How do pricing professionals within manufacturing organizations view eCommerce? As a threat, or an opportunity?
A flashback to Manufacturing Pricing Excellence with Thomas Igou.
I had the fantastic opportunity to moderate a roundtable discussion on the topic at the 6th Annual Manufacturing Pricing Excellence in Milan and listen to different viewpoints.
The one common thread among all pricing leaders in the face of the growth of ecommerce: “we cannot lose control of our prices.” There was no common thread, however, on how to go about it exactly.
If threatened by an enemy, there are always two options: beat them, or join them. It seems that for manufacturers that have already entered the digital sphere, the same rule applies with ecommerce. One participant had confided taking volumes on Alibaba to see how it works and test the waters; another had explained having entered in a pilot with Amazon to set prices; others were setting up their own ecommerce platforms to compete directly with the likes of Amazon and Alibaba.
There were some still skeptical about getting into the ecommerce game at all. One participant feared that if he started an ecommerce platform, that would create a big conflict with his distributors, who would then run away to his competitors. But another participant challenged him to consider, then, if he actually needed distributors at all? Disintermediation, or the disappearance of the middlemen in a value chain, is a growing trend; ecommerce is making that even more transparent. If you can sell directly to your end users, do you still need the same set up of distributors, resellers, garages etc…?
Another participant said his business absolutely needed distributors, because another aspect of ecommerce is that distributors themselves can get into the game, and what he’s seen in his industry is that distributors from different regions are now competing against each other (not necessarily on purpose) because of ecommerce. Digital has no physical barriers.
We also discussed the “why” of ecommerce: why even get into the game today, for a manufacturer, especially with a B2B focus? There seemed to be two reasons:
– For most, it was a branding perspective. They acknowledged that customer behaviors are changing, that more and more are purchasing online, or at least the purchasing process starts with gathering information online, so manufacturers need to be there, to be seen among their competitors. However, they don’t see enough traffic or volume to make it a sustainable sales channel.
– Another reason was complexity reduction. One participant explained that they used ecommerce for customers that are transactional, that buy low volumes of products, and only care about price. This allows the company’s salesforce to focus on customers who want value, usually project-based or long lifecycle products/services.
One participant had earlier claimed his three pain points/fears of ecommerce giants like Amazon or Alibaba:
– They control the prices (which as explained earlier, was the common thread among all peers as the biggest fear)
– They take margins away
– They sell on price, and don’t explain the product
A few other points we briefly touched upon without digging deeper into:
– One participant was using an ecommerce-like platform for existing customers only, which was then contract-based and more focused on reorders
– Some organizations had begun alliances/partnerships with other manufacturers to make their ecommerce platforms more competitive, so that when selling their own products, they could also sell complimentary products from alliance partners to add value for their digital customers (very much like Amazon “recommending” other products similar or complimentary to the one you’re interested in buying)
– One participant explained that, having had himself experience being a purchased, he wondered how far ecommerce could develop since when he was in procurement he was always required to seek 3 price recommendations before making a purchase, but with ecommerce you only get one.
I then wanted to ask the following question: as value based pricing becomes more and more important within organizations, and if ecommerce, by its nature, is about selling on price rather than value, how can a manufacturer currently developing a value based pricing strategy (with all the training it takes to hammer it to the salesforce), then develop an ecommerce platform where products will be sold on price (since digital purchasers are price sensitive)?
Unfortunately, we ran out of time before we could answer that last question. But I’d be very interested to hear your thoughts on this, so feel free to contact myself on firstname.lastname@example.org!