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*Editor’s note: This is a fictional article about a fictional company’s fictional board meeting. We share this bit of creative writing to generate some interest in the distribution industry about a platform alternative to Amazon Business. This article focuses on the strategic thinking behind such a marketplace.
MDM’s recent coverage of Material LogicTM, a B2B marketplace co-owned by the largest B2B distributors across regions and verticals, has received a lot of interest from the industry at large. Now, MDM has obtained minutes of the board meeting in which one of the companies that spearheaded the development of Material LogicTM made the strategic decision to pursue a B2B marketplace. The following excerpt reveals the strategic thinking that led to this groundbreaking development. Names of board members have been redacted to protect privacy.
_________ Board of Directors Meeting
January 16th, 2019
____________: I don’t see the business case for a marketplace. Grainger doesn’t have a marketplace, and their online store is doing fine. Their stock rallied after the release of their new online store!
Champion CEO: Grainger’s stock rallied in a bull market where the majority of stocks were gaining share price. If you look at Grainger’s financials, their growth is largely fueled by international markets. In Grainger’s mid-size U.S. market, they’re experiencing margin compression.
________: In 2000, Grainger tried a marketplace. It didn’t work. What are we going to do different? Is it even feasible for a company like ours?
Champion CEO: Grainger tried a top-down approach to adding suppliers. They went for the largest suppliers, at a time when the industry wasn’t as threatened as it is today by Amazon Business. Suppliers saw no reason to work alongside long-held competitors and saw little upside to joining the marketplace. Had they approached smaller suppliers first, they may have had more luck, but they were only around for a year. It’s hard to say. But today, the competitive environment is different. Suppliers and distributors feel the same pressure from Amazon that is threatening the industry as a whole.
_______________: Amazon might threaten smaller players, but our clients are loyal to us because they want services that only we can provide. That’s our competitive advantage.
Champion CEO: Yes, the largest clients do want service, and Amazon is offering services too. We may still hold an edge in kitting, vending, and light manufacturing, but it’s only a matter of time before Amazon ramps up its add-on services.
________: So then, are we too late?
Champion CEO: No. Amazon may have a four-year lead in B2B, but as a traditional B2B distributor we still maintain a competitive edge. We have longstanding superior distribution channels and decades-long relationships built on trust on both the demand and supply side of our business. Still, we can’t underestimate how price sensitive our clients are. As Amazon’s services catch up to ours over the next few years, our clients will increasingly only differentiate between us and them on price. We need to give customers a reason to stay with us and not jump ship to Amazon. Besides, in retail Amazon had a 20+ year lead in e-commerce, and Walmart managed to build a marketplace, make some early mistakes, adjust, and then emerge as a real challenger. It’s never too late, but earlier is better.
_____________: We’re never going to be a total platform company! That’s not us, it’s not in our DNA.
Champion CEO: Agreed, we’ll be both – a linear and platform business hybrid. The platform business (that is, the marketplace) gives us scale and access to a large network of customers. Those customers will buy products on the platform, from us and from other vendors, though as platform owners we would benefit from transaction fees collected on third-party sales. But marketplace sales are only one touch point. We would also offer customers, and other vendors too, add-on services that we wholly own and operate. Which, by the way, is how Amazon operates its marketplaces. It is also a hybrid company. It’s important to remember that the marketplace doesn’t replace our core business, it supplements it with a market larger than we could reach on our own.
____________: Let’s do it!