Dutch Flower Auction

VBA is an intermediary between flower and plant growers and wholesalers. VBA provides a platform for growers and wholesalers to form a network. In essence, VBA acts as a platform provider to enable the exchange of flowers and plants between the two sides of the network. Biggest threat for VBA comes from the direct sales between growers and buyers, bypassing VBA as a platform provider. Supermarkets directly negotiate contracts with large suppliers to lock in prices and quantities in advance. There are three options that are considered: allowing foreign members, adjusting transaction fees, and developing a new label. This memo will analyze 1) VBA’s value creation and capture, 2) how VBA help create value for growers, 3) how VBA helps create value for wholesalers, and 4) cross-side and same-side network effects. Finally, I will make a set of recommendations based on the analysis.

VBA’s Value Creation and Capture

VBA provides a two-sided network to serve the growers and wholesalers. It generates profit from membership fee and commission fee. VBA’s value largely depends on the number of users make transactions on the network. Its value increases as the platform matches demand from both growers and wholesalers.

VBA enjoys first mover advantage in flower and plant auction business. VBA’s comparative advantages are its geographical and climate advantages. Netherlands has mild climate and close to sea, thus enjoys amply sun light to grow flowers. VBA has a high reputation for variety and good-quality flowers. VBA’s competitive advantages are its long history of trading flowers in Europe, world class infrastructure, highly efficient distribution system, knowledge exchange among Dutch flower growers and skilled human resources

How VBA Helps Create Value for Growers

VBA provides a place for growers to sell their flowers and plants to buyers of all kinds from all over the world. VBA helps growers create value in decreasing their opportunity costs by reducing their transaction costs since they don’t have to look for buyers and wholesalers on their own. Currently most growers are VBA members from Netherlands. They enjoy a reduced commission rate compared with non-members. VBA also has world-class infrastructure and distribution system, thus growers don’t have to search for other distributors to ship their products out to buyers. This reduces the shipping and transportation costs for growers. Another way that VBA helps growers create value is to increase the wholesalers’ willingness-to-pay by leveraging VBA as a reputable national brand. Netherland is considered as the center of cut flowers exchange and auction in Europe and the world to an extent in recent history. Wholesalers trust the knowledge and quality control of VBA.

Another reason that growers like to sell their products through VBA is the access to wholesalers and buyers of all kinds and from all over. They have an enormous network of buyers, thus reduce the risks of not selling their products.

How VBA Helps Create Value for Wholesalers

VBA helps wholesalers create value in similar ways as growers. Transaction costs for wholesalers are reduced because they don’t have to search for suppliers. Because of VBA’s knowledge and experience in this business, wholesalers don’t have to spend resources on quality assurance. Overall opportunity cost for wholesalers is reduced.

Similar to growers, wholesalers enjoy a wide network of growers provided by VBA platform. Wholesalers also have access to many species of flowers and plants. The risks associated with a single-sourced supplier are drastically reduced since they can buy from many members of VBA.

Cross-side and Same-side Network Effects

Wholesalers and growers are on the two sides of the network created by VBA. The cross-side network effects between wholesalers and growers are positive. This means that the more users one side has, the greater benefit the other side enjoys. The more wholesalers buy their product through VBA, the more benefit growers will capture. Growers will potentially be able to gain better profits. On the other hand, the more growers become members and sell through VBA, the more variety and larger quantity wholesalers will have to choose from. Wholesalers will then be able to negotiate better prices.

The same-side network effects are generally negative in this network. The more members and growers VBA has, there is more competition between growers to sell their products. Especially if VBA allows foreign membership from low cost countries, growers from Netherland will face a huge threat in terms of costs. Similarly, when VBA has more and more wholesalers buy through, there