Reading time: 4 minutes
Manufacturers acknowledge that customer behaviours are changing as more and more are purchasing online, or at least the purchasing process of gathering information starts online. And they are acting on this trend. The rapid expansion of e-commerce within the manufacturing industry is quite evidently shown in our survey: Only 23% of respondents do not currently have an online sales channel. And of those, 44% plan on building an e-commerce platform within the next 12 months.
However, what does that mean when it comes to creating an eCommerce strategy?
There are several key areas manufacturers need to consider. First, and most importantly, is the customer experience. As Jeff Bezos pointed out about the reason behind Amazon’s success, “If there’s one reason we have done better than our peers in the Internet space over the last six years, it is because we have focused like a laser on customer experience, and that really does matter, I think, in any business. It certainly matters online, where word-of-mouth is so very, very powerful.” It is no surprise, then, that understanding customer needs, identifying the right customer journey, and removing friction to create an Amazon-like shopping experience is top of mind for manufacturers. In order to meet customer needs and expectations, manufacturers need to consider what kind of platform to have. Almost 52% of respondents use their own webshop as an online sales channel. Looking a bit deeper into the numbers, we noticed that some do so in combination with service portals and/or 3rd party marketplaces, and around 33% only through their own webshops. Additionally, 13% of manufacturers currently only use 3rd party marketplaces as an online sales channels, but a total of 25% of respondents use 3rd party marketplaces, as some use it in combination with webshops and/or service portals.
Another key area to consider is the changing relationship between manufacturers, distributors, and end-users. Traditional routes are shifting; with online sales channels, manufacturers can bypass offline dealers and access the right audience that is not the traditional customer base. Should manufacturers go that route and start bypassing distributors, at the risk of competing with them? Or should they collaborate with distributors, supplying them with quality digital data for their own webshops? As Elina Kronbäck points out, “many companies are focused on getting more sales through the channel but it tends to be challenging to align new opportunities in with existing business relationships with distributors for example. New business models will be needed to secure relationships with the distributors if companies are starting to sell directly to end customers.
Finally, e-commerce brings big changes to manufacturers’ pricing strategies. For a large majority (65%) of survey respondents, e-commerce is mainly used as a channel to increase sales, as opposed to complexity reduction (19%) or branding opportunity (7%). Ecommerce makes purchasing more transparent than it has ever been. Manufacturers need to manage local market conditions over an online global platform and harmonize prices to avoid potential conflicts with traditional sales channels. Manufacturers need to have the right portfolio addressed to avoid profitability burning. As Jeff Bezos pointed out, “there are two kinds of companies, those that work to try to charge more and those that work to charge less. We will be the second”
There are many angles to consider for manufacturers making strategic decisions on e-commerce. The type of platforms to use, or at least start with, is key. Having your own webshop is the most popular move and allows traffic from non-traditional customers to open up new business opportunities. How you price products in comparison to market needs, competitors, distributors, and even 3rd party marketplaces, can be problematic, especially as manufacturers are moving more and more towards a value-based pricing approach. What kind of business models to approach especially for manufacturers that traditionally sell via distributors or resellers has been a hindrance in getting fully started with e-commerce for many? But, regardless of why companies move to (increase sales, branding, complexity reduction, others…), the most important factor to have in mind is the customer. What are the changing behaviours that will push them online? What is their typical purchasing journey that you are impacting? What frictions are they currently facing to buy from you, and are you taking these away with an e-commerce platform? Will you create new hidden frictions (purchase orders, compliance, regulations, logistics, 24/7 support, product search….)?