The number of mid-size manufacturers and distributors implementing initial ecommerce projects is rapidly increasing. Manufacturers are utilizing ecommerce to reach new markets, bring products to market more quickly, and protect and reinforce their brands. Distributors, whose margins and market share are being threatened by manufacturers and B-to-B newcomers like AmazonSupply.com, are implementing ecommerce to remain competitive.
For many B-to-C retailers, creating online stores was largely to increase revenue be tapping into the huge market of shoppers. Reducing costs and increasing customer satisfaction is usually a secondary goal.
For B-to-B companies, incremental revenue generation should be a goal, but because of channel and customer complexity, that process may take a year or more. The opportunity to improve operating efficiencies and provide superior customer service may be the first place to demonstrate measurable success in the first year of operations.
Ecommerce for Manufacturers
Manufacturers typically employ a direct sales force to sell directly to end customers and through indirect sales channels, such as distributors, wholesalers, dealers, and manufacturing reps. Channel management, pricing, fulfillment, availability, product training, and product support may be very complex.
The first phase of an ecommerce project is usually met with resistance by all sales channels, including internal direct sales personnel. They want to control every step of a sales process from providing product information to pricing. Ecommerce alters that by making product information readily available if the manufacturer chooses to provide it. Custom pricing, product availability, and shipping costs are also available online. Quote requests can be generated online. Procurement processes can be automated and be done online. Order status, order history, and bill payment can be done online.
The first phase of an ecommerce project is usually met with resistance by all sales channels, including internal direct sales personnel.
All these online activities reduce the need for sales or customer service representatives to be involved in taking basic transactional orders. Their time can be used in more strategic activities such as selling complex products, providing sales training to channel partners, and selling to new customers.
Though there is generally a concern that customers will lose touch with suppliers, the opposite actually happens. Since most product research is now done online, customers find that their questions can be answered more quickly. Manufacturers can leverage nurturing campaigns to market directly to end customers throughout the buying cycle. Leads can be turned over to channel partners at the appropriate time — usually much later in the buying cycle — freeing reps to pursue more strategic opportunities.
Many manufacturers find that their cost per order drops significantly after implementing ecommerce. At the time an order is placed, customers generally know their lead times and are able to track the order status online at anytime. They also have a central portal to manage all outstanding orders and invoices. Many manufacturers find that their order-to-cash cycle shortens. Returns can be requested and processed online, reducing the frustrating process of calling for a return authorization, waiting for an approval, and waiting for return instructions.
Most manufacturers find that their Net Promoter Scores (a measure of customer loyalty) increase after a year or more of launching ecommerce. Customers simply have an easier and better experience throughout the buying cycle.
A final benefit that is both an operating efficiency and a revenue generator is the ability to protect and expand your brand. When you launch an online store, you will develop rich content to support your products. By making this content available to your channel partners, you will likely have more accurate and consistent product information being disseminated to target customers. Your own online store, if open to the public for browsing at the very least, will become an authoritative place for end customers to research.
This could accelerate revenue for new products. With proper planning, you could launch new products concurrently across all channels.
Ecommerce for Distributors
Distributors gain most of the same operating efficiencies as manufacturers. Sales and customer support reps become more strategic as they are removed from transactional orders. Order processing costs are typically reduced as more activities are automated.
By providing accurate, real time availability and pricing, you can reduce the sales cycle and set more accurate customer expectations.
Procurement “PunchOut” solutions, a more modern method of electronic data interchange, offer customers the opportunity to use their own procurement system and processes to place orders in a distributor’s store with the customer’s own pricing and product catalog. This can add tremendous efficiency for larger customers, leading to both higher revenues and lower costs per order.
Two challenges that many distributors face when implementing ecommerce are acquiring product content from manufacturers and customer pricing. Manufacturers have not historically been good at sharing content. They will get better, and distributors need to pressure them to do so. Once content is available, importing that content and making it available in a distributor’s own online store will become much easier.
Pricing may be trickier to implement if a distributor offers highly customized pricing by customer, which many do. In fact, many distributors leave pricing decisions to individual reps, especially if the reps are paid on the gross margin of a deal. This is still possible with the appropriate ecommerce platform.
But, distributors need to consider normalizing their prices over time. Pricing transparency is a new reality of online commerce. Distributors should start being more transparent to their customers and one way to do that is to normalize pricing and reduce dependence on one-off pricing. This will deliver a higher potential net profit to your organization, and increase operating efficiencies by simplifying the quote-to-payment process.