According to a report by Frost & Sullivan the B2B e-commerce market is expected to hit $6.7 trillion by 2020. Those are heady numbers, but as a whole B2B companies have been slower to embrace digital commerce than their B2C counterparts.
That reluctance is melting rather quickly, and I believe we are now at an inflection point. A surge of B2B companies will be launching and expanding e-commerce efforts in the next few years. This shift is being driven by a number of imperatives, with evolving customer expectations as the underlying and core change that is pulling B2B firms into adopting e-commerce.
The customers of B2B companies now expect to be able to place their orders online, particularly for repeat orders. Prospective customers are conducting their product searches digitally, discovering new suppliers every day via Google and Amazon.
There is little doubt that research and purchase behaviors are migrating to the Internet, and this creates opportunities for manufacturers and distributors that take action.
Making the leap to e-commerce involves overcoming organizational inertia and seizing control of your opportunity. This takes work, combined with leadership. There are deep organizational and technical issues to address (see my post on sales channel alignment). But there are also some very strong incentives for doing so, including significant revenue and efficiency gains.
The most obvious benefit of migrating online, of course, has to do with sales growth. But there are advantages that go well beyond near term top line benefits. Let’s take a look at the ROI model for e-commerce, which encompasses four components.
Four pillars to grow B2B e-commerce ROI
1. Incremental revenue from existing customers
An e-commerce presence generates more sales from existing customers. Most traditional companies assume that e-commerce revenue is just a shift from other income sources such as call centers, email orders, and other channels. But revenue from existing customers is often incremental (e.g. would not have been earned otherwise) – deepening the seller’s share of spend from its customers.
One powerful tool that enables this increase is web merchandising. This is often a new concept to B2B companies. Web merchandising is not a role that I find often in working with dozens of B2B firms, but it is key to maximizing e-commerce effectiveness.
In its simplest form, web merchandising involves exposing products at key moments during the online shopping experience, such as on product detail pages or in the shopping cart or online checkout. The products presented can be items that your buyers may not be aware that you offer. Many B2B companies that take advantage of web merchandising are gaining a greater share of the customer’s wallet by displaying items that go with (or are bundled) with the products in the buyer’s shopping cart.
By up-selling and cross-selling items related to what is in the cart, these companies are increasing the revenue potential of each of their customers.
2. New revenue from new customers
E-commerce also enables manufacturers and distributors to reach and serve new customers. Sometimes these are market segments that your traditional salesforce did not know existed.
A case in point is a company I work with called Mountz. This company manufactures precision metric and torque measurement tools, sensors, and fasteners, which are vital to a number of industries. Their customers including many leading companies that manufacture products (original equipment manufacturers, or OEMs), such the aerospace giant Boeing, as well as after market resellers and technicians in the field
If it weren’t for e-commerce, a traditional manufacturer like Mountz might remain a well-kept secret, but since building a digital presence, Mountz has discovered unexpected new customers. For instance, high-end bicycles require very fine measurements for tuning to optimal performance. This was a market previously unknown to Mountz. Today, through its Ecommerce web site, Mountz sells its product to a cadre of cycling enthusiasts and bike shops, adding millions to the company’s top line.
Thanks to e-commerce, companies like Mountz can enter markets and capture new revenue.
3. Enabling efficiencies
Traditional sales teams and customer service functions can be fearful of e-commerce. A commonly held belief in B2B is that digital platforms will ultimately replace humans in the selling process, but experience is showing the opposite to be true. E-commerce can make both sales teams and service reps more efficient.
When deployed effectively and aligned with traditional sales and support functions, e-commerce allows resources to be more strategic in how they serve customers. Resources get deployed to higher and better uses – instead of being eliminated.
For instance, many customer inquiries to the sales and support team are modest in terms of value-added (both to the customer and to the seller). Nowadays, inquiries centered on questions like “where is my order” can very easily be answered via a web site.
Today’s digital enabled customers go to the web first to pursue self-service options on common questions such as this. By offloading routine, administrative tasks, sales teams can be freed to spend time pursuing fresh leads, developing relationships, and pitching new solutions. When a sales team works smarter, it can enable an organization to expand its sales department.
The sales team wins, the company wins, and – most importantly – the customer wins.
4. Gross margin improvement
This may come as a surprise to many companies, but orders completed through e-commerce tend to be realized at a higher gross margin than those coming from other channels.
Why? It comes down to making the buyer’s job easier, and the web is the perfect place to do this. Given the modern pace of business and demands on buyers’ time, speed and convenience are often more important than price for many B2B transactions.
At the same time, many sales reps have been conditioned (through habit or otherwise) to give discounts of 2 to 3 percent, even when they don’t need to. By migrating transactions online (particularly more routine, repeat orders), B2B companies can save their customers time – and this often translates into higher gross margins, as there is no ‘negotiation’ that happens, and the buyer purchases at full price. This isn’t theory. I have clients generating as much as 5% incremental gross margins on sales completed online vs. offline channels.
Gross margin improvement drops right to the bottom line.
This is your destiny: Don’t resist the power of the e-commerce force
Many traditional B2B companies and cultures have resisted the shift to e-commerce. There are others who look at potential revenue growth and they are not yet convinced. They mistakenly assume that e-commerce revenue and profits are mostly just a shift from other channels. Our clients are demonstrating that incremental revenue is on the table for the taking.
E-commerce truly is transformational. It allows companies to reimagine how they do business, which includes ways of obtaining more revenue from existing customers, identifying new markets, and deploying resources more intelligently and efficiently.
Those who embrace B2B e-commerce discover opportunities they could not have imagined previously. Now is your time.