Industrial Product Manufacturers: Path to eCommerce

Internet revolution is finally changing how industrial products and services get marketed and sold. Simply relying on traditional methods of marketing and selling would no longer be sufficient to stay competitive. Both manufacturers and distributors must have an online strategy to meet the expectations of increasing number of tech savvy customers who are not only researching and comparing products online but also expecting to place orders as well as to interact for customer service.

Across the globe many large well established businesses are getting bankrupt due to the eCommerce effect by failing to compete in the fast changing digital marketplace. Online B2B, even in the industrial arena is growing rapidly with big players like Amazon, Alibaba and others putting special focus. Some of the other reasons to consider eCommerce are…

§ Reduces cost & time of sales cycles, order errors, data entry rework

§ Helps improve volumes, revenue, customer experience and sales efficiency

§ Provides opportunity to connect offline brick & mortar stores and sales force with online channels

§ Allows manufacturers to connect directly with end users. This promotes direct feedback, support and opportunity to cross sell.

When a company is starting from zero online sales it cannot expect to see immediate results. Some companies tend to try for few months and give up when not seeing expected results as they often compare their traditional channels from first month. It requires proper planning, strategy and execution year after year.

One of the key dilemma that many manufacturers/distributors have while starting their eCommerce journey is whether to start their own eCommerce website or to make use of appropriate marketplaces. Following gives a high level comparison of the two options that should help with the decision. With some exceptions, it does not make sense for individual manufacturers or distributors to maintain their own eCommerce website unless they are dealing with hundreds of items and plan to directly market their site. It is obvious that buyers prefer the ability to search, find and order products across multiple categories and multiple suppliers in one place instead of having to go to websites (stores) by different suppliers each time. Just like how people prefer to go to a super market where they get pretty much everything they need rather than going to one shop to buy tooth paste and another shop to buy soap. For whatever reason, some manufacturers tried to have their eCommerce site to sell exclusively their products and most of them failed.

Running Own eCommerce Store

Advantages:

• Carry’s exclusively one supplier products

• No need to pay commission or subscriptions to 3rd party platforms or marketplaces

• Receive payments directly from customer

• Could help on board existing offline customers online (automate repeat customer)

Disadvantages:

• High initial investment to setup the platform

• Cost to maintain and make enhancements

• Supplier need to invest a lot on marketing separately

• Difficult to attract customers with high cost of acquisition

• Customer does not have the option to compare with other vendor products

• Customer cannot buy other product categories

• Logistics and payment need to be arranged separately

• Customer service need to be handled separately

Industrial Products — Machine Tools

Selling through Marketplaces

Marketplaces like SourceRFX www.sourcerfx.com enable small and medium manufacturers, industrial distributors to create a storefront with their company profile, product/service catalogs along with the provision to manage price lists (by date range, quantity range and other parameters). At the same time enable buyers the ability to search products across multiple supplier catalogs and place inquiries or orders.

Advantages:

• Ready to use platform with low initial setup and cost

• Maintenance and updates to the platform done seamlessly

• Marketplace does most of the marketing

• Access to network members with catalog buying provision

• Customer would be able to compare across vendors

• Customer flexibility to buy various products from single place

• Logistics and payment facilitated by the marketplace

• Customer support to address orders, payments, deliveries handled by the marketplace

• Provides access to orders, invoices, reports to suppliers & buyers through their respective accounts, all in one place

Disadvantages:

• Might carry competitor products also

• Charges commission per transaction and/or subscription fee (monthly/annual)

• Payments transferred few days after customer acceptance

B2B Marketplaces carry virtual Inventory drop shipped by supplier directly

Difference between generic marketplaces and members only marketplace

There are generic marketplaces dealing with pretty much everything under the sun like Amazon and specialized marketplaces which focus on specific industry vertical(s), product categories like (SourceRFX www.sourcerfx.com). Following is a comparison of the advantages and disadvantages with these options. However, with the marketplace approach suppliers could choose and sell through multiple marketplaces simultaneously.

Generic Marketplaces (like Amazon)

Advantages:

• Power of high profile brand & visibility

• Well established fulfillment & shipping network

• Easy returns for customers

• No membership subscriptions

Disadvantages:

• No targeted marketing specific to the supplier

• Does not support custom orders (made to order) or custom pricing

• Doesn’t support product inquiries (RFI)

• Very high commission + fee (8–12%) for industrial items

• No after sales support or long term collaboration with buyers

Buyers search, Inquire and order products from supplier catalogs online

Members only Marketplace

Such marketplaces (like SourceRFX www.sourcerfx.com ) are operated as exclusive clubs, cooperatives that facilitate trade between pre-qualified suppliers and buyers. Some marketplaces are specific to a industry vertical, which also makes a great sense, if your products are mainly targeted to specific industry.

Advantages:

• Targeted marketing (email & telemarketing) specific to supplier products (add on service)

• Supports custom orders (RFQ or price on-request)

• Standard items through price list (by qty, customer, date)

• Interactive buying experience supported by the marketplace engagement team (add on service)

• Charges nominal commission (1 to 2%) for members. This enables suppliers to pass savings to the customer without incurring loss or reducing profit margin

• After sales support can be offered via member portal

• Facilitates long-term engagement with buyers to build loyalty

• Helps to cross sell, up sell & build parts/service biz in long run

Disadvantages:

• Membership with annual subscription needed for full benefits

• Fulfillment by supplier on receiving order from the marketplace

• Shipping through a logistics partner(s) identified by the marketplace

• Requires supplier to guarantee product quality & honor returns

There are various other aspects to consider as part of the overall eCommerce strategy, which also includes the question of how to incorporate or deal with existing distributors. There are couple of options to make it a win-win-win for manufacturer, distributors and the end customer which we will discuss in the subsequent article.

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Krishna Mattaparti

Krishna Mattaparti

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Founder & CEO of SourceRFX Open Business Networking platform for Industrial Sourcing and Marketing