What Distributors and Wholesalers Need to Know About B2B Marketplaces

There are few more obvious signs that an industry is ready to embrace digital transformation than when its leaders come together to discuss the subject.

That’s exactly what happened earlier this month when Nautical Commerce attended the 2022 NAW Innovators Summit in Chicago. The invite-only event, held in partnership with the National Association of Wholesaler-Distributors, Applico, and the Distribution Strategy Group, introduces wholesale and distribution executives to B2B tech trailblazers.

This year, Nautical Co-Founder and Advisor Ryan Lee was on hand to talk about how the B2B marketplace model is shaking up the wholesale/distribution industry — and to suggest what businesses can do to evolve and succeed.

Here are some important insights from the conference.

Why Are Successful Wholesalers and Distributors Turning to the B2B Marketplace Model?

B2B marketplace sales exploded in 2021, surging 131% to $56B, and 2022 is expected to see similar growth. Just a few years ago — when the B2B segment was even more rooted in offline transactions — those numbers would’ve been unbelievable. Ryan sees two main drivers behind the change.

1. The technology needed to power a B2B marketplace is becoming more accessible. Nautical, Ryan said, is a prime example of this. “Up until today, technology has been largely out of reach. It’s been reserved for the biggest of the big.”

2. The concept has been proven — and at a huge scale. Ryan credits the success of B2B marketplace operations by Alibaba, Grainger, and Faire with “introducing wholesale business models in a very digital way.”

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When Is a Distributor Ready to Launch a B2B Marketplace?

What matters is the mindset of the leadership team. Is the leadership within an organization behind efforts to digitize? Second, the forces from the industry. Is your industry pushing to digitize, and can you get ahead of it?

With the “biggest of the big” already on board, it’s only a matter of time before the B2B marketplace model reaches even the most niche segments. Already, for example, the B2B marketplace model is being used to sell scrap metal in industrial quantities.

“I think the right time to start is now, but the key is to scope it so that you’re not introducing a ton of risk in the organization,” Ryan explained. To limit exposure to risk, Ryan recommends what he calls a crawl, walk, run approach.

“We look at digitizing as a journey,” he said. “It shouldn’t just be a zero to 100; it’s really stepped phases that help you really embrace this process.”

First, when replatforming to digital, a distributor or wholesaler should establish themselves as the inaugural seller on their new B2B marketplace. Once they’ve uploaded their existing catalog, Ryan suggested a very measured expansion from there.

“I would recommend selecting two or three marque suppliers that are obviously in demand and then introduce them slowly. Your sellers and suppliers can actually upload a catalog to you and say I want to add this to your master catalog and you can go through and curate which ones you want to approve, and which ones you want to decline.”

How Some Wholesalers and Distributors Take the Wrong Approach When Digitizing

The crawl, walk, run approach is the opposite of what Ryan calls “boiling the ocean,” a common mistake in digitization efforts. In the case of a B2B marketplace, boiling the ocean is trying to launch with hundreds or even thousands of vendors — attempting too much, too soon. Doing so can leave businesses overwhelmed.

With a marketplace, distributors and wholesalers should focus on perfecting the buyer experience. Expanding with just a few vendors at first gives distributors and wholesalers the breathing room to focus on this aspect of their online businesses before ramping up operations. As you introduce more suppliers and/or sellers on the marketplace, it will require operational discipline to manage.

Businesses that take a boiling-the-ocean approach often make the mistake of custom-building their marketplace tech stack, which Ryan suggested has more than one downside:

• It’s prohibitively expensive: The biggest hidden expense in marketplace technology is the technology overhead — if you go with a custom-built solution.

• It’s too time-consuming: The operator of a distributor or wholesale marketplace can spend several years developing their multi-vendor ecommerce solution, but competitors are launching new marketplaces today. Time to market is everything, and a purpose-built marketplace solution like Nautical can get a marketplace online in 90 days.  

B2B Marketplace Demands More From Fintech and Logistics

For an everyday ecommerce store, transactions are relatively simple. They involve a buyer and the online-shop owner and the average B2C transaction value is $52. Any number of popular out-of-the-box software solutions can help process these B2C sales.

However, B2B ecommerce in general — and marketplaces specifically —  requires a different level of sophistication from software solutions, especially in the realms of fintech and logistics:

• Fintech: A wholesaler or distributor faces several fintech challenges when it comes to operating a B2B marketplace.

“A marketplace operates in a way where you may have commercial contracts with all of your suppliers, and there may be thousands of commercial contracts,” Ryan noted. “We’ve built this very flexible commercial engine where you can add as many fees or structures as you want so that you have a generic contract or you have a unique contract.”

The tech stack also needs to process payments in a variety of formats, including credit card, credit terms, and purchase orders while paying out sellers in their preferred method, whether it’s check, deposit, wire transfer, or another option.

• Logistics: The average transaction on a B2B marketplace can be $150,000 or higher and require shipping by truck or boatload. “That’s just not something a normal platform can do, and so you need a system that understands the sophistication of being able to support multiple loads of freight,” Ryan said.

What Sets Nautical Apart From the Competition?

When asked by a conference attendee how Nautical differentiates itself from the competition, Ryan emphasized that Nautical’s platform is a true end-to-end solution and doesn’t require an underlying commerce system to operate.

Ryan laid out five advantages to Nautical as a standalone B2B marketplace solution:

1. Lower cost of ownership: A B2B marketplace platform like Nautical significantly reduces operating costs because it doesn’t require hiring an entire tech team to maintain a system.

Other solutions bolt on to existing ecommerce platforms and require more intensive upkeep to make sure everything is working in harmony.

2. Built-in B2B capabilities: “You need a platform that was designed for B2B,” Ryan said. “Our first customers were B2B customers, so we have things like volume discounts built in.”

Facilitating these discounts, which could be applied to anything from package types to product variants, is often challenging for traditional ecommerce platforms.

3. Easy integrations: Some distributors or wholesalers don’t want to give up some of their existing systems, such as ERP software for management. With Nautical, they don’t have to, because the platform can communicate with other systems.

“The idea is that each component is what we call headless,” Ryan said.

4. Faster to market: B2B marketplace experts and venture capitalists agree that being quick to launch is critical for marketplaces. Nautical users can launch within 90 days, compared to the potentially years-long timeline for custom platforms. Bolt-on options, while faster, still lag behind Nautical.

“You have to spend months modifying them to get them to work,” Ryan said.

5. More time for customers: With quick launches and low maintenance, Nautical frees up time for B2B marketplace operators to focus on the buyer experience.

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The Main Takeaway: “The Future of Commerce Is Connected”

Some distributors or wholesalers might have concerns about launching a B2B marketplace. For example, they may view other suppliers as the competition and are therefore reluctant to appear within the same B2B marketplace.

However, Ryan noted that bringing competitors to your B2B marketplace presents new opportunities. For one, marketplace operators can charge sellers commissions on transactions.

“Getting suppliers that might have competitive products in your system — you’re still making revenue on that,” he said.

Bringing in more sellers can also transform your website into a niche search engine. Your marketplace becomes a tech platform that you can then evolve from, whether you provide smaller players in your industry a commerce solution or become the search engine go-to for the industry.

The most dangerous move is not making any B2B marketplace move at all. Distributors and wholesalers who don’t embrace digitization — and the B2B marketplace model — risk being left behind. The old concept that a company’s website is only for its own products or services is fading away.

“The future of commerce is connected — it doesn’t matter if it’s B2B or B2C, and you need the ability and flexibility to add additional sellers and complementary products into your offering,” Ryan explained.

The best way to achieve flexibility is to embrace a purpose-built B2B marketplace platform like Nautical, which has been designed to enable businesses to scale their ecommerce operations.

“There’s no such thing as built to last anymore; that’s silly,” he said closing the pitch. “The introduction of technology and change rate is just too high and so you need a platform that’s built to evolve your business.”

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