B2B Strategy

The potential of business-to-business (B2B) e-commerce is now widely recognised, with most analysts expecting it to dwarf business-to-consumer (B2C) e-commerce revenues by five to ten times.

According to Gartner Group research published in August 2000 (www.gartner.com), worldwide B2B e-commerce will grow from $403 billion in 2000 through to approximately $7 trillion in 2004, yet this will only be 7% of all global sales transactions. What issues do these contrasting figures raise for strategists directing their companies investment in e-marketing?

 

First, we have to evaluate current and future predictions of usage of the Internet for e-commerce sales in a particular market sector. Secondly we have to review the relevance of new marketplace and business models that may radically change the way products are promoted and sold in comparison with traditional channels. If it appears from this analysis that the impact on B2B sales is significant, then decisive action is needed to set objectives and define approaches to achieve these goals. We will now explore how we can evaluate the current state of the e-marketplace for a particular industry and then react accordingly.

Strategy drivers

The starting point for developing a B2B e-marketing strategy, as for any marketing strategy, is to understand the current and future environment in which the company operates in order that the strategic objectives are realistic given marketplace developments. It is vital to understand through marketing research how the marketplace is changing in terms of the more immediate marketplace in terms of customers, competitors, intermediaries and market structure.

 

A key factor in defining e-marketing objectives is the current level and future projections of customer activity in the sector. This will influence the demand for products online and this, in turn, should govern the resources devoted to the Internet. Customer activity within a given market can be determined by answering questions such as:

• What % of customer businesses have access to the Internet?
• What % of members of the buying decision in these businesses have access to the Internet?
• What % of customers are prepared to purchase your particular product online?
• What % of customers with access to the Internet are not prepared to purchase online, but are influenced by web-based information to buy products offline?
• What are the barriers to adoption amongst customers and how can we encourage adoption?

 

For B2B companies, although many now have access to the Internet, access to employees within companies is uneven. For example, the August 2000 Durlacher Quarterly Internet Report (www.durlacher.com) reported that although 90% of UK SMEs have access to the Internet (87% in small and 95% in medium), the number of employees with access to the Internet was only 41% for medium business and 46% in small business. In an individual business, this could mean that although the R&D or marketing team may have access, those involved in purchasing may not. There is also considerable variation within different types of market.

 

Monitoring online competitor activity is also important in the e-marketplace due to the dynamic nature of the Internet medium. This dynamism enables new services to be launched and promotions changed much more rapidly than through print communications, hence competitor benchmarking is not a one-off activity during strategy development, but needs to be continuous. Trainmaker ADTranz now employs a member of marketing staff full-time to continuously scan their competitors’ sites and to track major customer orders and other industry news. This approach is particularly necessary for a business-to-business environment with a small number of clearly identified competitors. Competitor benchmarking should include:

·       well known local competitors (for example, UK/European competitors);

·       well known international competitors;

·       new Internet companies local and worldwide (best practice from in sector and out of sector).

 

An internal audit of the capability of the resources of the company such as its people, processes and technology also needs to take place with a view to assessing the changes needed to introduce e-marketing.

B2B marketplaces

A key aspect of deciding how to respond to the Internet is evaluate the role of online marketplaces, aka trading hubs, communities, exchanges and vertical portals! Trading via online marketplaces is a significant trend indicated by the number of B2B exchanges launched in 2000 and sponsored by major global companies. Examples include:

• Covisint in motor industry (Ford, DaimlerChrysler and GM). Here former exchanges created by Ford (AutoXchange) and GM (Tradexchange) have merged.
• WorldWide Retail Exchange (Kingfisher, Kmart, Marks and Spencer)
• GlobalNetExchange (Retailers Sears and Carrefour) Note that Transora has been created by fifty of the worlds major FMCG suppliers including Coca Cola and Kelloggs in response to retailers
• T2 US airline trading exchange

 

In addition to these industry specific marketplaces, there are also cross-industry marketplaces such as MarketSite (www.marketsite.net), Industry-to-Industry (www.itoi.com) and Vertical Net (www.vertical.net) that facilitate trade for a range of industries.

 

Marketsite market exchange (www.marketsite.net)

 

B2B companies have difficult decisions to make following their evaluation of marketplaces including:

What is the potential for generating new sales in overseas markets through these marketplaces? What proportion of our customer base may we lose if we do not support these marketplaces? Which marketplaces should we be represented on? What are the implications of these marketplaces for our relationship with channel partners? There is limited information on usage of many of the newer marketplaces and many are not a good proposition for buyers since they have not reached critical mass in terms of number of suppliers. The August 2000 Durlacher Quarterly Internet Report (www.durlacher.com) on 800 UK SMEs surveyed in July 2000, showed that already 20% of all companies with an Internet connection were using trading communities, with around 35% in the retail and wholesale sectors.

Setting e-marketing objectives

Marketing objectives for using the Internet as a channel are often poorly defined, since the initial Internet presence was often a stop-gap response to market pressures. A reactive rather than proactive approach to use of the Internet for marketing often omits definition of objectives and processes for measuring whether these objectives have been achieved. Specific objectives should centre on the potential for increased revenue arising from expanding customer base or encouraging loyalty and repeat purchases and cost-reduction achieved through delivering service electronically. Examples of specific measures for different sectors might include:

·         B2B startups – acquiring a specific number of new customers or to sell advertising space to generate a specified revenue that will hopefully exceed investment in site creation and promotion!

·         Office equipment manufacturer – increase customer retention by reducing churn from 10% to 5%

·         Established engineering company – increase overall revenue by 5%, through targeting sales in new international markets

·         Reduce costs of routine customer service by 10% to enable focus on delivery of specialised customer service

 

Companies essentially need to decide whether the Internet will primarily complement the company’s other channels or whether it will replace other channels. Clearly, if it is believed that the Internet-based e-commerce will primarily replace other channels, then it is important to invest in the promotion and infrastructure to achieve this. To help answer the complement or replace dilemma, it can be suggested that there is a single key objective that should be part of every e-marketing plan. This is the Internet contribution. Typically companies can assess the Internet contribution according to the percentage of revenue directly generated through online transactions. However, for some companies such as a B2B service companies, it is unrealistic to expect a high direct Internet contribution. In this case, an indirect Internet contribution could be stated. This considers the Internet as part of the promotional mix and its role in influencing purchase.

 

Cisco Systems Inc web site (www.cisco.com)

 

Cisco Systems Inc (www.cisco.com), maker of computer networking gear, now has an Internet contribution of 90% by volume on total annual sales approaching $19 billion. This was achieved since senior executives at Cisco identified the significance of the medium, set aggressive targets for the Internet contribution and resourced the e-commerce initiative accordingly. Through leveraging the Internet, Cisco has also dramatically increased profitability. Web-site based customer service and online ordering, has enabled a 20% reduction in overall operating costs. The fortunes of Cisco can be compared with those of its rivals that did not respond as rapidly to the new medium.

E-marketing tactics

The tactics for achieving the strategy can be devised by considering the elements of the traditional marketing mix. Options for varying the product include offering enhanced or personalised online services and use of an online brand variant to emphasise these differences. Dell (www.dell.com) offers corporate accounts a Premier Pages extranet service where purchasers can track order status and receive preferential customer service levels.

 

Pricing strategies for the Internet also need to be reviewed. Customers can be encouraged to adopt online procurement services if there is a clear cost-benefit. In return, the supplier may increase customer loyalty via ‘soft lock-in’. The oilfield services division of Schlumberger has created an e-procurement system in which employees act as purchasing agents, ordering directly via their desktop PCs. One favoured supplier is OfficeDepot who provides Schlumberger with a subset of catalogue products for which special prices have been negotiated. B2B marketplaces and exchanges cause price transparency to increase and companies will need to be able to rapidly respond via price changes, promotions and product changes.

 

The implications of the Internet to ‘place’ are profound. We have already seen that companies need to maximise their representation on different B2B marketplaces and general portals, either to sell their products at these locations or drive traffic to their own web sites. B2B companies also need to review whether they will cut out some channel partners and sell direct or whether it is best to use the Internet to support the channel partners. Mailing and messaging systems company Pitney Bowes (www.pitneybowes.co.uk) has recently invested in a partner extranet that supports over 50 channel partners in the EMEA region. Similarly, tile manufacturer HR Johnson (www.johnson-tiles.com) offers an extranet service that is only available to their larger distributors. When the site was launched, they targeted 20 distributors who they wanted to trade with via the Internet.

 

Pitney Bowes dealer extranet (www.pitneybowes.co.uk)

 

Promotion of e-commerce services requires a combination of traditional offline communications such as trade magazine adverts and mailouts together with online communications. Specialist online marketing techniques such as search engine registration, keyword-based banner advertising and e-mail newsletters can be used to drive traffic to the web site. Communications in all media need to not only flag the location of the site but clearly emphasise its value proposition – which services are available on the site that are not available offline and not available from competitors?

Managing e-change

Perhaps the biggest problem that is faced by both B2B and B2C companies is how to manage the change that is necessitated by the changes associated with e-marketing. The figure shows key change levers that need to be reviewed in order to maximise the benefits of e-marketing. These are all major changes needed for a company to be agile enough to respond to marketplaces changes and deliver competitive customer service. To help achieve changes success factors include management buy-in and ownership, effective project management through inclusion of all affected parts of the business and action to attract and keep the right staff to achieve e-change. A 1999 KPMG survey (www.kpmg.co.uk) showed that having board level support for the initiative was one of the key success factors and leaders had higher level of e-commerce investment (E-commerce budgets averaging $222,000 compared to $130,000).

 

Published in Marketing Means Business for the CEO (Chartered Institute of Marketing),

November 2000.