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The Ripple Effect of eCommerce Across B2B Industries
The topic of eCommerce may seem like old news, and if one were talking in generalities this would be true. It’s been well documented over the years that eCommerce first began to change consumer markets in fundamental ways. It then expanded to disrupting consumer-like industries, such as office supplies and tools. More recently we have begun to see once insulated business-to-business (B2B) industries with capabilities thought to be difficult to replicate online being impacted by eCommerce.
The ripple effect eCommerce has created in the B2B arena, whether self-created or competitor driven, can no longer be viewed as an ancillary channel that poses little threat to an organization’s overall growth strategy—particularly in the United States. China has presented its own unique set of challenges, which we will address in a later blog post.
We’ve recently seen the impact eCommerce has had on B2B companies on two different strategy engagements. One entailed traditional channel partners who began to utilize eCommerce as a means to acquire new customers outside their designated territories during the economic downturn, resulting in “territory skirmishes.” The other involved new market entrants utilizing eCommerce as a means to usurp traditional channel dealers. In both of these scenarios, our manufacturing clients were unprepared for what ensued.
In the first situation, local authorized dealers were becoming distressed over other authorized dealers from distant regions selling into their territories through the use of eCommerce. Each volume sale from outside the region was weakening the local dealer, upsetting the equilibrium of the nationwide dealer network, and hence challenging our client’s business. The distant dealers with eCommerce capabilities were undermining local dealers whose presence was essential to ensuring overall customer satisfaction. Local product availability and technical support required in the replacement market is where eCommerce was disrupting our client’s way of doing business. The end customer’s decision to buy through eCommerce for a new construction project began to sow the seeds for poor post-sale maintenance and repair service and led to dissatisfied end customers in the future.
The second situation involved eCommerce attacking our client’s replacement business. The client manufactures a technology product that is complex and is installed into a customized system bundled with other offering’s provided by value-added resellers (VARs). Since the VARs benefited most from the initial, high-value sale, they were unconcerned when eCommerce providers entered the replacement market, knowing that end customers were more prone to purchase replacement parts based on price. However, our client’s business ultimately paid the price when end customers were not being given adequate aftermarket service or support by VARs or the eCommerce providers. The end customer either got the run-around, resulting in a poor customer experience, or the manufacturer was forced to provide the service, which ultimately was negatively impacting its bottom line.
So What Should B2B Companies Do?
Whether your traditional channel organizations are attempting to access new customers and compete outside their existing marketing and sales reach or new B2B players begin to compete via the eCommerce channel, the outcome is the same—your existing way of doing business will be threatened. As such, organizations impacted by or facing eCommerce disruption should reevaluate their traditional channel partner relationships across two spectrums:
- The Customer Chain-Value Chain – Think through every dealer activity that provides value. Realistically determine who should and is able to perform these activities in a way that will continue to adequately serve end customers in the manner in which they are accustomed and ascribe importance to each. This leaves a set of roles that traditional dealers and today, only traditional dealers, can realistically perform. For more on this topic, download Blue Canyon’s white paper, Channel Management—The Customer Chain-Value Chain Framework.
- Compensation – B2B suppliers should ensure that traditional channel partners are being properly compensated for the value-added roles they must continue to play pre- and post-sale. In return, these suppliers along with their channel partners are better able to collectively provide a positive end customer experience, creating a win-win-win situation across the entire customer chain. This topic is covered in more detail in our white paper Understanding and Overcoming Pricing Conundrums.
For more on the evolving B2B eCommerce environment in the United States and how this model is developing in China, read eCommerce in Business-to-Business Markets: Value Creation and Market Disruption in the United States and China.