Taking Control of E-Business Selling
"Let's see, you want me to put all my products and prices online so my customers can beat me about the head and shoulders. Then I can commoditize myself even more to take my razor-thin margins down to microscopic levels. Finally, I get to pay transaction fees for this privilege What am I missing?"
Supplier, from Morgan Stanley Dean Witter Internet Report, April 2000
These comments reflect the sentiments of many business leaders today as they contemplate the launch of e-business initiatives. Although corporations are eager to harness the power of the Internet, many executives have serious concerns about their ability to maintain profitability and competitiveness in the current e-business climate.
The challenges stem from the fact that buyer-driven Net marketplaces are gaining momentum. Early buy-side applications have given way to procurement portals. In these portals, large numbers of buyers (such as large automobile manufacturers) are collaborating to purchase in volume in order to reduce costs in the supply chain. While the benefits of Net markets to buyers and sellers are compelling, the buyer driven dynamic threatens to drive prices down to the point of pain for many suppliers.
More importantly, while procurement portals initially targeted operational products such as office supplies, they are now expanding to the purchase of strategic goods such as finished component parts. This magnifies the risk for suppliers of strategic goods who must invest even more time, resources, and support services in order to sell highly complex products at reduced prices.
As a selling channel, procurement portals suffer from a number of critical shortcomings. To begin with, pricing is either static or auction based. While these pricing mechanisms are ideal for commodity products, they are inadequate to support the sales of complex products. Commodity marketplaces rely on simple catalog-based interaction rather than a more dynamic mapping of product features to customer requirements. Differentiation is difficult and branding is abdicated to the market maker. Suppliers naturally react negatively to procurement-centric portals because they lack the ability to personalize the site, a key part of profitable and competitive selling. Thus, today's buyer-driven marketplaces effectively undermine the kind of customer relationships that generate long-term mutual benefits.
Moreover, suppliers are suffering from increasing cost transparency as the Internet enables buyers to easily arm themselves with extensive information about prices, features, and quality. This intense exposure quickly erodes profit margins, thus leaving sellers in an untenable position.
In fact, Harvard Business Review identifies the following ways in which sellers are impacted by the cost transparency that results from Internet exposure. Cost transparency:
- Impairs the seller's ability to obtain high margins
- Turns products and services into commodities
- Weakens customer loyalty to brands
- Can damage the selling companies' reputations by creating perceptions of unfair pricing
And the pain is only going to get worse. According to Forrester Research, Internet-based selling will become an even more pervasive channel over the next five years. Forrester predicts B2B e-commerce will hit the $2.7 trillion mark in 2004, with 53% of the volume flowing through Net marketplaces and a nearly equal 47% coming through Web-direct selling.
As this trend surfaces, suppliers face serious challenges on three fronts. Not only must they protect their interests in their traditional sales channels, but they must also devise ways to maintain profitability and competitiveness in Net marketplaces and in direct sales over the Web. Therefore, their strategy must address all three market channels - no small undertaking since Internet-based sales represents a seismic event in terms of its impact on selling dynamics.
Clearly, sellers must take strong and decisive action now in order to reverse the balance of power currently weighted so heavily in favor of buyers. It's time for the pendulum to swing back. Even the buyers will not continue to benefit in the long term if there are no viable suppliers to provide goods and services.
Figure 1 - Staff, suppliers, and buyers converge in a Guided Buying Solution.
A Strategy for Success
Control is the key to crafting a strategy that enables sellers to survive and thrive in the e-business economy. Fortunately, suppliers have tools at their disposal that enable them to control the product that is offered, the place where it is offered for sale, the type of promotion it receives, and the price. By carefully managing these critical elements, sellers can ensure profitable selling. They can also increase their competitiveness by giving buyers greater convenience in the purchasing cycle, offering a wider choice of products, and increasing the overall value delivered.
The first step towards success for suppliers is understanding the role aggregation plays in creating value for buyers and sellers alike. Aggregation brings together multiple suppliers and buyers in a "many-to-many" relationship marketplace. Aggregation can occur when multiple divisions within a large global company launch a shared site, a consortium of independent companies launch a marketplace, or a large company brings together multiple smaller suppliers to serve their respective customers or a intermediary sets up a neutral marketplace in to serve a particular industry segment.
The benefits of aggregation are greatest in market situations characterized by the following:
- The cost of buying is high - an aggregated approach reduces cost by streamlining the buying process
- Specialized products are in demand - customers are increasingly demanding products that are customized to their specific needs
- A wide choice of products is offered - buyers are able to explore the full-range of choices that are available to meet a particular need
- There are many suppliers to choose from - buyers have the ability to compare offerings from multiple suppliers
- Contract prices and terms are negotiable - sellers have the opportunity to add value and develop long-term relationships with buyers based on meeting their specialized needs
Clearly, aggregation offers important benefits to both buyers and sellers. The next issue is how to capitalize on the benefits of aggregation during the selling process - the answer, guided buying. The goal of guided buying is to make the entire buying process easy and intuitive. Rather than forcing them to search through a huge catalog, guided buying leads buyers through the process, showing them various alternatives and trade-offs, and ultimately identifying the solution best able to address their specific requirements. Guided buying is based on an intelligent system based on the customer's unique needs. A guided buying solution weighs multiple parameters associated with a customer, matches various components of a product to their needs, recognizes valued customers to personalize the buying experience, and incorporates dynamic pricing strategies to align with business objectives - such as gaining market share by attracting new customers or rewarding repeat purchases by existing customers.
In essence, guided buying enables sellers to control the key elements of e-business selling through all phases of the customer life cycle. The critical aspects of e-business selling include:
- Place - Sell in Net markets, direct over the Web, and through existing channels
- Product - Offer the right products to meet the buyers' needs
- Price - Offer the right price at the right time to each buyer
- Promotion - Offer the right message when the buyer wants it
To see how all of this comes together, let's take a look at some real-world scenarios. In the case histories that follow, three different brick and mortar (BAM) companies are using the principle of aggregation, combined with control of Place, Product, Price, and Promotion, to increase sales through e-business expansion. These examples demonstrate how large companies can use e-business to create greater value for customers, while leveraging the scale and power of the Internet to increase their own profitability and competitiveness.
Figure 2 - Three situations in increase profitability and improve competitiveness.
Case Histories
Case Study 1: Fortune 50 Financial Services
Few industries are as competitive or dynamic as the financial services industry. Early in 2000 a $40 billion-per-year diversified financial services company launched a portal targeting small businesses. What makes this case so compelling is the speed with which the site was developed - just 10 weeks from start to finish.
Historically, large financial services companies have divided their businesses vertically, with each division focused on own specific offering, such as loans, leasing, insurance, and so forth. The Internet represents both a challenge and opportunity for diversified financial service providers. On the one hand they have great product breadth; on the other hand they must provide customers a seamless offering based on their unique needs.
In this case, the financial services provider chose to launch a project that aggregates product offerings from nine independent divisions into an integrated and compelling portal for small-business customers. Customers arrive at the site and are guided through a series of questions about the nature of their business and they type of needs they have. Based on the information provided by the customer they are guided to a customized product offering to address their specific business needs. Leads are then routed into the appropriate sales channel for closure.
This small-business portal has posted outstanding results. The site has become a reference deployment within the company, and based on this initial success, the company has launched multiple new projects. The speed of the deployment was nothing short of record breaking - it was launched in just 10 weeks. The return on investment has been equally compelling, cost of sales to small business have been lowered by 30 percent in the first year, generating millions in bottom line results.
Case Study 2: Click-and-Mortar in Retail
The dynamics of consumer computer sales are undergoing tremendous change. In order to be successful, companies competing in e-commerce are realizing that they must create a multichannel e-business selling strategy. In the year 2000, the convergence of brick-and-mortar and online business models led to the creation of the so-called clicks-and-mortar sales channel. One national retailer chose to launch its e-business initiative by leveraging its tremendous retail reach through the addition of in-store, Web-based kiosks that allow customers to purchase built-to-order computers.
The kiosks aggregate multiple product lines from three different hardware manufacturers and provide a need-driven interactive dialogue to assist a customer in making the correct buying decision. Customers are able to walk in any one of 400 retail locations, provide basic information as to their needs and then they are presented with products designed to meet their specific requirements. The kiosks permit the customer to explore alternative configuration, price and option trade-offs in order to find a product that fits their exact needs. Once an order is placed, customers can expect the machine to be shipped to the store where they purchased it, or to a specified home or office location, within as few as two business days.
The results have been as impressive, with sales and per-unit profitability from the kiosks growing well beyond what was forecasted. This approach has speeded time to market, and the success of the initial program has expanded the retailer's on-line presence, thus realizing the vision of the click-and-mortar e-business success.
Case Study 3: Net Marketplace for Home Builders
The most explosive growth trend in e-commerce is the emergence of Net marketplaces that bring together multiple companies to trade goods and services. A recent example of this trend is a marketplace launched to serve the needs of home contractors. The new marketplace permits contractors to find quality home maintenance materials for anything from small- to large-scale projects, lowering the costs for both buyers and sellers, and generating a new source of revenue for the intermediary that hosts the marketplace.
This industrial products marketplace was launched in 1998 and today drives over $500 million in trade between suppliers and buyers. The marketplace aggregates 12,000 product lines from more than 20 suppliers in a site that is easy to navigate. All transactions are conducted directly between a particular supplier and a buyer, with the market place owner charging a small transaction fee. What makes this case particularly interesting is that the marketplace owner is a large home products company that decided to launch the marketplace in order to better serve its customers by bringing together a network suppliers.
The time to market and return on investment of this site make it yet another convincing example of how traditional companies can harness the power of the Internet as an integral part of their business.
In summary, control of Place, Product, Price, and Promotion, plus mastery of aggregation, are enabling companies in three very different situations to increase profitability and improve competitiveness.
Choosing an E-Business Selling Solution
Today there are hundreds of suppliers of e-commerce related software application and technology. Finding the right supplier to meet the challenges of e-business selling is critical to long term success. Some of the key characteristics to look for in selecting a solution provider are as follows:
Buyer-Focused Supplier Software
Unlike procurement or marketplace infrastructure software, buyer-focused software is designed to enable corporations to sell in a Net marketplace, direct over their website and through their existing channels.
Guided Buying Process
Unlike catalog-based selling solutions, guided buying software presents the user with only the information vital to progressing through the buying process, based on an intelligent assessment of the customer's needs.
One-to-One, Many-to-Many
Unlike commerce platforms designed mainly for one-to-one selling, e-business selling software must include deep functionality to support many-to-many B2B relationships. This functionality includes multi-supplier/buyer aggregation, contract trading terms, negotiated pricing and advanced order management, as well as advanced one-to-one capabilities.
Customized Products and Pricing
Unlike traditional commerce platforms, e-business software must be able to dynamically customize both product and pricing. It must be capable of integrating a virtually unlimited number of customer attributes in order to meet even the most demanding built-to-order requirements.
Standards-Based Modular Architecture
Unlike proprietary application server-based solutions, the software must be based on an open standard, such as Java 2, Enterprise Edition (J2EE). It must also be deployed in a modular fashion in order to dramatically accelerate time to market and simplify integration with other packaged and custom applications.
Summary
The right e-commerce-related software applications should enable corporations to offer their customers superior convenience, choice, and value by controlling the key elements of e-business selling through all phases of the customer life cycle. The critical aspects of e-business selling include:
- Place - Sell in Net markets, direct over the Web, and through existing channels
- Product - Offer the right products to meet the buyers' needs
- Price - Offer the right price at the right time to each buyer
- Promotion - Offer the right message when the buyer wants it
Through the use of this software, corporations engaged in e-business selling should be able to use the Internet to generate increased margins, revenue growth, and lasting customer relationships.
