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Evaluating B2B ecommerce model: Marketplace and Direct (part 1)

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A lot of people who desire to start their own business but feel confused with two B2B e-commerce model: Marketplace and Direct model. It can be understood briefly that Marketplace is where brands sell their products wholesale online right alongside their competitors while Direct Model will involve a brand creating a B2B eCommerce portal dedicated only to their products. If you want to study more about different points between these two model, don’t ignore this article. Let’s start:

Marketplace model: Increased Visibility, Fierce Competition

Discoverability and Competition

  • Most of the retailers believe that the Marketplace model will increase significantly visibility of their brands. In several cases, this belief is true. But, one thing I want to clarify is the fierce competition in the marketplace tends to favor larger, more well-known brands.
  • On the marketplace, all brands, regardless of the size, are all displayed beside a sea of competitors. One problem comes is in that environment, the big brands will have a major competitive advantage and seem to be identified more than smaller ones due to brand recognition.
  • One way retailers usually do to leverage unique marketing strategies is investing more on font treatments, colors, videos, and other brand-specific assets rather than just a marketplace’s rigid templates.

The Pricing game

  • I observed a lot of small brands try to respond to the pressure when competing to rivals by cutting price. It seems to be quite a feasible solution; however, there are both sides to everything. Price is usually the indicator of product quality, if you discount too deeply, customers will question about products you sell or other case is cutting price will reduce the budget for investing in innovation and marketing.
  • When you choose a price reduction strategy, the chance it will stick to your business in the whole life will be high because if other brands enter the marketplace, you will be further diminished.

Scale

  • The brands which always find that complex Marketplace models allow for a superior customer service experience for their buyers will be the ones lacking efficiencies of scale, as many smaller brands have not established fulfillment processes that are as sophisticated and cost-efficient as those of a marketplace.
  • If any brands want to take advantages of the scale of complex Marketplace, let’s do it while they are improving their shipping and fulfillment process in-house. Double profit returned.

New customer acquisition

  • It can be considered as building favorable relationship successfully when those customers order frequently and merchandise your products well. This kind of customer will be totally different from the one who discovers you on a marketplace website, they usually place smaller orders. You know, a transactional relationship is not the same as your core customer relationship.

Brand Equity

  • Brand equity and loyalty are considered as a positive output of the full range of experiences and interactions your customer 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 can 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.

To be continued…

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