In this episode, we talk to Nick Schulte, Vice President at Shift 7 Digital about the Distribution Dilemma that many B2B companies face. Get to know more about the business drivers, problems, opportunities and considerations in order to make a successful initiative in this field.
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Digital has evolved from simply enabling the business strategy to actually driving business strategy. One of the reasons is that digitization simplifies the removing of intermediaries from the traditional supply chain—one that typically consists of a manufacturer selling to a distributor that, in turn, sells to a retailer that sells to a consumer. This phenomenon of removing intermediaries in the supply chain—such as manufacturers selling direct to consumers by cutting out distributors and retailers—is called disintermediation. Simply put, disintermediation eliminates intermediaries whose cost to service has become greater than the value they provide.
I believe that disintermediation is, to a large extent, a consequence of the transparency that the vast amount of readily available product information creates. It empowers the end-customer and makes it fast and convenient to compare offerings by product properties and price—regardless of seller. By removing actors from the supply chain, disintermediation decreases cost and allows the manufacturer to both increase margins and, at the same time, create a direct relationship with the end-customer.
However, it is not only the manufacturers that are taking advantage of disintermediation. Retailers like WalMart and marketplaces like Amazon are also working on reducing the number of intermediaries in the supply chain. There are even credible rumors that Amazon plans to launch a global shipping and logistics operation that will compete with UPS and FedEx, thus creating disintermediation in the logistics industry itself.
In some cases, it is more efficient to use a distributor for shipping smaller orders than going direct. The economy of scale makes certain products and order types hard to manage without the services and facilities that a distributor provides. However, in most cases, it works fine to ship direct or use drop shipping, resulting in distributors being bypassed by manufacturers and retailers. However, in the transparent marketplace, brand value is rapidly diminishing, making it easier for a retailer's private labels to compete with the well-known brands from the manufacturers. Diminishing brand value coupled with disintermediation creates a threat for the branded manufacturers that they need to acknowledge and address if they want to earn the consumer’s business.
I think it is safe to say that disintermediation is affecting distributors more than manufacturers and retailers. However, all actors can and will be affected and need to rethink their value proposition and strategy. Disintermediation is eventually inevitable for all intermediaries whose cost becomes greater than the value they provide, and a big part of the value is the customer experience. As one of the key drivers for disintermediation is information transparency, it is crucial to provide more and better information than your competitors in the supply chain. There is, of course, more to it than that, especially with respect to organizational and logistical challenges. But if you are not getting found and providing a stellar product and customer experience, nothing else will matter.
Johan Boström, Co-founder and Evangelist, inRiver
Discussions about eCommerce frequently focus solely on the B2C market—how retail customers seek, purchase, and review products and services. However, this adoption of eCommerce has migrated over to B2B commerce, altering enterprise business models and increasing attention on online buying.
Because consumers are increasingly comfortable purchasing products of many types online in their daily lives, they are now more willing to explore online procurement in business environments. Business buyers not only have a higher comfort level with eCommerce, but also higher expectations for a seamless, user-friendly customer experience.
eCommerce Poses Challenges for Distributors
In the 2014 Distribution Industry Outlook survey by NetSuite (The 2014 Distribution Industry Outlook, NetSuite, 2014), more intense online competition was cited as a top concern among respondents. In some cases, distributors were concerned about B2C companies entering their respective wholesale markets. As a result of this threat, 36% of respondents indicated that improving eCommerce capabilities is a top concern, coming in behind revenue growth, launching new products, and expanding the sales force. Improving eCommerce functionality was also cited by 40% of respondents as a top technology priority.
eCommerce challenges for distributors tend to run the gamut—from displaying product information, images, graphics, and logos (22%) to deploying adequate technical functionality (46%) (2015 Survey by Advantage Business Media). For those companies that have implemented eCommerce, improving the customer experience is a key objective.
Although revenue from eCommerce is increasing year over year for the companies that have enabled online sales, more than half of distributors surveyed still receive less than 5% of their revenue from online transactions (Gale, Bein, Polletta, Bennett, “2016 State of E-Commerce in Distribution.” Copyright 2016 by Gale Media, Inc.). However, enterprises can benefit from initiating or expanding their eCommerce presence, such as the ability to target new geographies and direct-to-consumer markets. Risks that companies may encounter include the ability to address geographical nuances and the need to be available to customers 24x7x365. A poor online customer experience can reflect poorly on your brand.
Leapfrog Over the Competition!
With sales transactions moving online more rapidly every year, distributors must embrace eCommerce to remain competitive. Using the experience of enterprises that have already ventured into this territory can help you navigate the learning curve more quickly. You may even be able to “leapfrog” over competitors by doing things right from the beginning instead of having to experiment and test incrementally as you go.
In our opinion, that means first addressing your product information, a key component for succeeding at online sales, prior to deploying any eCommerce solution. Having consistent and accurate product information available to your sales representatives, dealer network, and marketing channels is an essential part of creating a great customer experience, building trust with customers, and providing information they are looking for where and when they want to connect with you.
Put Your Product Information First
Chances are, “product information management” is already taking place in your organization, although you may not actually call it that. In fact, your product information may not be actively or efficiently managed, instead residing in disparate systems, documents, spreadsheets, and databases. A lack of proactive management of product information can result in “information silos” that can affect the quality and timeliness of your product information. Therefore, identifying all of these sources of product information and determining how to effectively manage and maintain it will serve you well as you embark on your eCommerce efforts.
While poor product content can result in product returns, shopping cart abandonment, and reduced customer loyalty, a product information strategy can provide a number of benefits. By putting your product information first and making it central to your eCommerce initiative, you can increase the confidence of the sales organization and customers in your online information, provide control over information displayed on channel sites, and improve the efficiency of your go-to-market process. In addition, as you deploy additional systems to enable eCommerce and web content management, making use of your information will be organized and easy.
Kathryn Zwack, Senior Content Marketing Manager North America, inRiver