eCommerce Disruption in Business-to-Business Markets
The world of business-to-business (B2B) eCommerce is fast-evolving. B2B buyers are increasingly demanding the same online experience they receive as consumers. It is imperative for B2B executives to address the challenges that will result from eCommerce disruption in their market.
Given the growing potential and demand for a similar business-to-consumer (B2C) eCommerce experience in B2B marketplaces, how should B2B leaders prepare their companies to respond to eCommerce disruption and stay ahead of the game? In our recent white paper, Identifying and Responding to eCommerce Disruption: A Guide for B2B Suppliers, Blue Canyon advises B2B leaders on identifying the potential for disruption in their industry and developing strategies and a plan to respond. Based on our research, we found two primary ways that eCommerce can disrupt B2B markets, which we will examine in more detail:
- Channel disruption: New pathways to market are introduced and/or roles of channel partners fundamentally change
- Segmentation disruption: New or existing underserved market segments are identified and a supplier designs a better offering to serve those segments’ needs
Channel disruption occurs when new pathways to market are introduced and/or roles of channel partners change. Disruptors may seek to improve inefficiencies in customer chains by either providing simpler, more efficient pathways for manufacturers to sell their offering to end customers, or altering channel partner’s roles and perceived value-added activities in the areas of marketing, sales, distribution, and support. See the following examples below:
Simpler, More Efficient Pathways to Market (Example 1)
Using an example from the building products and hardware industry, we can see how eCommerce can create a simpler, more efficient pathway for manufacturers to reach their end customers.
Figure 1: A pure online retailer/distributor allows bypassing of other players in the building products & hardware customer chain, creating a faster and less expensive path for products to reach the end customer. This simplifies the pathway and creates efficiency and benefits for the remaining customer chain participants.
Altering Channel Partner’s Value-Added Roles (Example 2)
In this situation, a national or regional distributor from a traditional customer chain begins engaging in eCommerce and selling through its own website. This necessitates 4 major changes in the value-added activities performed in the customer chain:
- Marketing: Marketing to builders or contractors shifts from local promotions and messaging by local dealers to digital marketing performed by the national or regional distributor through its own website.
- Sales: Sales activities performed by local dealers, including in-person selling to builders or contractors, are replaced by digital marketing initiatives. These online or remote sales activities performed by the national or regional distributor may include direct online marketing, targeting of customers by email, and chat or phone support for those evaluating products online.
- Distribution: Distribution and order fulfillment moves toward the national or regional distributor selling online, instead of through local dealers who hold inventory on the shelf and may provide additional in-person services.
- Support: The onus for providing support moves from the local dealer to the national or regional distributor, who will have to figure out how to provide after-sales support, perhaps leveraging the local dealers, third parties, or their own support network.
Segmentation disruption occurs when a supplier identifies new or existing underserved market segments and designs an offering to serve its needs. Segmentation disruption is often experienced in instances when markets are largely ignored by traditional channel players. An example of this type of eCommerce disruption can be found in the industrial supply and distribution industry. Large suppliers and distributors (e.g. Grainger or McMaster-Carr) have a generally higher priced, more full-service offering including inventory management, one-stop shopping, etc. This approach has left an underserved segment of the market which did not need or want to pay for this type of offering–small businesses. As a result, companies such as Amazon Business and Zoro (owned by Grainger) have entered the marketplace and provided a low-price, simple online offering that fits small business needs.
If you begin to see the signs of eCommerce channel or segmentation disruption appearing in your industry, be prepared to develop eCommerce capabilities and/or participate in a growing B2B eCommerce marketplace. Understanding how it can happen can enable you to see the signs very early and create an eCommerce strategy to stay ahead of competitors. Are you aware of new channel players using eCommerce to create efficiencies? Have you noticed an underserved customer segment beginning to purchase online? If so, it is time to build a comprehensive eCommerce strategy for your business.