RST Software
Editorial Team
Ross Krawczyk
Reviewed by a tech expert

Marketplacification of distribution businesses: the 5 phases of transformation

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As the digital era and traditional methods both collide and intertwine in the realm of distribution, the concept of marketplacification emerges as a new guiding principle. Formulated to clarify the journey from analog to digital, it's a transformative path for B2B organizations trying to find their way in the modern, e-commerce-driven world. Come along as we break down the phases of marketplacification, providing a plan intended to steer your operations through the winds of change and into the thriving waters of having your own marketplace.

What is “marketplacification”?

At the forefront of the digital revolution in the distribution sector is a concept that is transforming how we perceive and engage in commerce: marketplacification.

Coined by Ian Heller, this term acts as a guiding principle for distributors who want to bridge the gap between traditional models and the ever-changing landscape of digital distribution. Marketplacification is not a black-and-white state, but rather a strategic journey, a conscious decision to expand the product range through e-commerce channels. It's about breaking away from the idea that a distribution business is confined within physical walls and embracing the unlimited possibilities of the online marketplace.

Why should traditional distribution businesses listen?

The rapid development in the industry requires traditional distribution businesses to adopt marketplacification as a strategic imperative. While consumer behaviors shift towards digital preferences, those who pay attention have the opportunity to discover new avenues for growth, engage with customers, and operate more efficiently. Marketplacification is not just a passing trend but a viable way forward for businesses that want to survive, expand, and future-proof their operations.

Traditional distribution sales expected to drop by over 10%

Presented below snapshot of the future reveals a looming shift in traditional distribution sales. Projections indicate a decline exceeding 10%, painting a vivid picture of the urgency for adaptation. The digital age isn't somewhere on the horizon, it already here. The choice is simple – evolve or risk being eclipsed by the transformative wave redefining the distribution landscape. The choice seems rather obvious.

Digital players are growing technical expertise across sectors

Traditional distributors are currently facing a significant challenge from tech-savvy giants entering the B2B market. Amazon Business, for example, has experienced impressive annual growth of 115% in its first three years and is projected to generate over $31 billion in revenue by 2023. Other companies like eBay, Alibaba, and Mercato are also expanding their presence geographically and venturing into complex technical domains.

These digital powerhouses are not only reshaping the B2C landscape but are also utilizing advanced algorithms to overcome the technical knowledge barrier of traditional distributors. By identifying specific customer needs based on their machinery usage, these companies are ushering in an era where personalized solutions and data-driven insights take center stage.

For distributors, the threat is twofold. Digital players are not only building robust distribution networks and improving B2B fulfillment capabilities, but they are also expanding beyond their core markets. Europe, in particular, is a prime target due to the lag in digital innovation among many incumbent distributors. Despite this, European B2B customers are eagerly anticipating the benefits that digital players can bring, highlighting a significant gap in e-commerce technology investments between Europe and the United States.

The message is clear – traditional distributors must quickly adapt to these changing dynamics. By learning from early adopters, enhancing technological expertise, and fostering unique ecosystems to address customer pain points, distributors can increase their chances of survival. As digital players continue to advance across various sectors, embracing innovation, developing distinctive supply chains, and staying ahead of the digital curve is crucial. While the challenge may be daunting, valuable lessons can be learned from those who have successfully navigated this storm, providing a roadmap for a competitive, technology-driven future.

The 5 phases of marketplacification

Have you started feeling the anticipation of what is to come? Are you prepared to break free from convention and embrace innovation? This chapter breaks down the various stages involved in transforming a regular distribution business into a marketplace, providing you with guidance throughout the process.

Phase 1: Build a single-vendor ecommerce

The first step in marketplacification is to establish a digital foundation with a single-vendor e-commerce platform. This allows you to enter the online domain and create a dedicated space for your products. It's important not to view this as merely setting up a website. The true objective is to build a digital storefront that improves visibility and provides a curated experience for your customers. This phase serves as the groundwork for the wider marketplacification journey, where traditional and digital elements combine to create a dynamic online presence.

Phase 2: Integrate drop-shipping

As you progress on your journey to marketplacification, phase two introduces the concept of drop-shipping. This strategic integration goes beyond traditional inventory constraints, enabling distributors to broaden their product assortment without the need to hold excessive stock. By partnering with suppliers online, new opportunities for offering diversified products arise. It's a mutually beneficial relationship where efficiency meets variety, and the distributor becomes a dynamic player in the digital market, leveraging external partnerships to improve customer choice and experience.

Phase 3: Partner with complimentary distributors

During this phase of marketplacification, the journey takes a collaborative turn. Distributors establish strategic alliances with complementary distributors, expanding their digital footprint and enhancing the range of products they offer on their e-commerce platform. This partnership goes beyond traditional boundaries, as each distributor showcases the products of the other on their respective platforms. The outcome is a win-win scenario, where the combined strength of diverse distributors enhances the customer experience. This phase not only widens the product spectrum, but also fosters a community of distributors working together to meet the evolving demands of the digital market.

Phase 4: Switch to hybrid model of operations

In the fourth phase of marketplacification, distributors transition to a hybrid operational model. This means blending traditional and digital elements to meet the changing demands of the market. Amazon Business is, again, an excellent example of this, as it operates using a hybrid model. The company combines the convenience of online transactions with dedicated sales teams that resemble those of traditional distributors. This combination enables a flexible approach that caters to the diverse needs of both big corporations and small businesses. As distributors reach this phase, they embrace the flexibility of the hybrid model to improve customer engagement and streamline operations.

Phase 5: Become a purely digital marketplace

During the final stage of marketplacification process, distributors leverage the true power of a B2B marketplace. By moving away from a single-vendor e-commerce approach, they create a curated platform where third-party sellers come together to offer a wide range of products. This transition not only satisfies the market's desire for variety, but also positions the distributor at the center, more so as a middle-man, redefining the possibilities for a traditional organization in the digital economy.

However, it is important to recognize that not all distributors will, or should, reach this stage. The market values diversity, and while remaining in Phase 1 hinders progress, jumping to Phase 5 may not be suitable for every business's strategy.

What is the distributors’ biggest challenge?

As distributors embark on a journey towards marketization, they face significant challenges. One challenge, in particular, stands out and greatly may impede their success.

Lack of technology expertise

As the business environment becomes more digital, distributors are finding themselves in a world where technology is king. The main challenge they face is a lack of expertise in this area. Traditionally, distributors have been slow to adopt new technologies, and this delay is now having a negative impact on their growth and competitiveness. To overcome this hurdle, distributors need to find the right talent and form strategic partnerships. Developing a long-term technology strategy and executing it successfully requires a combination of internal expertise and external collaboration. Seeking out experts who can guide them through the complex world of marketplace technologies becomes a valid consideration.

Examples of distributors that built their own marketplaces

The wholesale sector has witnessed the growing popularity of the Phase 5 marketplace model, which has had a profound impact on the dynamics of the niche. United Natural Foods Inc (UNFI), a prominent grocery wholesaler, has emerged as a notable trailblazer and taken a bold step by introducing its own third-party marketplace, specifically designed to attract hyperlocal wholesale vendors. Mirakl, a software company, has played a crucial role in powering UNFI's marketplace and has experienced a substantial increase in demand from B2B companies.

This trend extends further to include various players such as Ankorstore in France, which raised €82 million, and Abound in the U.S., securing $23 million. Faire, a wholesale marketplace focused on independent businesses, has disrupted the traditional offline approach by offering an always-on supply and demand channel.

These examples highlight a paradigm shift in the wholesale industry, with digital marketplaces becoming the central hub for connection and commerce. They challenge the status quo and propel traditional distributors into a new era of opportunities.

RST Software as your trusted technology partner

Marketplacification opens a horizon of new possibilities for distributors. Whether it's creating a single-vendor e-commerce platform or transitioning to a fully digital marketplace, this path demands more than just technology; it requires a strategic, customized approach.

In a world where being technological savvy is crucial for success, the importance of a dependable partner is undeniable. Here at RST Software, we’re well-versed in building both B2B and B2C marketplaces like, CityPantry, Clara, and more. If you need our assistance, simply contact us, and let’s discuss the details of your transition towards becoming a future-proof, digitized distributor.

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