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Our research and field consulting on e-commerce points to one salient fact: the number of companies winning in e-commerce are a small sliver of their respective industries and they are widening the lead for online sales. In the PHCP marketplace, Ferguson’s sales are more than 20 percent online and slated to grow at 20 percent per year. Watsco, the HVAC giant, reports that 500,000 SKUs are online resulting in a 127 percent increase in e-commerce transactions that drives 28 percent more lines per order than other ordering methods. It appears technology investments for these giants are ongoing and growing over more traditional sales methods.
The message for the wholesaler competition is clear; if one does not invest wisely in e-commerce, and quickly, they will lose sales and eventually shareholder value will suffer. Our recent series on e-commerce (July-September) finds that leading firms use the marketing discipline to isolate unique segment and product needs to build platforms to further gain sales from competitors.
Marketing and platform development
Marketing, in wholesale distribution, has traditionally been a subservient discipline to sales. Outside sales and associated subjects of compensation, territory design, and type of sales discipline (consultative, generalist, enterprise, etc.) has overshadowed marketing subject matter for decades. Unfortunately, in the online world, the customer self serves. In many instances, customers don’t want to see an outside seller or talk to an inside representative; they can do the vast majority of their search and buying online and specific to their clock and calendar.
Marketing’s rise in e-commerce is exemplified by leading wholesalers WW Grainger and MSC Industrial. Originally, these firms were catalog houses with well-established marketing efforts organized around product/market verticals. Their transition to the online world was relatively easy compared to traditional brick and mortar/sales intensive wholesalers. Their marketing expertise was transferred online and gave them commanding leads where, today, Grainger has approximately 50 percent of sales online and MSC has more than 60 percent of revenues from e-commerce. These, and other firms, however, are adding to their online dominance by developing digital platforms and are placing less emphasis on their broad, one-size-fits-all, online efforts.
The components of the platform
An online platform is not necessarily a separate business, but it has that appearance to the customer. A good example of a platform is Zoro Tool (www.zoro.com) by Grainger, which targets smaller customers who want MRO products at a fair price. Zoro, from all accounts, is growing swiftly and is very profitable. Reports from the year ending 2015 has sales at $300 million, and this is from a starting point in 2010. Closer to home, Interline Brands, now owned by Home Depot, has eight online efforts including Wilmar (www.wilmar.com). The site specializes in plumbing and associated supplies for maintenance staff in multi-family housing communities.
The platform often, but not always, uses the back-end resources of the parent wholesaler. There is, usually, no good reason to duplicate the warehousing, shipping, and cash cycles of the product (receivables and payables). Also, the IT effort is often shared with respect to hardware and software. However, platforms are unique and have separate and distinctive elements that, almost always, include:
• Hyper-segmented product/market niche. Again, think of MRO supplies at a good price for small customers for Zoro Tool, or plumbing and janitorial/sanitary supplies for maintenance staff in multi-family housing (Wilmar).
• Product content is developed and arranged in the way the hyper-segmented customer uses it. This includes specific brands, product strings specific to common applications, and industry jargon specific to the industry.
• Product functionality specific to the hyper-segment is needed. For instance, for the maintenance journeyman in multi-family housing doing work on plumbing and associated systems, there is a real risk of flooding as living areas are stacked and lower floors get flooded from upper levels. Hence, mold abatement and control, leak prevention, and water absorption products are needed.
• Hyper-segment based instructional videos on products and their use specific to common applications are a real need as turnover can be high in many B2B segments.
When these elements are available and the hyper-segment is well defined, users will often flock to the site and away from broad-based sites representing the full products and services of the parent wholesaler. Why? The site is highly customized and easily understood; it is as if it was made specifically for them — which it more or less is.
Where platforms go wrong
We help wholesalers in platform development and see, too often, platforms that have gone wrong. The most common issue is that sales-driven wholesalers, with limited traditional marketing experience and often less digital marketing savvy, believe they can create a successful platform without formal grounding in the discipline. What they don’t know that they don’t know, often costs a lot of money with poor or negative returns. Based on our post-mortem review of failed platforms, we find the more common failures of:
• Hyper-segments are poorly defined. A segment should be measurable, substantial, reachable, and profitable. If you can’t measure sales potential, profitability, and reach the customer with the right mix of products and services, it is a poorly defined hyper-segment.
• The marketing mix is ill-formed. The mix of price, product, channel, and promotion are not formed when one or two parts of the mix are well-done, but the rest are non-existent or atrophied. If this is the case, then don’t be surprised if your platform’s sales are “flat-form.”
• There is no service component to the site. Often hyper-segment customers need specific services and this includes fee-based offerings. If you don’t have these, your platform may not have the something extra the customer requires.
• The content is blah. Too often, distributors take content from their broad-market site and simply place it on the platform. This is a sure sign of failure as the content offering, the way it is arranged, and the search capabilities must be in a form the customer uses and is familiar with. If the customer calls a water closet a toilet, then call it a toilet in the content and search rules.
The marketing mix for the platform is just as important as the online software and its seamless functionality to the customer. Too many sales-driven wholesalers diminish the importance of the online marketing mix when designing platforms and, when their efforts fail, they think the viability of the platform, at large, is too much talk.
Future of the platform in distribution
For all intents and purposes, platforming has just begun in distribution circles. Many existing wholesale firms are just now developing a full software suite for competitive e-commerce. Once this is done, they will look for ways to drive sales online and the old tools of digital marketing regarding clicks, pass throughs, searches, etc. will fade away. Too often they measure customers on the fringes who will never be of any size or presence. Instead, winning distributors will delve into the marketing discipline, amended to the digital space, and develop platforms that unerringly identify hyper-segments with a unique marketing mix.