Online Marketplaces Are Reshaping B2B Procurement, and a Lot More

Blog Credit: Janet Schijns, February 10, 2022  (Online Marketplaces Are Reshaping B2B Procurement, and a Lot More | NetSuite)

In short:

  • The gig economy is changing the peer-to-peer game for services companies.
  • How will you cope when customers are shopping on price, price and price?
  • Your company is both a seller and a buyer. Here are three ways to shop smart.

Remember corporate travel agencies? They knew which hotels offered the cushiest amenities, booked your flights and mailed paper tickets and detailed agendas. These firms saw their well-traveled experts, insider hotel and airline connections and file cabinets full of glossy brochures as insurance against being displaced.

Those were the days. Now business users and consumers alike use marketplaces to reserve their own flights, lodging and cars. Sites like Travelocity or Kayak can see every flight and may have 500 reviews of a hotel, with photos taken not by a marketing agency but by people who actually stayed there. Even branded corporate travel sites are usually powered by an aggregator like Expedia, which handled nearly 150 million bookings annually before the pandemic.

It’s not just travel. Amazon, Etsy, and eBay are marketplaces. So are Avendra (hospitality supplies) and Bryzos (steel). TaskRabbit, Fivrr, UpWork and AnyTask make it easy for your customers to shop for services and expertise. And make no mistake, they’re finding options at costs that undercut your services — sometimes by a lot.

Here’s how to navigate the marketplace jungle.

What are the Types of Marketplaces

There are three main categories, and service providers can learn from all of them.

Business to consumer

The user experiences (UX) offered by business-to-consumer marketplaces set the expectation. Your customers’ employees are flocking to B2C sites to find deals and compare features for everything from grocery delivery to designer clothes. If the marketplace you’re on can’t match Instacart’s ease of use, you have a problem.

Peer to peer or customer to customer

Peer-to-peer marketplaces match those with excess inventory with those who are buying, often cutting out the retailer. On eBay I can find everything from a designer purse to all the office supplies I need to run my business.

There’s a dark side to P2P marketplaces when people stockpile then resell scarce items. We saw it with gaming systems over the holidays and hand sanitizer early in the pandemic. You see it with COVID tests right now. A peer-to-peer marketplace can both reset the price of a good and impact a product company’s ability to maintain inventory.

Services companies can’t ignore P2P given the gig economy, which grew by 33% in 2020, expanding over eight times faster than the US economy as a whole. Gig work has an immense impact on what services companies can charge and the value they can convince buyers they deliver. That’s because employees, particularly millennial and Gen Z workers, see new, unconventional ways to make money.

Let’s say you provide marketing design services. A client can go on Fiverr and get your employee to do the work after hours, possibly using your computer and software, for a third of what you charge. Peer-to-peer marketplaces can reset the prices that you put on services just as much as high-end desk chairs for a 50% discount affects product companies.

Business to business

Those same consumers used to transacting on marketplaces are buying on behalf of their organizations and expecting the same experience. That’s where business-to-business marketplaces come in.

Let’s take technology services as an example. Marketplaces like IdeaScale and InnoCentive bill themselves as strategic sources of information and ideas and are often used by procurement teams. InnoCentive has about half a million “problem solvers,” and a challenge-driven methodology. You can go in and say, “Okay, here’s where I’m stuck,” and in no time dozens or hundreds of solvers are trying to sell you on using their technology or services to solve your challenge.

How Marketplaces Affect Profits

As with any sales channel, marketplaces bring costs, risks and opportunities. Look beyond a commission. How does the marketplace impact your customers’ buying habits? How much will it increase your reach? Does the ability to comparison shop help or hurt you?

Risk: Margin minimization

Several years ago, a major antivirus company was courting an enterprise customer that had a $1.8 million AWS credit. Rather than buying direct, the customer went through the AWS marketplace for its security software. Sure, the antivirus company still got some money, but minus a 30% cut.

Would it have gotten the deal if the customer hadn’t had that $1.8 million chit? Maybe, maybe not. But if it had, its profits would have increased by 30%. It could have provided a steep 20% discount and still come out ahead.

Risk: Race to the bottom on price

Marketplaces democratize products and services. That’s the good news. The bad news is that customers can buy with a credit card and a mouse click, without ever communicating with your team. Why not just buy the least expensive option?

I often see services companies fall into the trap of thinking that, because they’re not selling a commoditized product, they don’t have to compete on price. After all, your rep will explain the nuances of the value you bring, right?

When selling on a marketplace you must be competitive on price. But it’s just as important to craft messaging on the value you deliver and use it consistently, no matter where you meet customers.

The problem arises when services can’t be explained in a way that lets buyers understand at a glance what they’re getting.

Which brings us to …

Opportunity: Differentiation

Consumerization means that customers expect to be able to buy anything online. It doesn’t matter how complex the product is. Carvana promises to make purchasing a vehicle no more difficult than buying a soda. You can evaluate healthcare providers and book a doctor’s appointment online. Why not buy accounting or legal services?

That means your marketplace listing must illustrate exactly what it is you do and make people want to work with you. It’s a special skill, taking the complex and making it exquisitely simple for people to understand. But it’s a necessity for success in a marketplace.

What Matters is Showing Up

The American Psychiatric Association did a survey a few years ago, asking people if they thought they were above average. Close to 80% put themselves at the far right side of the bell curve. That math just doesn’t compute. With companies, it’s the same thing. Unless yours is a highly complex and technical or niche service, there are others out there doing exactly what you do.

I’m saying this as kindly as I can: You’re not that different. If you don’t get on a marketplace, someone else will offer a similar service, and they’ll win. Zoom is a prime example. It was on almost every technology marketplace when the pandemic hit, and it sold direct-to-consumer. GoToMeeting wasn’t on every platform, nor did it make D2C seamless. Teams wasn’t. WebEx wasn’t. Zoom ate all their lunches.

Keep your messaging simple. Explain your value proposition simply and quickly, because people like bullet lists. What exactly are your service tiers? Focus on outcomes. What benefits will your service deliver? Be transparent on price. Then go meet your customers where they are.

The Procurement Wild Card

The risk of waiting to get on a marketplace is that your customers are no longer permitted to buy from you. That’s where we’re heading.

It used to be if I wanted to procure a service, I had to issue an RFP and get three bids. Maybe it’s still that way for really big purchases, but even government agencies now direct their employees to marketplaces where they can easily compare and contrast prices and benefits to narrow down the shortlist to three or four providers. Then, procurement sees what they’ll throw into the mix to get the business. 24/7 service? Free upgrades? Ten percent off for the first year?

I used to run channels for Office Depot, and I can tell you that more companies than you’d expect buy their printers, PC and smartphones on the Office Depot marketplace and add on service contracts. As a big brick-and-mortar, it would have been an easy decision to skip the effort of setting up a marketplace. But we saw more and more customer procurement teams restricting where their people were allowed to buy. The preference was a portal where they could compare prices and features quickly and easily.

How Buyers Can Best Use Marketplaces

Your company is ideally both a marketplace seller and a buyer. Some keys to being a smart shopper:

Make sure you’re protected.

I think roughly one third of B2B transactions will be done on marketplaces; it probably shouldn’t be much more than that. Stick to straightforward products and services. You need to understand what you’re buying, what the guarantees are and what your rights are.

Can you select the service-delivery level? There have been platforms for a long time where you can get a tech to come into your business and, say, pull cable. Many of these sites don’t offer great SLAs, though, so caveat emptor.

Can you talk to a human if you want to?

One of the biggest advantages of not buying through a marketplace is that you get to sit down and talk about your needs, then the provider customizes a proposal. These conversations often reveal issues and opportunities you never thought about and bring up new, innovative, money-saving ideas.

Here’s a personal example. Recently, I was at a party where the hostess had these incredibly beautiful charcuterie boards: black walnut, silver handles, little wells for sauces. They were amazing. I asked her where she’d gotten them, and she directed me toward a marketplace. They were eye-poppingly expensive — upwards of $1,000. I didn’t like them that much.

A few days later, I saw a picture of a very similar board made by a local artisan. I called him up, showed him the photos of what I wanted, then we got into a conversation. He pointed out that silver handles would tarnish. That wells cut into the boards were cool, but if they weren’t reinforced correctly, liquids would eventually drip through. These were things I hadn’t thought about. I figured he would quote me a couple of thousand dollars, but I got my custom boards for just under $400. I never would have gotten that higher-quality, less-expensive product if I hadn’t had an actual conversation.

Think about where the margin is going.

As a buyer on third-party marketplaces, there’s always a cost that comes along with a lower price. Did that antivirus software vendor value the customer that came through AWS as much as a similar-size deal that came in via in-house sales? Even if the vendor can absorb that 15% to 30% service fee, the relationship is very possibly different than traditional B2B commerce.

The bottom line

Online marketplace are redefining what it means to be in B2B commerce. It’s a rapid shift, and you can forgive yourself for not being up to speed quite yet. You can’t be excused for not having a plan.

Stay savvy and orient your marketing, sales and procurement functions to this new way of selling, and you can step into a new world of e-commerce marketplace domination.

Janet Schijns is the CEO of JS Group and a former Fortune 500 C-suite executive with experience ranging from Verizon to Motorola to Office Depot. Her clients regularly increase their revenues by more than 40% and achieve high levels of market-share growth. Areas of expertise include routes to market, channel programs and solution development, and she has worked with vendors, distributors and partners in a wide range of technology areas including services, cloud and advanced solutions.

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