What is an Online Market Place?
A B2B eCommerce marketplace is exactly what it sounds like: brands sell their products wholesale in an online marketplace right alongside their competitors.
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. You will need a reliable web hosting service provider for your successful online marketplace.
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.
Ultimately, there are pros and cons to each model. The marketplace model offers greater visibility, but also increased competition and less flexibility.
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.
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