Over the past five years, numerous manufacturing firms have hired Frank Lynn & Associates to help determine the optimal approach for selling directly to end-users via the Internet. The pursuit of direct sales through some form of transactional web-site is typically based on two primary assumptions:
Transactional web-site capabilities will establish better market access:
- We get (insert your company's number here) thousand of visitors to our web-site each month. If we let visitors leave without buying, we might never see those sales.
- A significant percentage of our customers (end-users) are migrating to buying products electronically. We need to establish an electronic commerce option to intercept and grow this business.
- We have a significant percentage of potential customers that we can't efficiently cover via direct sales or distribution channels. A transactional component to our web-site will enable us to gain market share in this customer segment.
Transactional web-site capabilities will support better profitability:
- We get (insert your company's number here) thousand of visitors to our web-site each month. We can capture a more attractive gross margin on our products if we sell to them directly. Why pay a channel for business that we already have on our site?
- We have distributors who sell primarily through internet catalogs and don't commit substantial resources to promoting our brand. We should take that business direct (at a preferable margin) before distributors sell them a competing brand.
While a transactional web-site can certainly address these concerns, the opportunity available through this channel in industrial markets is tempered by two key factors:
Industrial web-site visitors are typically specifiers – not buyers
Unlike consumer markets, where the decision-maker and buyer are one in the same (and the buying process can be one-step), B2B markets commonly have multiple persons and steps involved in the buying process. In most industrial organizations, engineering and operations personnel make the performance and technical decisions regarding which products to purchase. Our research indicates that they commonly use the internet and web-site information during this critical decision-making process. Manufacturer web-sites are invaluable for providing specifications, highlighting key product differences, and directing decision-makers to additional resources.
However, procurement department personnel, who are the actual purchasers of most MRO and indirect materials, do not regularly visit manufacturer web-sites. In fact, the most common reason cited by procurement personnel for visiting manufacturer web-sites was to identify appropriate distribution channels to source products. This last finding leads to the second key aspect of industrial supply chains.
Buyers are often not seeking to source directly from individual suppliers on-line
For large expenditures, engineering and/or operations will work with procurement personnel to select a preferred supplier, based on performance, support and other criteria. However, because large purchases typically involve significant risk and a major service component, buyers are not likely to buy on-line. They prefer direct, personal interaction for these transactions.
Smaller expenditure items are often typical MRO-type purchases and the average manufacturing location has over 10,000 SKU line items of these types of products. Because of this volume, it is rare for procurement personnel to source these items directly from individual manufacturers. Procurement objectives, aimed at leveraging overall MRO spend through as few suppliers as feasible, support the use of broad-line industrial distributors for most purchases. This leaves little role for manufacturers' web-sites to push direct-to-customer transactions.
There are situations where industrial manufacturers should consider establishing transactional web-site capabilities. These included:
New markets with limited end-user access: Manufacturers entering new geographic or end-user markets may encounter market structures which limit their ability to establish sufficient channel (direct or distributor) coverage. A manufacturer-sponsored, transactional web-site can serve as a transitional platform for developing initial sales volumes.
Manufacturers with a "critical mass" in diverse end-user group: Manufacturers with a powerful brand that commands a substantial share of its end-users' spend (selling abrasives or paint to auto-body shops, for example) might be able to establish a direct, on-line sales relationship with these end-users.
Technology-specific product lines: IT and technology buyers are much more likely to buy online than industrial purchasers. After all, they are the guys that built the Internet!
Replacement parts or proprietary consumables which require limited support and represent substantial sales volumes: Successful examples of direct, online sales exist in situations involving OEM spares and consumables (e.g. printing labels or fill nozzles). However, parts, spares, accessories, etc. usually represent a manufacturer's primary leverage with their traditional channel partners – the motivation that gets the partner to go out and sell the capital equipment.
Web-sites are an extremely powerful marketing tool and need to be aligned with all aspects of marketing and channel strategy
Although transactional web-site capabilities have limited applications for most industrial products firms, integrating web-site strategy with channel strategies and other aspects of marketing programs can be very effective. For example, limiting web-site links and sales leads to channel partners who meet high-level performance requirements can serve as a powerful incentive for partners to align their sales and support activities with yours.
Most on-line activities are more powerful when incorporated into interactive systems and many leading firms are establishing CRM and end-user community-building aspects to their web-sites. Taking a cue from consumer products companies, these same initiatives often seek to better manage end-user relationships by also utilizing business and social networking sites. We will explore the non-transactional potential applications and innovative use of web-sites and social networks (such as Twitter, LinkedIn, etc.) in more detail in upcoming newsletters.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.