The wide assortment (and razor-thin margins) realized by most distributors provides an ideal backdrop to launch a marketplace strategy.
Growth for a distributor or wholesaler often means adding new SKUs and brands bolting on value-added services, an analog approach that is both tedious and capital-intensive, requiring lengthy contract negotiation, costly inventory acquisition and the accrual of non-value-added time and cost to allocate inventory throughout an often-global network.
Alternatively, opting-in to a digital marketplace lets distributors add new product lines and brands in ways that save time while reducing risk and capital intensity. The need to invest capital in inventory requiring additional warehouse space suddenly vanishes along with the expense and operational demands of stocking a distribution network. Also eliminated are inventory carrying costs, which typically run 20%+ per annum. What’s more, the contribution from these transactions can be significantly more margin-rich. The opportunity to pilot new high-margin product lines on an accelerated timeline with near zero investment should perk up the ears of any growth-oriented B2B distribution leader.
The opportunity to pilot new high-margin product lines on an accelerated timeline, with minimal investment, should interest growth-oriented B2B distribution leaders.
Operators of such a marketplace can apply either an “endless aisle” approach to extend assortment with longer-tail products or, for distributors especially focused on availability, a “bottomless bin” approach to backstop inventory on higher-volume SKUs with that from third parties to prevent stockouts or backorders. These two options are not mutually exclusive. Most importantly, increasing the assortment of relevant SKUs moves distributors to a state of higher relevance with buyers, graduating from a parts house to a solutions provider without pressuring working capital in the process.
And while the focus has primarily been on physical goods, another strong call in the marketplace playbook is to enrich transactions with value-added services. Consider listing complementary services like installation, maintenance, repair and overhaul options alongside products perhaps offering warranty and service plans, transaction services or financing options as upsell opportunities. At Razorfish we refer to this as “Solutions over SKUs.”
Third-party sellers fuel assortment: 92% of Amazon SKUs are listed by marketplace merchants, of which 50% leverage Fulfillment by Amazon (FBA)