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We are often met with a hurried response by clients who want to engage in e-commerce and a “get it done and over with” attitude prevails. Usually, this is precipitated by a loss of business to competitor(s) who are further developed in their digital capabilities.
Our answer is that e-commerce, once engaged, is not a destination, but more of a journey. The digitization of business processes takes time and will evolve. Old processes will be replaced and there will be a new way of doing things, in many aspects of the business. The pace of change, once a certain level of proficiency is reached, will slow down as will investment. However, the majority of distributors are slow out of the blocks in their digital journey; waiting is detrimental to financial growth.
There are four main parts of successful digital strategy and transformation. They are different in capabilities, investment amount, investment horizon, and scope. Many distributors, once they realize the need for these in their digital plans, often take them in sequence. To us, this is a big mistake, as the parts of the digitalization process can be time-staggered to yield a faster-to-market response and better results.
Steps in the e-commerce journey
The four steps in the e-commerce journey are:
A full discussion of these steps, within this article, is not possible as individually they are lengthy topics. Instead we’ll define them, give brief descriptions, and show how to implement them in a shortened time frame.
The e-commerce platform is the group of component software programs that it takes to offer a competitive customer experience. Today, the common elements are the transaction platform, PIM (product information management), punch-out, faceted search and online quotation. The leading distributors have these differing programs as they are specialized in a particular part of the online experience. Our surveys indicate that of the distributors online, somewhere between 12 percent to 15 percent of companies have these elements, and they sell 2.5 times more than those who do not.
The platform elements seem to have a sequence with PIM or transaction platform being the first element of the software build-out followed by faceted search, punch-out and quotation. Some distributors, who secure their content through outside firms, question the need of a PIM, however, our experience finds that a full-blown PIM is instrumental to quality of content and the ability to syndicate it. We don’t believe that content management, done by outside firms, is the best quality or most current. While there is a growing list of content providers who have good, organized content, the only way to ensure quality and timeliness of a manufacturer’s latest content, and syndicate it to proprietary campaigns, is to manage it with a vetted PIM provider.
The account migration is the movement of accounts online. Typically, this can begin after the transaction platform and PIM are operational and content is built-out. In short, one doesn’t have to have the full e-commerce platform to begin moving accounts online, but there should be a realization that without a robust e-commerce platform, customers will likely not stay online.
We advise clients to carefully select accounts that have shown a desire to move online, followed by activity profit negative accounts. Generally speaking, approximately 30 percent to 40 percent of distributor accounts cost more to serve than they yield in margin dollars. Hence, it makes financial sense to move them online and improve their profitability by decreasing their cost to serve. We often work with distributors to use the marketing mix of pricing and sales promotion to get these accounts online or review the activity costs and associated drivers to see how changing the cost to serve structure can help in onboarding them.
Account migration is often overlooked or is confused with soliciting accounts with online campaigns or automated marketing efforts. It is important to remember that account migration is a fundamental part of e-commerce and is not necessarily about organic growth. Account migration is moving existing accounts online to familiarize them with your online capabilities and getting them to increase their online activity. Account migration, however, doesn’t happen without a good plan and we often find where distributors assume their accounts will move online without changing elements of the marketing mix or direction of the sales force.
The e-commerce functions and culture change
There are a growing number of distribution firms that build out the best in e-commerce software and have little to show for it. In essence, their sales online don’t grow to any appreciable extent. This is called a “digital washout” and it typically stems from top management’s inexperience and misunderstanding regarding e-commerce.
E-commerce is an enabling technology to improve the efficiency of interaction with the customer and potential customer. The digitalization of the industry, which includes e-commerce, is a fundamental change in the way the customer is solicited. The customer self-serves and is able to search, order and engage in an online relationship that is more convenient and profitable for themselves and their supplier. Too many distribution executives tend to believe that e-commerce is simply an extension of their transaction capabilities instead of recognizing the greater, more fundamental, changes wrought by digitalization. These executives are, usually, the ones who find themselves in a digital washout.
The culture change in e-commerce means that the firm must invest in new capabilities including content management, digital analytics, and product management. Moving quality product information through the supply chain and updating it, quickly, are basic requirements and usually involve new positions. Data analytics regarding purchase patterns across segments, sequencing effects on order size, product-application strings, and industry language or jargon are also key to online growth. To do well in e-commerce, the wholesale firm should consider a specialist in data analytics.
Finally, the structure and functions of the inside and outside sales force and brick and mortar locations often change with e-commerce growth. The sales generalist, who is compensated on commodity sales, is excess cost that the self-serve customer is reticent to pay for. Hence, distributor executives should consider changes in sales force duties, territory reconfigurations and compensation change as well as number. Simply placing e-commerce over the existing sales force makes the channel less efficient and defeats the role of technology to reduce channel costs while improving the experience.
Pursuing organic growth with e-commerce
There is growing evidence that distributors have met with reasonable success in migrating existing customers and sales online. There are only a small sliver of firms who have demonstrated online organic growth through e-commerce. Those that have sustainable growth have, usually, gone through the previous steps of software platform development, account migration, and culture change. The primary means through which online B2B organic growth are achieved are:
As online commerce grows, new techniques for organic growth will emerge including use of the IOT (Internet of Things) and monitoring/measurement of systems for preventive maintenance and break-downs. As of yet, sending this data to distributors who can use it is fledgling but it can have a big influence on which distributors are selected for MRO products.
The visual timeline
To help the distributor understand the different parts of the e-commerce journey and how to apply the timeline, we introduce Exhibit 1. In the exhibit, different parts of the digital journey are listed starting with the software platform and ending with organic growth efforts. The idea is that the next stage of the journey should engage where work on two stages is concurrent after a reasonable lag time from the previous stage. For instance, account migration can start once the transaction platform and product content is secured. One doesn’t necessarily have to wait for faceted search and quotation software to begin the migration of accounts online. Likewise, once account migration is underway, management can begin initial work to redesign the sales effort which is part of e-commerce functions and culture change stage.
Staggering stages of the e-commerce journey, as opposed to completing them consecutively, makes the total time to completion considerably less and it keeps management actively involved in the change process of the organization. In change management of a company’s culture, the constant starting and stopping of efforts is a problem. When efforts stop, management often goes back to the old way of doing things and the change efforts are marginalized.
Finally, each of the stages are labeled as either software or managerial. The designation is important; much of e-commerce efforts today are on the software portion and building out the e-commerce platform. As the platform is built out, the focus turns to management to further the digital journey with the eventual goal of growing sales online and making the firm more efficient, effective, and competitive.