- A successful B2B marketplace operates in a sector with a fragmented supply chain; and where buyers are willing to consolidate their supply into one marketplace, versus multiple suppliers.
- Managing the headache of this fragmented supply chain is the biggest value add a B2B marketplace provides, reducing the time and effort required from a buyer’s procurement team.
- The key to success as a B2B marketplace is operating as a full-stack solution. These reduce the operational burden on customers and consequently offer far greater value to them.
- Study buyer-seller data to gain information on whether customers make repeat purchases. A crucial element to review is whether there is consistency in the supply
- Identify growth vectors beyond your original value proposition. Understand if there is a possibility to gain wallet share with existing customers. Further, observe if there is an opportunity to expand into adjacent value pools and expand to buyers internationally. If these opportunities exist, there is potential to build a strong B2B marketplace.
- Consumers look for convenience. A critical factor to consider while evaluating B2B marketplace opportunities is the potential of technology to enable prompt deliveries, real-time pricing, and quality control and if customers value that experience.
India is thriving in an interconnected digital world. Businesses that form the economy’s backbone have moved online too. Sellers can easily connect with end consumers through B2C platforms. But there’s a challenge when it comes to bulk orders. The supply chain is almost a maze. And that’s where more work needs to be done.
B2B supply chain needs a fix
Let’s face it. The B2B supply chain in India is broken. Multiple middlemen make the buying and selling process complicated. Here is what it looks like:
Picture this. There is a chikankari fabric seller who wants to sell the products to wholesalers in another state before Diwali. They understand that a market exists but don’t know how to discover this market. They hand it over to intermediaries. A series of price negotiations begin, and each entity tries to undercut the other. This takes several weeks. For seasonal businesses, each day is important. It could mean losses in the millions.
It gets more complicated
Middlemen take a cut of the revenue as a commission. Each sector has multiple such intermediaries. That means the more you produce, the more they collect. Here’s the cut across sectors:
Seafood/Poultry: The produce moves from the supplier via ports, auction houses, and multiple aggregators. In this process, 20-30% of the gross merchandise value (GMV) is deducted as the take rate or commission.
FMCG and pharma: The products move from the manufacturer through stockists, distributors, multiple wholesalers, to end retailers. By then, 10-15% of the GMV is collected as the take rate in FMCG and 20-30% in pharmaceuticals.
Construction material/MRO: The raw material supply moves via the distributors and multiple wholesalers. The middlemen take 10-15% of the GMV. For private labels, it could go as high as 30%.
To simplify, a big chunk of sales is taken by the middlemen. The traditional process flow doesn’t benefit sellers because:
Delays: Physical movement of goods is time-consuming. Buyers may not get the products in time if too many middlemen interfere.
Costs: The seller’s margin potential is compressed with every new intermediary’s commission involved.
It is kind of decipherable now that the current system is convoluted. A seamless transfer of goods between buyers and sellers is the need for the hour. That’s where B2B marketplaces play an important role.
Pain points for buyers
Traditionally, buyers face limited options. Discovery of newer sellers is difficult because most buyers will be constrained geographically. In addition, there are logistical challenges, considering that buyers need to contact multiple middlemen for every element of every purchase. Here’s a closer look at the challenges:
Multiple intermediaries: Prior to every purchase, buyers need to coordinate with multiple intermediaries for different products. This involves additional time and resources.
Cost pressures: Conventional marketplaces offer low transparency on pricing. So, buyers have a very limited line of sight on costs.
Seller discovery: Buyers may not have the amenities to locate sellers outside their region. These geographical impediments are a deterrent to new seller discovery.
Every buyer needs a procurement team, managing multiples upon multiples of suppliers. Managing the headache of this procurement process is the biggest value-addition offered by B2B marketplaces.
What do B2B marketplaces do?
B2B marketplaces are entities that directly connect the end buyer to the supplier. These platforms also offer technical support and financing to both parties.
From buyer discovery to the final payment, the marketplace is the one-stop shop for all needs.
How do buyers and sellers benefit?
Since the B2B marketplaces help connect to a single entity instead of thousands of different entities, everything from leads to quotes and order bookings can be done on a single platform. Here’s a glimpse:
India had its B2C marketplace moment. And now, it’s time for businesses to reap the benefits of the internet.
What are B2B marketplaces solving for?
Remember the 2007 era when Flipkart launched? There were dozens of other e-commerce platforms that did similar business. None of the others made it through. The reason? Flipkart built and owned the logistics and supply chain, while the rest didn’t.
Full-stack B2B marketplaces are something similar. These platforms take off the operational burden from customers. The concerns of B2B businesses are more or less similar to the early days of Indian e-commerce. Here’s how:
It is crucial to take lessons from the mistakes that e-commerce companies make during their launch phase. B2B marketplaces help resolve the bottlenecks at every juncture of the buyer-seller journey.
What are the key elements for building a successful B2B marketplace?
Four vital factors can be used to assess the potential of a marketplace. These are:
Large market with fragmentation: Find out if the market potential is large (>GMV $10 billion). Then check if the supply base is fragmented and if there is low to no loyalty among customers. If the answer is yes, there is a space for a B2B marketplace.
Repeatability: Study the buyer-seller data to gain information on whether customers make repeat purchases. A key element to review is whether there is consistency in supply, that is, if the suppliers can meet the customer demand.
Scope to leverage growth vectors: Ascertain if there is a possibility to gain wallet share with existing customers. Another factor to look at is whether the customer is willing to consolidate supply from 5+ vendors with one marketplace. Further observe if there is an opportunity to expand into adjacent value pools and expand to buyers internationally. If these opportunities exist, there is potential to build a B2B marketplace.
Technology-led supply chain: Consumers look for convenience. A critical factor to consider while evaluating B2B marketplace opportunities is the potential of technology to enable prompt deliveries, real-time pricing, and quality control and if customers really value that experience.
Faster, secure, error-free, and value for money. B2B marketplaces eliminate the need for middlemen. It is a win-win for all stakeholders.