Why location matters in B2B marketplaces

There have been numerous studies over the past few years to show that our decision making on B2C platforms are often riddled with biases.  For instance, we are known to take race into account when using AirBnB.

Surely B2B platforms are going to be purely meritocratic though?  A recent study from Cass Business School set out to explore the topic in depth.

Why we buy

The researchers examined a large number of transactions on a popular B2B marketplace over a 21 month period to determine what factors influence our buying decisions.

The analysis finds that rather than providing a vast, global market of opportunities, such platforms are often even more segmented than traditional marketplaces.

“Buyers tend to equate a sellers’ location with the quality of a seller’s institutional environment. This influences their bias and therefore their decision to engage with a seller,” the researchers say.

For instance, if you’re a technology business, you’re viewed more favorably if you’re based in Silicon Valley.  Alternatively, if you’re a finance business with a base in London, this is also going to work in your favor.

What’s more, they also tend to be winner takes all environments, with most of the business going to a relatively small number of sellers.

The DNA of online marketplaces

The study came to four core conclusions that underpin how we behave on digital marketplaces.

  1. Location is incredibly important, with people unsurprisingly bringing the same biases they have in the offline world online with them.
  2. B2B marketplaces are not necessarily fair places, with a tendency towards bias and social hierarchies at play.  Various signals, such as brand, reputation and location, support this hierarchy.
  3. What’s more, all of these signals play a part, even if they’re not immediately transparent.
  4. Monopolies tend to form as these signals stack the cards very heavily in favor of a few suppliers.

“Consumers and companies are being trapped into a ‘digital bubble’ where all their biases are confirmed. This is bad news for innovation, as well as economic and social development.” the authors say.  “There are actions that companies can take. For example, online businesses would benefit from equipping themselves with a prestigious address that speaks to their buyers’ biases. However, this will not be an option for everyone.”

With marketplaces playing an ever growing role in our lives, these kind of biases are not just of concern to participants, but also to policy makers who are striving for a fair and equal society.

“This research presents many opportunities for entrepreneurs and policy makers to address these trends. For instance, by establishing ting new benchmarks that can substitute these social comparison dynamics or creating new mechanisms to increase the visibility of companies at the fringes,” the authors conclude.  “What is certain, is that going forward, we need to think differently about digital marketplaces if we want to ensure a fairer, more unbiased system.”

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