Progressive Distributor - Have distributors missed the Internet boat?

Have distributors missed the Internet boat?

Some people predict the Internet will be a boon to manufacturers and doom for distributors. But for distributors that act quickly, e-commerce offers a world of opportunity.

by Thomas Kelly

Are manufacturers preparing to sell direct over the Internet? Six to eight months ago, we never heard manufacturers talk about creating a direct sales channel on the Web. Sure, there were rumors and rumblings, but never anything that sounded very threatening to existing distributors. Today, I am surprised by the bold talk from many manufacturers about developing a direct sales strategy over the Internet, although many would be loathe to talk about it publicly. What changed?

Many things changed in the last 6 months. This is Internet time, where change occurs quickly. But one of the biggest reasons for this new, tough manufacturer talk is what didn’t change. The No. 1 reason for developing a strategy for going it alone on the Web, according to manufacturers I’ve spoken to, is a lack of initiative by their distributors toward Internet commerce. There is reason for distributors to take heed of this message.

Let’s look at some statistics. I know you are sick of hearing how the Internet is revolutionizing everything. It seems there is nothing it can’t do. But when it comes to business-to-business commerce in the near future, the Internet will revolutionize everything. Forrester Research predicts that by 2002, business-to-business e-commerce will reach $864 billion. I would argue that a significant portion will be MRO products.

Distributors offer many reasons for their reluctance to begin an e-commerce project. Here are examples:

“I just don’t see our customers asking for an e-catalog yet.”

“Manufacturers need to take the lead on this.”

“We add value by being in the plant and solving problems. That’s not going to go away.”

These are the same messages once voiced in the computer industry and the auto industry. Today, distributors and dealers in those distribution channels are feeling a great deal of pain because of their slowness in adapting to changes brought on by the Internet. Today, two leading Internet sites to purchase vehicles, autobytel.com and carpoint.com, represent about 60 percent of all Internet-initiated car sales. Neither company came from within the car industry.

Auto-by-Tel was a start-up company that blew its entire ad budget on a Superbowl ad two years ago to become the leader, and Carpoint is owned by Microsoft. The dealer is the last, redundant, step in the car buying experience. How long do you think that will last?

In the airline industry, all airlines now have direct ticket purchasing via Web sites that are growing at a terrific rate. Delta Airlines fired the first salvo at their “distributors,” travel agents, by trying to charge a fee if you don’t use their Web site. It failed only because of cultural inertia, and will eventually succeed in the near future.

I say this not to scare you into a quick sale of your distributorship and an early retirement. Change brings threats and opportunities. Let’s talk about the opportunities e-commerce presents to distributors.

E-commerce offers three areas of immediate value to distributors:

• Reduced costs of doing business
• Marketing database
• Geographic reach

Let’s look at each point in greater detail.

Reduced cost of business
The Internet lowers the cost for distributors and manufacturers to do business.

When I was director of marketing for Invetech Company, a bearing and power transmission distributor that was bought by Applied Industrial Technologies, it cost us $5 every time a customer called. Yet roughly 60 percent of the calls we received were for price and delivery information. This was and still is an expensive way to deliver non-value-added information to your customers.

One of the biggest wins the Internet provides distributors is a way for you and your customers to access account information, including price, delivery, order status, credit limit, etc., over the Internet. Once you create the back-end link to your computer system, where all this information resides, the cost to provide this information per request is reduced from $5 to pennies per transaction. A great example of how this works is the airline industry, where customers check inventory, place orders, check flight status and change ticket orders, all from the Web site.

Marketing database
The Internet is a tool for gathering valuable marketing data.

When you develop a Web site, one of the benefits is customer tracking. By shifting customers to your Web site for routine inquiries such as stock status, pricing, or account updates, you are developing a sophisticated database marketing program. As you build this on-line catalog, you can track how long a customer spent on your site, what they looked at, how long they looked at it and where they went next. You can also track if they placed an order, what they liked about the site, what didn’t they like, and more. All this information is collected easily and routinely by an inexpensive tracking package. Don’t underestimate the usefulness of this data. If your goal is to become the indispensable marketing arm of your manufacturers, the data about your customer base that you collect and analyze will prove very valuable.

Geographic reach
The Internet expands geographic boundaries for manufacturers and distributors.

To some distributors, it is disconcerting to know that all products someday will be sold everywhere via the Internet. It is a great leveler for small distributors, but it will also bring havoc to the marketplace in many ways. Just because Motion Industries or W.W. Grainger have brick and mortar stores next to a plant doesn’t mean they will necessarily get the plant’s on-line business. MRO plant personnel will routinely peruse the Internet for the “ugly” items they can’t source locally or through their preferred supplier. In addition, distributors participating in integrated supply programs will use the Internet as a sourcing tool for items they can’t find.

E-commerce buying habits
After deciding on a strategy to move aggressively to the Internet (and I hope you have), you need to develop tactics to get customers to your site and measure your success.

The realities of distribution dictate that you must continue to reduce costs. When a customer calls for standard price and delivery information, followed by a standard order (the majority of distributor calls), the inside salesperson adds little to no value to the transaction. You must transition customers to your Web site to get this information and process their own order.

How do you get customers to do business over the Web when they are comfortable calling an inside salesperson? Here are four ways to get customers to your site.

1) Offer a cash incentive. Customers initially may be reluctant to check price, delivery dates and place orders over your Web site, especially since it is easy to have your inside salesperson do it for them. But these same customers will change their habits quickly for the right incentive. Some distributors offer a 5 percent to 10 percent discount on the first order or the first few orders their customers place over the Internet. They have had significant success using this method.

2) Send a postcard mailer. Every month for the first three months after you establish your Web site, send a postcard mailer to your customers announcing the site and encouraging them to visit. Coupled with this strategy, ask your customers to visit and take part in a survey to improve the site.

3) Offer a giveaway. Ask customers to register at your site for a free coffee mug, electrical tester, or a sleeve of golf balls. Customers love anything free, and by tying it into your Web site, you drive the customer to your site. Once there, they are yours to impress and keep, or lose.

4) Order tracking. Tie your Web site into UPS, FedEx, and the US Postal Service Web sites so customers can check order delivery progress and confirm delivery. This may seem difficult, but it is one of the easier functions you can implement in terms of a complete electronic catalog.

After enticing customers to visit your site, you must measure the site’s success. Four proven methods include:

Hits and visits. Statistics software included in most hosting packages measure hits to your site. These measure the number of image requests received by the server and can be very misleading because the same person may view many images on your site during one visit. It’s better to measure the number of unique visits to your site. By tracking unique visits, you gauge the effectiveness of the marketing programs discussed above.

Customer registration. The pinnacle of database marketing, customer registration provides valuable insight into your customer’s buying habits, areas of the site they look at, how long they browse your site, etc. But don’t ask them to register before they have access to the site. That will cost you many customers. Instead, ask them to register for something in return, say, 10 percent off their first order, a free coffee mug, personalized service, or anything the customer values for giving you their name and allowing you to track them on-line.

Types and sizes of orders. One of the most telling measures of a site’s effectiveness is who orders from your catalog. The important measures are A) How many orders come from new customers, from within your existing geographic market and from new markets? B) Did the size of orders from existing customers increase? C) Are you successful penetrating the market segments your site targets? D) What percent of your postcard campaign explained above visited the site and purchased? If they did not purchase, what did they look at before they left?

Customer feedback opportunities. You can turn your site into a plethora of feedback opportunities using e-mail, immediate surveys and Web callback. Web callback allows your customers to click an icon on your Web site and call your inside sales group instantly via existing phone lines. The goal is to glean as much information from your customers as possible without becoming obtrusive or difficult.

Manufacturers talk of a direct solution, but distributors have the greatest opportunity to dominate this new medium. When it comes to e-commerce, distributors must take the lead in the channel. You are the marketing arm of the manufacturer and you own the customer. You are in an enviable position, not a weak position.

Don’t be afraid to act. Failure to do anything on the Internet is the surest way to be shut out. If you develop a Web site strategy, implement the tactics, and measure your results, your e-commerce initiative will be successful and within budget. t

Tom Kelly is president of QSSolutions, a Detroit company that develops Web sites and devises Web strategies for industrial distributors. He can be reached at 313-961-7800 or by e-mail at tom@qssolutions.com.