As manufacturers enter 2018 facing more competitive pressures, they need to take a hard look at how they handle direct sales, pricing, marketing, IoT, and relationships with distributors.
Manufacturers have faced numerous disruptors over the last decade and nowhere have the impacts been as dramatic as within the commerce ecosystem. From customer experience trends driving more and more self-service, to the race for mindshare within channel partners, this industry has seen more than its share of change.
2018 looks to be no different. These disruptors are emerging as natural occurrences in the evolution of e-commerce in manufacturing toward a unified, digitally supported commerce environment. Rather than viewing each disruptor as an obstacle, incorporating them into a manufacturers’ commerce strategy can create not only a competitive edge but a better business overall. To meet the challenges of the coming year, manufacturers need to understand and address these five major disruptors:
Disruptor #1 – Direct Sales
As expectations for professional buying experiences align with personal, consumer-based buying experiences, business customers are demanding more independence throughout the purchasing journey. For many, that means the ability to buy directly from the manufacturer, and bypass any third-parties like distributors and resellers. In other words, customers (often the larger ones) are actually driving this disruptor. As manufacturers build more sophisticated e-commerce and marketing engines, they can handle the custom catalogs, specific pricing agreements and highly targeted content that were previously out of their reach. As a strategy, manufacturers need to consider building robust, branded sites for specific customers where it makes sense to do so, basically where distributors are no longer providing additional value.
Keep in mind that beyond additional profits, direct sales provides valuable data—such as that gained through direct customer feedback—for manufacturers who may be facing shorter product cycles. This data is a virtual gold mine for information on making product enhancements, not to mention responding and fixing problems before they become mainstream. Most important, data feeds the e-commerce marketing engine with information that leads to better personalization in the sales process.
Evaluating strong opportunities for direct sales, while also evaluating where distributors are still providing strong value in helping manufacturers generate sales, is an exercise that manufacturers need to complete proactively, not in reaction to some external factor. Quantifying the impacts of owning the data as well as the potential for additional profits should be part of this analysis, in addition to customer expectations.
Disruptor #2 – Pricing
Manufacturers have traditionally supported manual, complex pricing models. Many of them have entire departments devoted to custom quotation processes. As more business goes direct, manufacturers have to let go of these antiquated systems in favor of much more transparent pricing. Technology research and advisory firm Gartner Inc. has predicted that almost 40% of B2B digital commerce sites in the near future will use price optimization algorithms and dynamic tools that calculate and deliver product pricing. Older, manual pricing processes simply cannot compete against the speed of this technology, which, I might add, can also be delivered via native mobile apps.
Customer demand is also driving this disruptor, but more from a performance aspect. Studies show that poor support will drive customers away no matter how long the relationship has existed. Manual, complex pricing processes are the black hole of support for many manufacturers. Without a switch to a more dynamic, technology-based pricing mechanism, many simply won’t survive.
Disruptor #3 – Marketing
The B2B sales rep isn’t going away as some have predicted, but the job is certainly changing. And for the first time, technology has placed marketing, not sales, in the drivers’ seat for most B2B organizations, not just manufacturers. As Forrester has pointed out, marketing is no longer just a lead generator. With the advance of marketing technology and the move toward self-service customer experiences, marketing is now the “architect” of the entire buying cycle.
Instead of driving the experience, sales is now part of the support mechanism for the commerce cycle. Sales reps must be infused with a consultative spirit, ready to look proactively for ways to provide value at any step in the cycle. In addition, marketing and sales need to work closely together to operate within a multitude of hybrid customer experiences. Keep in mind that digital trust can be destroyed by one poor personal interaction. Not understanding the operational impacts of this disruptor, not just the technical ones, could be disastrous.
Disruptor #4 – Distributor Marketplaces
I noted above the importance of identifying where distributors can still provide value—such as by providing new ways for manufacturers to interact with customers and sell products—and this is where e-marketplaces come into play. According to a 2017 study by UPS, the number of purchases from these marketplaces has more than doubled in less than four years—and this train is not slowing down anytime soon.
As cloud-based e-commerce solutions become more and more robust, single sign-on mega-portals are emerging that provide buying, support and service capabilities for the unique hybrid needs of B2B commerce environments. In other words, non-competing manufacturers should understand that by creating these robust marketplaces, they can support their channels both online and offline in a unified fashion, with the data to support that blended customer experience so necessary to a robust B2B commerce environment.
Focused marketplaces for customers based on customized catalogs—and with sophisticated, Amazon-like user experiences—are providing enormous value for many manufacturing customers where the primary goal is efficiency, not profits. Although manufacturers may be eyeing direct sales with eager anticipation, the presence, or even expected presence, of a sophisticated distributor marketplace should be part of the analysis we recommended at the beginning of this article. Manufacturers should give serious consideration to whether and how they might sell through these portals, or how and whether they will compete against them
Disruptor # 5 – The IoT
Although the Internet of Things is much too big a topic to address in its entirety, we can’t leave without at least mentioning that smart factories may be the single biggest disruptor that manufacturers, and distributors, may face in not only the next year, but the next decade. (Smart factories are defined as those that are entirely automated and managed via common communication protocols that deliver real-time data.) The impact of IoT, according to analyst firm McKinsey and others, could reach nearly $4 trillion by 2025. These numbers are based not only on the combined effect of operation efficiencies, cost savings, increased product and sales, but also on new revenue channels based on subscriptions and monitoring activities.
Frankly if IoT hasn’t become part of the strategy by 2018, it could be too late for some manufacturers. IoT is where manufacturers, and most B2B organizations in general, need to think about moving beyond commerce, to building digital trust throughout the entire complex customer journey.
These disruptors may have different levels of impact depending on the manufacturing organization. However, understanding their priority, and their importance within a B2B strategy for 2018 is imperative for success.