Posted by Ranga Bodla, Wholesale Distribution Industry Lead, NetSuite
Retailers have been quick to embrace ecommerce, selling everything from groceries and garden equipment to pet supplies and sporting goods online. But for distributors, it’s a very different situation. B2B distributors have been very slow to build digital storefronts or to invest in sophisticated B2B ecommerce capabilities. According to Modern Distribution Management’s 2015 State of Ecommerce Study, only 4.3 percent of distributors get more than 40 percent of their revenues from ecommerce. The vast majority are not getting the revenue growth or higher profit margins that a mature ecommerce business can generate.
B2B distributors lag behind, in part, because they’re not sure their customers really want to buy online. After all, those same customers have been happily phoning or faxing in orders for years with no complaints, and many of them probably know their supplier’s product inventory by heart.
However, that is rapidly changing. Most of corporate buyers today are tech-savvy Millennials or tech-capable Gen Xers who are used to online ordering and want it for work as well. Long-term customer relationships are becoming vulnerable to competitors with easy to use ecommerce sites.
Forrester estimates B2B ecommerce will top $1.1 trillion and account for 12.1 percent of all B2B sales in the US by 2020. Clearly, a significant amount of B2B business is going online. In its report, Forrester predicted that by the end of 2015, 74 percent of B2B buyers will research at least one-half of their work purchases online, while 30 percent will complete one half or more purchases online, rising to 56 percent in 2017.(Source: Forrester Research, [US B2B eCommerce Forecast: 2015 To 2020: B2B eCommerce Will Top $1 Trillion By 2020 In The US], By Andy Hoar with Carrie Johnson, Patti Freeman Evans, Susan Wu, Jacob Milender, April 9, 2015).
Distributors that do invest in ecommerce enjoy higher profit margins from online sales.
A 2014 survey by business advisory firm Grant Thornton found that profit margins were several percentage points higher for distributors and manufacturers with ecommerce sites than for those without—17.7 percent versus 13.3 percent.
People tend to spend more on an online transaction, thanks partly to the add-on product suggestions and promotions that can be programmed to pop up while a buyer is online. Easy to navigate sites also motivate extra purchases. The easier it is to find what you want, the more likely the transaction will be completed.
Cost reduction is another key benefit of ecommerce. Traditional phone sales require reps to help the customer identify the products needed, suggest add-on products, look up any negotiated pricing agreements, fill out a sales form which then might need to be input into the accounting system, and so forth. It is time-consuming.
Not so for an ecommerce sale, where everything is already in the system and hitting the "buy" button sets in motion an automated process that eventually sends the products to the customer's door. You still need sales reps, but their time can be devoted to helping high-value, long-term clients, not one- and two-item customers or regular, repeat orders. In Modern Distribution Management's article "The ROI Case for B2B E-Commerce," Robert Kelley and Dean Mueller estimated that order entry costs alone decreased from a range of $50 to $150 per order for a traditional sale to under $25 for an ecommerce order. Printing and mailing costs also decline, as do the human errors that can waste productivity and decrease customer satisfaction.
Too often, small B2B companies don’t take the time to research and plan before jumping into ecommerce. Like any other business investment, creating an online presence and digital store requires a sound business plan. Too often, B2B businesses aren’t sure why they should do ecommerce or what it will cost. Before buying any ecommerce software, it’s important to not only tally the costs—such as integration with ERP, payment gateways or partner systems, and developing new content for the site—as well as the strategic reasons for going online.
There are many benefits to B2B ecommerce – lower costs, better profit margins, new customers, and higher customer satisfaction.
The message is clear: even small B2B companies must move to develop an ecommerce presence if they expect to stay competitive and keep growing.