The B2B E-channels, friend or foe?

The Industrial B2B business, aka industrial distribution business, has always been seen as “an old man business” in which your business grows as your years in the network, together with your grey hair. This is one of the most traditional business in the industry field until recently, the evolution of multi e-channels have tremendously disrupted this business model thanks to technology advancement. The emergence of new channels and the available e-channels have sprung up like mushrooms.

The reluctancy from distributors is still obvious whilst some distributors who embraced digital distribution in the early stage have already achieved economies of scale and boosted both sales and company valuation in an unprecedented speed. ?

The core value to end customers are clear, that is easier, faster and cheaper to get products. Product vendors rely on e-channels as they try to grow into new geographies and scale their business.

The essence relies on holistic disruption of traditional channels.

Small distributors realize that their competitor is armored with machine guns after digital sales implementation, how could they possibly win the war with only old rifles?

The e-channels are dominating the end market as well as the interface with customers. With the capital support, the e-channel top players are merging quickly or building alliances to create a giant monster. To beat the competition, the e-channels are investing heavily on activities around customer centricity which includes but not limited to designated customer service or sales engineer for one Key account, customized catalogue and etc. All data relating to browsing and buying activities will be analyzed for further marketing. The product brand companies simply cannot reach this level to their own customers since the core of e-channels business is customer service so the spend on customer service is so much higher than various brand vendors to its end customer so that it makes sense for the brand to rely on channels to service their customers. When the model has started to surface, we have noticed the two scenarios:

1, For generic products, the e-channels become the “brand” as the customer rely on their recognized e-channel to choose their daily needs, in MRO/industrial goods, that will be general hand tools, standard fasteners, stationary and all these are like groceries for a household that customers rely on the e-channel for recommendation and selection. Gone are the days when the uncertainty is around the product performance so the brand is the promise.

As now the e-channels are having so much influence on generic products to the end users, the e-channels are also leveraging their brand and buying quantity to produce their own brand products from OEM;

Like this:

2, For engineered/function-specific products, the e-channels allow the OEM to quickly reach out their potential market to specific potential customers. This connection is so straightforward that the feedback/opinions from the end customer are directly impacting the original design of the product; that overthrows the traditional way that the brand company designed their own product in expectation of selling their over-engineered products;

The China and Asia market is continuing to be hotspot on industrial market and let’s remember the time when China started reform and subsequently entered WTO so that it started becoming the land of manufacturing, brand product was the King. Over the past 20+ years. Generic products are massively available and homogeneous on the market. Selling becomes different and Now it is the time to revolves around the key players on e-channels and to redefine your product assortment with them.

I conclude by having one diagram below from McKinsey

Digital is not a strategy, it is a necessity.

Mike

2021/08/10 Shanghai