THE BIG SHIFT – How a Reallocation of Market Shares Will Occur in B2B Markets As a Result of Online Marketplaces

With the launch of Amazon Business in Europe and the associated surge in online B2B marketplaces, the rate of disruption of existing B2B business models is accelerating. At the same time, thanks to the convenient, seamless B2C shopping experience, the demands of B2B buyers are growing. Depending on their industry and on whether their marketplace strategy is implemented in a timely fashion, this can results in both opportunities and risks for manufacturers and retailers, 

Experts estimate that the online B2B market will reach $ 6,700 billion by 2020, by which time it will be more than twice the size of the online B2C market ($ 3,200 billion in 2020).[1] However, it is not only the market volume that is highly attractive, but also the expected growth momentum: compared to an online share of approx. 12-15% in the B2C market, the online share in the B2B market is currently only around 2-3%. This promises a dynamic, sustained channel shift from offline to online and represents the first component of a “BIG SHIFT” in the B2B market.

[1] Frost & Sullivan, 2015

Figure 1: Online B2B vs. B2C sales in 2020 (Frost & Sullivan, 2015)

In contrast to the B2C market, however, there are some specific B2B challenges to be overcome. The complexity of the B2B product and service range and the associated providers requires comprehensive yet easy-to-use solutions. Propelled by their B2C experience of private online shopping, more and more B2B buyers are now demanding a comparable business shopping experience.

It is clear that the European B2B online market has so far been highly fragmented and consists largely of niche providers in addition to address lists and industry directories. In other words, dominant market leaders – especially those with a dynamic ecosystem – have so far been lacking. In general, actors in the B2B sector exhibit deficits in regard to digitalisation, and often a lack systematic digitalisation strategies. Against this background, and taking into account the aforementioned market attractiveness and the need for a “consumerisation” of the B2B shopping experience, it is not surprising that experienced B2C players like Amazon (with Amazon Business) or eBay (with eBay Business Supply) are increasingly gaining a foothold in the B2B market. However, other players such as the global marketplace Alibaba.com, mercateo, WerLiefertWas and EuroPages are also playing an active role.

Figure 2: Leading B2B marketplaces and their respective product focuses

Amazon Business as an Example

Amazon Business has been online at amazon.de/business since 6th December 2016. With more than 100 million products for business customers, Amazon has chosen, as for B2C, to pursue a long-tail strategy. The product range appeals to a broad target group: there are items for restaurants, laboratories, offices and many more. There are more than 5 million products listed for tradesmen and manufacturers alone, including lubricants, tools, goggles, paints and varnishes, etc. This is made possible primarily by registered retailers who sell their products via the platform. True to the slogan “Everything you love about Amazon. For work”, Amazon Business provides buyers and sellers the convenience they know and love from the B2C marketplace. Figure 3 shows the e-commerce maturity of different industries on a continuous spectrum in terms of the suitability of their product portfolio for different e-commerce channels.Depending on the presence or absence of a suitable strategy, This continuum also indicates the potential for disruption or risk for the respective product category.

Figure 3: The e-commerce maturity stage of different industries

The B2B version incorporates business-specific features such as payment on account, multi-user accounts, and the ability to display net prices. Amazon Business also integrates easily with leading purchasing systems, including SAP SRM, SQIQUEST, Oracle Fusion, iProcure and others.

Needs of B2B Online Customers

Amazon is replicating a great deal of its tried-and-tested B2C functionality on its B2B platform and is fully embedding the B2B structure in its existing Amazon ecosystem. But what are the needs of B2B online customers, on the sell side and the buy side? According to a study on online shopping behaviour in B2B e-commerce, customer requests are the most important reason as to why sellers begin to sell their goods online, with the main challenge appearing to be the complexity of online sales of products and services.[1]  In this regard, platforms such as Amazon Business appear to offer a solution – at least for standardised products in the lower price segment. The already-high degree of digitalisation of the customer journey is reflected in the results of buyer surveys, which show that online search engines are the dominant starting point in the search for B2B shopping options. This means it is important for B2B sellers to have sufficient online visibility. The three main reasons for deciding to shop online are improved usability, a broader product choice and lower costs [2]. The fact that B2B buyers are increasingly placing B2C-style demands on their “digital shopping experience” is not surprising. From a usability perspective, it is about “business-to-people”. Whether they’re shopping privately or for their business, it is the same people using both services. Their demands on the digital shopping experience are correspondingly similar.

In a general sense, the seller and buyer needs represented in Figure 4 are the ones that occur along a typical B2B e-commerce value chain. In reality, however, the relevance of the individual value creation stages varies depending on the product category. For standardised products in the lower price segment, there is a clear trend for full coverage of the value chain by online shops and marketplaces, while for more complex, high-priced capital goods, there is a more likely to be media gap (e.g. before the actual purchase). For example, it is likely that a machine in the 7-digit price range will rarely – if ever – be sold by means of “one-click shopping”. What is more likely is that negotiations, usually personal negotiations, will take place prior to the sale (in other words, a media gap).

[1] ibi, Votum, Online Shopping Behaviour in B2B E-Commerce (2015)

[2] ibi, Votum,Online Shopping Behaviour in B2B E-Commerce (2015)

Figure 4: Buyer and seller needs along the B2B e-commerce value chain

On the basis of the B2B e-commerce value creation chain, the commercial formats and business models that enjoy the most success are those that satisfy the above-mentioned buyer and seller needs in the best possible way. Generally, when advertising to advertise to shoppers, marketplace operators place their primary emphasis on increased market transparency and better usability and service. Thanks to the market entry of well-established B2C players (Amazon Business and eBay Business Supply), there has been a noticeable increase in digitalisation pressure on the B2B segment. Overall, some market participants appear to be better prepared for the new competitors in terms of their online activities than others; small and medium-sized providers can even benefit from the platform by expanding their customer base. The big B2B representatives whose distribution strategies focus on “brick-and-mortar” are in a more critical situation. For them, there is an urgent need for action in building an online operation. The strategic challenge is to position this online operation correctly alongside cost-intensive direct sales and capital-intensive physical branches.

It is the traditional wholesale sector, in particular, that is threatened by the growth of online B2B marketplaces and the associated disintermediation, i.e. the skipping of intermediates on a product’s journey from manufacturer to buyer. Future development in the sector is expected to mirror the Amazon-driven change in the book market, whereby book wholesalers and bookstores are being skipped on the path from publisher to reader. In this respect, it is hardly surprising that, according to a study by Roland Berger and the German Federation of Wholesale, Foreign Trade and Services (BGA), 54 percent of German wholesalers see digital platforms as the greatest threat to the traditional business model.[1]

It is expected that disintermediation and the associated threat of online marketplaces will lead to substantial shifts in market share and will  have a massive impact on the B2B industry. In addition to the above-mentioned shift from offline to online channels, this shift in market share is the second component of the forthcoming predicted “BIG SHIFT” in the B2B market. In order to withstand and benefit from this market development, B2B manufacturers and distributors must develop systematic e-commerce strategies. Their aim should be to secure the most sustainable competitive advantage in the dynamic market environment.

Which sectors should consider using B2B online marketplaces?

In general, it can be said that an increasing digitalisation of the customer journey is occurring across all sectors, increasing the relevance of online marketplaces. Examining the extent to which this has actually progressed in individual cases is an essential hygiene exercise in the development of a systematic e-commerce strategy. In broad terms, the relevance of online marketplaces can be categorised according to product category. If we assume that the definition of an “online marketplace” includes an actual purchase transaction, we can see that online marketplaces are particularly well suited to standardised products in the lower price segment, particularly commodities and products from the maintenance, repair and operating sector (MRO). Examples of online marketplaces in this field include Amazon Business and Mercateo. These transaction-driven online marketplaces are especially important for manufacturers and distributors of commodities in the fields of (automated) sensors, construction, chemicals, electronics, industry, trade and MRO.

If you choose to expand the definition a bit further – as some platform operators do – the term “online marketplaces” can also refer to online directories and online platforms via which quotation requests can be sent, but no actual purchase transactions are executed. These non-transactional online marketplaces can also accommodate complex, high-priced capital goods. The reason for this is that a large part of the customer journey for these products now also takes place online, which means that B2B providers must be as digital as possible in the phases preceding the actual transaction (search and selection) and satisfy the information needs of potential customers. Examples of “online marketplaces” in this area are Alibaba.com (with a global focus) and WerLiefertWas (focusing on Europe). These non-transactional platforms have particular relevance for manufacturers and distributors of complex, high-priced capital goods in the fields of agriculture, construction and mechanical engineering.

The relevance of B2B online marketplaces for particular manufacturers and retailers – and how they can be used in a systematic fashion – must be determined within the framework of a holistic strategy. Essential first steps include the determination of a brand’s own digital maturity level in comparison to the competition and the industry and a detailed customer journey analysis of the selected target group. In the calculation of digital maturity level, various aspects are analysed (including strategy, customers, competitors, organisational structure, technology) to determine to what extent there is a need for action on digitalisation and where it would be most profitable. This creates transparency and a unified understanding of the digital “status quo”. The customer journey analysis provides information about the purchasing behaviour of B2B customers along the entire purchasing phase and across all touchpoints with a single brand. Figure 5 shows a schematic B2B customer journey.

[1] http://www.bga.de/fileadmin/user_upload/pressebereich_2/PDFs_Pressemeldungen/PM_Digitalisierung_Grosshandel_final_041116_D.pdf

Figure 5: Simplified representation of a B2B customer journey

It is important, in the context of the customer journey analysis, to segment the target group into age groups in order to be able to analyse at which point the “tsunami” of digital natives arrive to decision-making positions in the respective B2B product segment. Experience has shown that digital natives have a very “online” customer journey and are driving the “BIG SHIFT” in the B2B segment.

Once the foundation has been laid with the calculation of digitalisation maturity and the customer journey analysis, the development of the actual strategy can begin. Specific, individual measures are derived and summarised in a holistic, systematic digitalisation or e-commerce strategy.