B2B e-commerce has emerged as red hot opportunity, catching Indian entrepreneurs’ imagination. A huge market, few competitors, an archaic offline system ready to be disrupted by early players, eagerness of VCs to fund are some of the objects of attraction. No wonder, everyone and his uncle want to be on B2B bandwagon – hoping to catch VCs with sleek presentation. However, b2b e-commerce is little more complex than b2c and a thorough understanding of issues involved is essential for anyone planning to start b2b venture.
This guide is meant to help entrepreneurs understand underlying issues, what works and what doesn’t from a practical point of view and create a road map for successful launch of b2b e-commerce ventures.
Ace Infobanc Pvt Ltd is a boot-strapped, profit making Internet Company. The guide is based on my experience of providing online b2b services for last 15 years and establishing India’s 1st b2b wholesale e-commerce marketplace Bazara2z.com.
First thing to understand about b2b is that it’s different from b2c – dynamics of b2b market is not same as consumer market. Buyer in b2b transaction being another business, does not behave same way as b2c consumer. To master b2b market, one has to understand b2b customers’ psyche and develop an e-commerce engine that enjoys ready acceptability through business friendly features.
As b2b e-commerce entrepreneur, your first challenge is to build a software platform that not only has features of offline b2b trade but is also far more efficient and economic. A word of caution – do not start with b2c packages like Magento / Openkart etc. – you may start off easily but will not be able to go far.
A. Drawing Specifications for B2B Transaction Engine
Now, what are business friendly features of proposed b2b e-commerce platform ? Let us understand it by analyzing b2b market characteristics and map consequent impact on business design. This will help us draw a set of specifications, to be used for designing b2b e-commerce transaction engine.
B2B Transaction Characteristics
Business Decision (Specs for b2b transaction engine)
Business buyers always source in multiple numbers/volumes
Create MOQ or lots as unit of transaction
Price is never constant in b2b transaction
Automatic discounting based on purchase volume
Bargaining is integral part of b2b transaction
Integrated online negotiation facility for price discovery
Buyer in B2B transaction is very knowledgeable – buying/selling of concerned product being his/her business
Provide detail product catalog and technical specification for fast decision making
Repeat purchase is common phenomenon
Re-order facility for painless sourcing
Buyers enjoy credit for larger volume purchase
Integrate credit facility on your platform through 3rd party Fintech companies
Most transactions take place from work-place
Design must be mobile friendly, responsive.
Offline payment is more prevalent as online payment is expensive as also suffer from several restrictions
Provide wide payment options – online, NEFT/RTGS, Bank to Bank, L/C
Unlike B2C, calculating shipping cost and option is a nightmare in b2b transaction given wide variation in weight, dimensional volume, freight options
Offer integrated logistics support in b2b transaction platform
Courier companies are incapable/inefficient for larger volume
Tie-up with truck operators for low-cost freight option
B. How to Make Your Marketplace Successful
What makes your b2b marketplace successful ? Obviously high traction, when marketplace is able to attract and retain large number of businesses. One can use various marketing strategies to attract customers but retaining them is possible only through unique values not available in off-line trade. So, building lasting values in marketplace is the only solution to ensure customers use the platform more and more, and importantly do not bypass the platform for repeat trade.
Price is the Key
As b2b buyers do not buy for personal or family consumption but for organizational use or resale – buyer’s anticipated margin from the transaction becomes most important factor in purchase decision. To make marketplace successful, entrepreneur has to ensure most competitive price, lower than local market price. This implies that marketplace should induct manufacturers/importers as sellers as any other entity down the supply chain (e.g. wholesaler, distributor, retailer) will never be able to match manufacturer’s price. However, if manufacturer is not ready to sell through e-com marketplace, entrepreneur has to find next best option.
Safety Next
Anonymous nature of Internet is a scary factor for any business. Entrepreneur has to offer escrow service, buyer protection program, easy return etc. to instill enough confidence in buyer’s mind.
More Values
Offering more and more values is a continuous challenge for entrepreneurs. Logistics support, wide range of payment collection facilities, hassle free online credit etc. are some more values entrepreneurs should strive to offer
C. Selling Strategy – Which Side Are You On ? – Buyer’s or Seller’s ?
This is a very important decision that every b2b e-commerce entrepreneur must decide at the outset. Are you trying to solve sourcing problem of buyers or selling problem of sellers ?
Most b2b e-commerce marketplaces like Tolexo, Industrybuying etc. are addressing the problem of sourcing. Their value proposition is to help enterprise buyers source right products at right price through their platforms. This is a good to have solution for enterprise buyers.
Bazara2z, is a b2b wholesale e-commerce marketplace, addressing the problem of selling faced by small and medium enterprises. Indian multilayered distribution channel is a huge barrier for small and medium manufacturers to sell their products across India – forcing them to remain confined within their immediate geographic regions. So, a manufacturer from Faridabad sells his/her products in Delhi, Noida or Gurgaon – but unable to reach Rajasthan, South India or Gujarat because of lack of access to distribution channels. BazarA2Z is attempting to solve this problem through e-distribution where manufacturers/importers can directly access distributors/wholesalers/retailers across India through online route.
D. Marketing Strategy
B2b E-Commerce is a huge market, many times larger than b2c. Just domestic b2b market is estimated to be worth USD 300 billion, growing to USD 700 billion by 2020. Add to this export-import market and you get a mind boggling figure. Entrepreneurs need to understand different segments of this heterogeneous market and devise marketing strategy accordingly.
Based on my experience, I have mapped 4 major segments of b2b market in terms of margin and ease of entry.
For new b2b e-commerce players, retailers and large institutional buyers (end users such as factories, offices, hotels etc.) are obviously first choice, graduating to export market and distributors.
E. Few Myths and Facts On B2B E-Commerce
1. Margins are Low in B2B E-Commerce
This is a myth ! B2B e-commerce could yield good margin for entrepreneurs depending on industry verticals and its position in supply chain. The distribution cost in India (difference between manufacturer’s selling price and consumer’s buying price) varies between 40% to 200% ! B2B E-Commerce aims to reduce/eliminate middleman (and lower distribution cost) making it win-win for both manufacturer/importer and business buyers. Obviously, there is good margin to be made !
2. Price is Key Driver
The spirit of the statement is right but not exact wordings. Pricing is a key driver in B2B space, but certainly not the only one. To give an example, manufacturer A offers a product at price Rs. 100. Manufacturer B offers same product at Rs. 105 but with 30 days credit. Now, whom do you think is more competitive ? There are other issues – however, ultimately it all boils down to how much margin the buyer can expect to make from the transaction.
3. Return is Less of a Problem in B2B
True – specially when manufacturer/importer is the supplier, not middleman. B2B buyers are not so concerned with colour, size, packing etc. In any case, typical lot contains multiple sizes/ colours/ designs. So far as defective material is concerned – we have noticed manufacturers are very concerned about their brand image and do not supply sub-standard materials usually. However, the concern for quality is not so strong in case of wholesaler/distributor.
Conclusion
The guide, based on my experience, is meant to ease initial hiccups of early entrepreneurs. Its in no way all comprehensive, there may be issues that I missed. Purpose of sharing the learning is to ensure entrepreneurs do not make same mistake that early adopters did. B2B E-Commerce is an emerging opportunity, how it takes shape in Indian market is an interesting subject to observe. However, its certain to develop fast and set right many lacunae in existing distribution system in India. B2B E-Commerce in USA is four times the size of B2C. Similar development may take place in India once B2B ecosystem is in place and helpful measures like GST operational. For early entrepreneurs, there’s a lot to gain if start-ups survive and manage to grow as B2B eco-system in India is getting better and better.
Amit Chatterjee is Founder of BazarA2Z : India’s 1st B2B Wholesale E-Commerce Marketplace. He is looking for co-founders for BazarA2Z from Delhi. If interested, please contact at amit@infobanc.com Twitter @infobanc_com Linkedin: https://in.linkedin.com/in/amitdelhi
