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B2B – Marketplace or Drop Shipping : It is urgent not to choose (2/2)

Blog
10th December 2019

In this second column, François Duranton, CEO of ZeTrace, compares the Marketplace and Drop Shipping approaches. He recommends considering hybridization to face up to the new challenges of expansion of the product offering in B2B distribution.

There are three models for massive expansion of the product offering, as we saw in the note on the limits of the Marketplace model for Global Account customers:

  • The Marketplace model
  • The industrialized Drop Shipping model, and
  • A combination of these two models.

If your customers are a mix of SMEs and Global Accounts, I give you my recommendation straightaway: consider combining these two models, i.e. opting for a hybrid marketplace. Here are my three main arguments.

1. Drop Shipping can adopt certain good practices of the marketplace

In theory, Drop Shipping can be a response to a challenge of massive expansion of the product offering. Provided that it acquires an “industrial” scale. Otherwise, there is a risk that the process of listing each new vendor might drag on for six to twelve months, as is commonly observed at present.

The drawbacks noted with Drop Shipping include: onerous processes for establishing contracts; data which have to be registered in the ERP without problems; problems of catalogue onboarding without industrialized facilities, etc.

In theory, a Marketplace tool provides solutions to these problems, because:

  • it saves time: vendor listing contracts are simplified;
  • onboarding and administrative formalities are simplified: all the data are not recorded in the ERP;
  • catalogue production is largely delegated to the supplier;
  • etc.

In response to these challenges, it is therefore in the interest of Drop Shipping to adopt certain tools and good practices of the Marketplace such as:

  • contract simplification;
  • the provision of tools for vendors to enable them to do self-onboarding, e.g. by enabling them to move easily onto the platform (API, EDI, mapping of the fields of an XML file);
  • supplier scoring in order to measure their performance and detect any underperformance;
  • etc.

In concrete terms, a Drop Shipping project should adopt everything that makes it possible to speed up time to market in the Marketplace model.

2. Hybrid tools provide the benefits of the Drop Shipping and Marketplace models

On paper, the Drop Shipping model appears simple:

  • no change of business model vis-à-vis customers;
  • single invoice;
  • complete control of prices;
  • control of assortments by customer;
  • control of customer service;
  • etc.

In the field, however, we find that industrialized Drop Shipping projects are ultimately as complex as marketplace creation projects!

Hence the current trend, among developers, to try to offer “the best of both worlds”. And this translates into the term platform, which is more generic than the term marketplace. Software publishers from the marketplace universe such as Mirakl and Uppler, for example, have adopted this approach and brought this flexibility to their tools.

In practice, these new hybrid tools impose no marketplace business model: it is proposed as a sort of option.

Note that e-procurement tools such as SAP Ariba, Ivalua, Coupa, Jaggaer, etc. take the opposite path, starting from an e-procurement approach and moving toward an experience closer to e-commerce, or even the marketplace.

3. The market is evolving gradually from e-procurement to e-commerce

From a more general perspective, we note a major evolution in the B2B distribution market, which is materialized by two universes:

– an e-commerce universe: accessible on the web and inspired directly by the UX of benchmark sites such as Amazon and Cdiscount (with an attractive display of products, tutorials, customer opinions, etc.). Within the e-commerce universe, the marketplaces count on a net price policy, based on competition between suppliers and not on pre-negotiated contracts,

– an e-procurement universe: based on extranet and EDI, more austere, less appealing, but still well established in purchases of strategic goods and services, because very efficient and controlled.

Which of these two universes will eventually prevail? Without risk, we can bet that optimized UX will increasingly appeal to the big purchasing departments. This is already the case for non-strategic service-sector purchases. It is the wager made by Amazon Business. But it is very hard to say when the switchover will take place!

Moreover, the industrialized Drop Shipping model is currently doing the groundwork, and if it is able to demonstrate its scalability, it will be able to prevail wherever control is preferable to free competition.

So I come to the following recommendation: consider adopting hybrid tools to avoid becoming trapped in a model.

With the same basic tool, you can adopt an initial Drop Shipping model with your Global Account customers, while reserving for yourself the possibility of subsequently opening your Marketplace, e.g. on specific product families or targeting mainly very small and medium-sized enterprises.

So it’s best to have from the outset the tools and approach which will enable you to make this transition. In any case, it’s worth asking yourself the question as soon as possible!

François Duranton, CEO of ZeTrace

 

B2B marketplaces – Limits of the Marketplace model for Global Account customers

“2019 : les marketplaces vont bouleverser le marché B2B” (2019: Marketplaces will disrupt the B2B market)

White paper entitled “Marketplaces : le B2B fait sa révolution digitale” (Marketplaces: B2B performs its digital revolution)



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