This is part two of a three part series. Part one outlined Amazon Business’s platform model and how the traditional strategies of member-distributors will not be competitive. In part two, below, I outline a buying group-based strategy to compete.
The B2B ecommerce stakes are high. Global B2B ecommerce sales are predicted to reach $3 trillion by 2024. Independent distributors, largely, have come late to the game, and their dual strategies of digital innovation and acquisitions are failing against the platform business model used by Amazon and others.
As described in part one of this article, the key to competing with Amazon is understanding their business model. Amazon’s platform allows Amazon to focus on selling a relatively small number of high volume items while leaving the rest to other suppliers on their platform. This model creates unprecedented depth to their catalogue of products while driving higher margins.
Individual distributors cannot compete with Amazon’s catalogue depth or create their own platform.
This is where purchasing co-operatives can step in.
Or, more specifically, sales co-operatives.
The idea of a sales co-operative is to take the notion of “one member, one vote” from the purchasing realm and apply it to selling online. Distributors in various industries could join together in a jointly funded initiative that can beat Amazon at the B2B game. Independents could leverage their strengths – services, customer relations, and product knowledge – in a way that Amazon could not.
Amazon is a generalist B2B marketplace. Given the size and fragmentation within B2B distribution industries, an opportunity exists for vertical-specific marketplaces. Groups – whether purchasing co-ops, buying groups, or sales co-ops – can take Amazon’s recipe for a marketplace and turn it to their members’ advantage.
It’s important to remember that a marketplace is not just a piece of technology. A marketplace is a business model. It creates value by bringing together distributors and consumers. Scale comes from growing an external network.
Adapting the purchasing co-operative model to build a niche marketplace would allow individual distributors to leverage their numbers and achieve an economy of scale necessary in the creation of a national marketplace. The sales co-operative could provide the technology and the staff to maintain the platform. It could gather the product information needed to populate the marketplace. It could drive the high standards necessary for such a marketplace to be competitive.
Most importantly, individual distributors could still compete against each other based on their own strengths, but on a level playing field.