your business to support. Any customers that cannot be nurtured into strong, high quality relationships may require a disproportionate level of investment to support, relative to the amount of sales they generate.
Brand equity and loyalty are engendered as a positive output of the full range of experiences and interactions your customer has with your company. In a scenario where your products are showcased in a marketplace, the brand equity that is being built by the customer is actually the brand equity of the marketplace provider. It’s their template, user experience, and in the case that the marketplace owns fulfillment, it’s their customer service team. Although you may be able to reach new customers and generate additional sales without control of the customer experience, your ability to use B2B eCommerce for brand building is reduced in a Marketplace model. If your marketplace provider is a well respected forum for high-quality products, and has an exceptional user interface, it is possible that your brand can benefit by association. However, it is important to continue building standalone brand equity for your company in tandem. Complete reliance on marketplaces is generally not a long term strategy.
The Direct Model: Full Service, Ultimate Brand Control
Your B2B eCommerce portal is a place for your brand to shine. It gives you a platform to highlight the value of your offering, to provide answers to questions your retailers might have without having to bother them or your back office with phone calls or emails, and to, quite simply, give your retailers a seamless experience to order and re-order on their own time. Your brand as the star of a one-man show means that you are not forced to make pricing and positioning decisions that are specifically driven by a direct comparison to your competitors’ offering. It gives you the chance to price your goods at a premium and opens up the opportunity to compete on customer service.
Full Service & Ownership
While in the Direct model you are relying on a third party provider for the hosted eCommerce portal itself, your brand is fully responsible for serving your customers. This ranges from maintaining the brand experience on your B2B eCommerce portal itself with the proper marketing assets and product images, processing (and chasing down) payments, and fulfillment of all orders. While there are of course benefits to owning every interaction with your customer base, such as building long term trust and sophisticated fulfillment capabilities in house, it is the case that some smaller brands struggle with keeping up with the operational requirements to fully serve their retailers.
Under the Direct model of B2B eCommerce, upon logging into your brand’s portal, retailers interact with your product line in a way that is tailored specifically for their account, allowing you to implement the following customer-specific settings:
- Set pricing
- Apply discounts and promotions
- Show or hide specific products/manufacturers
- Provide recently ordered items
This granular level of customization allows you to give your retailers the exact experience you want them to have and stays consistent to the the personal service your sales team delivers. While this can be achieved upon login using some Marketplace models, it is the case that the unknown customer who discovers your brand is unable to benefit from this more tailored experience.
While the Marketplace model has advantages in the form of customer acquisition, the Direct model is beneficial to strengthen customer relationships and focus on the long term. The customer who accesses the Direct B2B eCommerce portal is one of high value––it’s a retailer that has done long time business with you, has been invited directly to your portal by you and your sales team, or has accessed your portal after getting to know your product line and brand on your website. Given the exposure, experience and personal stake they already have in your brand, they are a more qualified customer that skews higher in terms of average order size, order volume and LTV. Accordingly, customers buying from Direct models are worth the service investment, as they are high value.
Control over the Brand Experience
One of the biggest upsides to adopting the direct model of B2B eCommerce is that, rather than being forced into the constraints of the marketplace template and help build brand equity for the marketplace provider, the attention is on you - your brand, your products, and the experience you want to create for your retailer. The brand experience you create really starts from the discovery of your portal - your customers receive a personal invite or come across your portal from your own website, setting off a brand journey that you are controlling from the start. The portal itself is not only a permanent showcase for your product line, but it’s a hub in which you can distribute other important market assets which help drive sales and grow your brand. Assets like merchandising guides help retailers drive sell through in their respective store locations. Promotional videos showcase your products in their best light. Instructional videos clarify questions your customers may have on more technical products and allow retail customers to reach for materials that educate them on the value and specific merits of your product over the competition.
Ultimately, there are pros and cons to each model. The marketplace model offers greater visibility, but also increased competition and less flexibility. The Direct Model requires more effort from the wholesaler in terms of service, but also offers complete control over the customer experience. While the marketplace model does present some advantages, it is ultimately not a sufficient way to serve your high value customers and nurture long-term relationships. Whether you decide to implement only a Direct B2B eCommerce site or use it to supplement an existing marketplace eCommerce platform, it remains a key part of an effective wholesale B2B eCommerce strategy.