Strategies for participating in B2B marketplaces

by Barb Gomolski

April 10, 2001 —

A business-to-business marketplace can connect many buyers to many suppliers using the Internet. The benefits can range from forming strategic partnerships to meeting buyer demands ("We won't buy from you unless you use our e-marketplace").

If you're a buyer, joining an e-marketplace may mean lower prices, lower procurement costs, time savings, and the ability to collaborate with suppliers. If you're a supplier, you may be enticed by access to a larger market and lower cost of sales.

Sounds great, right? But not all e-marketplaces are viable, and not all can deliver on their promises. General economic conditions will have a bearing on whether or not a company joins an e-marketplace. If an industry is contracting or the confidence level of top leaders in an industry is low, there's not much incentive for signing on to an e-marketplace. Companies should also consider whether or not the e-marketplace will really give them access to a larger market, and where that market is -- domestic, foreign, or both.

Economic conditions aren't the only issues to be considered. Here are other key factors to consider when deciding if your business can benefit from participation in an e-marketplace.

Purchasing complexity. The level of purchasing complexity will have an impact on how well an e-marketplace functions as an intermediary. How difficult is it to buy the product in question? Are there design aspects, a level of consultation, or is it a straightforward transaction? Will the e-marketplace make purchasing easier through product standardization or predefined request-for-quotation templates?

Fulfillment complexity. Fulfillment complexity will affect whether the access to a larger market is of any real benefit or not. Will an e-marketplace provide sales that cannot be realistically fulfilled? How difficult is it to fulfill orders for products? Are there on-site requirements? Are there delivery time constraints? Can the product be fulfilled from overseas, or is the demand more immediate?

Manufacturing flexibility. One of the main benefits of an e-marketplace is that suppliers can lower production costs through product standardization, demand forecasts, and increased volumes. When considering how viable an e-marketplace is, look at whether its manufacturing flexibility allows it to benefit from better information from buyers (demand forecasts, smoother production) or aggregate orders from e-marketplaces (increased volumes, economies of scale). Consider whether this flexibility leads to cost savings, and if so, how large are those savings? What is the investment and time frame required to achieve these cost savings?

Marketing and sales issues. With the introduction of an e-marketplace, the use of marketing to create brand and product awareness changes. Consider how much the industry relies on marketing to create awareness and promote its products. Will marketing costs be reduced by using the e-marketplace? Also consider how the e-marketplace will affect your sales channel. Analyze the sales channel structure for your industry and consider how successfully this channel can be transitioned to an e-marketplace channel. Will the use of an e-marketplace reduce costs in the existing channel or add costs due to the need for an additional channel to support?

Terms and conditions. Businesses should consider how flexible the e-marketplace is when it comes to terms and conditions. Is price the only real negotiated terrm or condition? If other terms and conditions are negotiated, will an e-marketplace help or hinder these negotiations?

Regulatory issues. Companies must consider whether there are any regulations that will effect the formation and operation of the e-marketplace or whether foreign trade laws will create barriers to entry into new markets.

An e-marketplace is not a panacea. Companies must carefully weigh the issues mentioned here. In some cases, passing up the chance to join an e-marketplace will be the best strategy.

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