E-Commerce by the Numbers
Many knowledge-based distributors are seriously considering
the move into e-commerce. A few of the forward-thinking companies have already started their efforts. Along the way, these early adopters have discovered some of the pot-holes in the road to a credible e-commerce platform. The whole “e-commerce thing” is still developing. There are a million (well at least a couple hundred) misconceptions floating around. Based on the situation, we decided to share some numbers.
12,000+ Automation related Google searches per day: Just in the State of Ohio
Why pick on automation? We used automation related terms because less spill over into other hobby or DIY topics was less than what might be seen with electrical, plumbing or other lines of trade. The assumption is simple: those searching for Variable Frequency Drives, Programmable Controllers and other automation equipment are industrially focused and most likely the types of customer contacts knowledge-based distributors serve.
81 Percent of Industrial customers are buying online: River Heights driven customer survey
This number comes from a half dozen surveys we conducted for distributor clients. In follow-up conversations with the customers, we heard a plethora of reasons for buying products online. Our first assumption was customers were buying unusual and hard to find items over the internet because their local distributor did not stock the products. This turned out to be the case in many instances; however, the second most common reason customers purchased online was to speed up the purchasing process. One customer related it took 3-4 days to process an order through their purchasing department but they could circumvent the issue by buying online. Typically, they knew the estimated arrival date the moment they pushed the enter button. Surprisingly to some, price was mentioned as a driver less than 10 percent of the time.
40 Percent of Distributors have minimal or no e-commerce presence: Industry Report 2018
According to a report by Jonathan Bein, the percentage of distributors doing more than 10 percent of their business via e-commerce grew from 34 percent to 41 percent in 2017. Our own research indicates much of this business was driven by “larger” distributors, while the typical sub-$50M distributors stood on the side lines mostly based on the cost and manpower required to build a credible system.
$299/month: Cost of a full-scale Shopify account
We chose Shopify as it was picked by Codeinwp.com as the best webstore setup of 2019. That price sounds fairly reasonable, except for one major issue. Setting up a webstore is like leasing an empty storefront and calling it a distributor branch location. The empty storefront could be used as a shoe store, a cell phone place or a flower stand; it’s nothing until equipment, signs and inventory are added. Once all the equipment, inventory and other goodies are added, there is still no guarantee customers will find your location.
Webstore providers deliver the framework but not the content or the means for attracting customers. Distributor e-commerce web stores need mega content to serve customers and the right kind of content to keep them coming back. Great content, and lots of it, is not easy to come by.
250,000 needed SKUs for the average Knowledge-based Distributor
Obviously, this number is different for every distributor, but since this article is about numbers, let’s do some math. We will look at the average Automation distributor (again selected for convenience):
· Number of Supply-Partners 30 Minimum
· Number of SKUs per Supply-Partner 10,000 Conservative average
This puts the needed number of SKUs at well over the 250,000 previously mentioned. While these numbers don’t represent the products actually sold, they do represent the mass quantity of catalog numbers needed to do a respectable job of covering each of the suppliers catalog.
One of the advantages of extending the catalog numbers into the “long tail” of products available for sale is the ability to attract new potential customers. These customers are unable to find the product through their normal supplier, so they do an internet-based search. Your web store pops up on their Google search and, at the very minimum, you have the opportunity to acquire a new lead. In the best of situations, you sell the customer a non-stock item and place an order with the supplier’s factory.
5 Minutes to create content for each SKU
Good content is hard to find; we are talking pictures, specifications and other needed information. Most distributors find themselves creating content from rough information available through their suppliers. A few hire the work done via companies who specialize in pulling data from the internet and providing it in a rough but more workable format. Either way, somebody must create the content data.
For those launching into the e-commerce business, the idea of creating data is appealing. Hire an extra IT guy and assign them the task and you are done. However, the numbers speak for themselves:
· 250,000 SKUs times 5 minutes per SKU EQUALS 20,833 Man Hours
Clearly, this is a gigantic task and not something that can be accomplished as a hobby.
$250,000 spent Acquiring Content and Still not Done
Talking to distributors around the country, the reports are the same: the cost of acquiring content is costly, very costly. This expense alone puts a damper on the ability of smaller distributors to create a credible webstore on their own.
16 Percent Growth of Online E-commerce Business Predicted: 2018 Report
The e-commerce march continues. Several distributor behemoths publicly announced their online sales have grown faster than the rest of their business. While there is a big difference between folks like Grainger and the average Knowledge-based supplier, distributors simply can’t ignore this phenomenon. We all must grow, if for no other reason than to provide expansion for our supply-partners who depend on us for market share and competitive positioning.
Solutions for “our kind” of distribution
First, many distributor associations have worked together to accelerate the formation of product content. The best work seems to be focused around commodity items, where the need for detailed specifications is not as critical as in the Knowledge-based distribution world. Further, my own observations indicate a good deal of the content has been scrapped from manufacturers’ own data. While this content captured from other sources is better than nothing, there are major flaws I believe could hinder future success.
Second, and in the industrial automation space, a new company, KYKLO, has taken a uniquely different approach. Rather than sell content, they sell a complete solution. Here is what I like about their system:
· The content is created “from scratch” by their own team of engineers. The majority of these people have industry experience and know precisely what is required to attract customers.
· The content is normalized, which is the internet term for standard across all of the products. To get an idea of what “un-normalized” content looks like, open any 1990s catalog produced by distributors. The book looks like a collection of pages from a number of different catalogs. Why? It’s simple, most distributors merely lifted relevant pages from their supply-partners.
· The content is designed for search engines. This means not only is the content there, but it can be found by your customers.
· The cost of content and maintaining the content is spread over the whole of KYKLO’s subscriber base. This brings the cost down to each participating distributor.
· The subscription price means it’s not a sunk cost. If you invest 250,000 dollars on a specially designed website, you are stuck with the cost regardless of what new innovation takes place on the web. Innovation is a never ending thing.
· The temptation to not maintain your website during times of economic downturn is removed. Content needs perpetual maintenance as manufacturers add new revisions and new products while you add new product lines. I believe you need better technologies during recessions. Further, distributors have the tendency to think of internet-based expenses as a one-time deal. There are dozens, perhaps hundreds, of five year old distributor websites. When new, they were cool, a half decade later-- they are beyond obsolete.
· KYKLO must develop and refine their service each year or the distributor can simply pull the plug and move to something else. Further, the CEO of the company readily admits, they will face competition in the future. Competition is good for users of services like these.
The numbers don’t lie
For the past five years, I have recommended that Knowledge-based distributors hold off on launching a webstore. I feel the advice was justified because the cost of moving forward was prohibitively expensive; we at River Heights Consulting believed better investments existed for our client’s money. Additionally, I predicted the costs of entry would come down and they have. But, it’s not about technology or our costs. The real deal is growing customer desire to do business differently, even in our line of trade. Those who hesitate further could find their business migrating to others.
Finally, it’s not a situation of just Building a Webstore
If you are thinking about starting up a webstore and then just sitting back and waiting for the orders to come flowing in, I fear you will be disappointed. The webstore is just the first step in digitization. Distributors must have a strategy for allowing their customers to take a “multi-channel” approach to your business. They may enter an order online, then call with questions or add-ons to the order. They may call with questions today and place the order online tomorrow. Your sales team might use the online platform to build a professional quote. Inside sales might steer a customer to the website to answer technical questions or grab suggested “tag along” sales.
It takes time to build a strategy and the time to start is now.
___________________________________________
12,000+ Automation related Google searches per day: Just in the State of Ohio
Why pick on automation? We used automation related terms because less spill over into other hobby or DIY topics was less than what might be seen with electrical, plumbing or other lines of trade. The assumption is simple: those searching for Variable Frequency Drives, Programmable Controllers and other automation equipment are industrially focused and most likely the types of customer contacts knowledge-based distributors serve.
81 Percent of Industrial customers are buying online: River Heights driven customer survey
This number comes from a half dozen surveys we conducted for distributor clients. In follow-up conversations with the customers, we heard a plethora of reasons for buying products online. Our first assumption was customers were buying unusual and hard to find items over the internet because their local distributor did not stock the products. This turned out to be the case in many instances; however, the second most common reason customers purchased online was to speed up the purchasing process. One customer related it took 3-4 days to process an order through their purchasing department but they could circumvent the issue by buying online. Typically, they knew the estimated arrival date the moment they pushed the enter button. Surprisingly to some, price was mentioned as a driver less than 10 percent of the time.
40 Percent of Distributors have minimal or no e-commerce presence: Industry Report 2018
According to a report by Jonathan Bein, the percentage of distributors doing more than 10 percent of their business via e-commerce grew from 34 percent to 41 percent in 2017. Our own research indicates much of this business was driven by “larger” distributors, while the typical sub-$50M distributors stood on the side lines mostly based on the cost and manpower required to build a credible system.
$299/month: Cost of a full-scale Shopify account
We chose Shopify as it was picked by Codeinwp.com as the best webstore setup of 2019. That price sounds fairly reasonable, except for one major issue. Setting up a webstore is like leasing an empty storefront and calling it a distributor branch location. The empty storefront could be used as a shoe store, a cell phone place or a flower stand; it’s nothing until equipment, signs and inventory are added. Once all the equipment, inventory and other goodies are added, there is still no guarantee customers will find your location.
Webstore providers deliver the framework but not the content or the means for attracting customers. Distributor e-commerce web stores need mega content to serve customers and the right kind of content to keep them coming back. Great content, and lots of it, is not easy to come by.
250,000 needed SKUs for the average Knowledge-based Distributor
Obviously, this number is different for every distributor, but since this article is about numbers, let’s do some math. We will look at the average Automation distributor (again selected for convenience):
· Number of Supply-Partners 30 Minimum
· Number of SKUs per Supply-Partner 10,000 Conservative average
This puts the needed number of SKUs at well over the 250,000 previously mentioned. While these numbers don’t represent the products actually sold, they do represent the mass quantity of catalog numbers needed to do a respectable job of covering each of the suppliers catalog.
One of the advantages of extending the catalog numbers into the “long tail” of products available for sale is the ability to attract new potential customers. These customers are unable to find the product through their normal supplier, so they do an internet-based search. Your web store pops up on their Google search and, at the very minimum, you have the opportunity to acquire a new lead. In the best of situations, you sell the customer a non-stock item and place an order with the supplier’s factory.
Good content is hard to find; we are talking pictures, specifications and other needed information. Most distributors find themselves creating content from rough information available through their suppliers. A few hire the work done via companies who specialize in pulling data from the internet and providing it in a rough but more workable format. Either way, somebody must create the content data.
For those launching into the e-commerce business, the idea of creating data is appealing. Hire an extra IT guy and assign them the task and you are done. However, the numbers speak for themselves:
· 250,000 SKUs times 5 minutes per SKU EQUALS 20,833 Man Hours
Clearly, this is a gigantic task and not something that can be accomplished as a hobby.
$250,000 spent Acquiring Content and Still not Done
Talking to distributors around the country, the reports are the same: the cost of acquiring content is costly, very costly. This expense alone puts a damper on the ability of smaller distributors to create a credible webstore on their own.
16 Percent Growth of Online E-commerce Business Predicted: 2018 Report
The e-commerce march continues. Several distributor behemoths publicly announced their online sales have grown faster than the rest of their business. While there is a big difference between folks like Grainger and the average Knowledge-based supplier, distributors simply can’t ignore this phenomenon. We all must grow, if for no other reason than to provide expansion for our supply-partners who depend on us for market share and competitive positioning.
Solutions for “our kind” of distribution
First, many distributor associations have worked together to accelerate the formation of product content. The best work seems to be focused around commodity items, where the need for detailed specifications is not as critical as in the Knowledge-based distribution world. Further, my own observations indicate a good deal of the content has been scrapped from manufacturers’ own data. While this content captured from other sources is better than nothing, there are major flaws I believe could hinder future success.
Second, and in the industrial automation space, a new company, KYKLO, has taken a uniquely different approach. Rather than sell content, they sell a complete solution. Here is what I like about their system:
· The content is created “from scratch” by their own team of engineers. The majority of these people have industry experience and know precisely what is required to attract customers.
 |
| This is full of un-normalized content |
· The content is designed for search engines. This means not only is the content there, but it can be found by your customers.
· The cost of content and maintaining the content is spread over the whole of KYKLO’s subscriber base. This brings the cost down to each participating distributor.
· The subscription price means it’s not a sunk cost. If you invest 250,000 dollars on a specially designed website, you are stuck with the cost regardless of what new innovation takes place on the web. Innovation is a never ending thing.
· The temptation to not maintain your website during times of economic downturn is removed. Content needs perpetual maintenance as manufacturers add new revisions and new products while you add new product lines. I believe you need better technologies during recessions. Further, distributors have the tendency to think of internet-based expenses as a one-time deal. There are dozens, perhaps hundreds, of five year old distributor websites. When new, they were cool, a half decade later-- they are beyond obsolete.
· KYKLO must develop and refine their service each year or the distributor can simply pull the plug and move to something else. Further, the CEO of the company readily admits, they will face competition in the future. Competition is good for users of services like these. The numbers don’t lie
For the past five years, I have recommended that Knowledge-based distributors hold off on launching a webstore. I feel the advice was justified because the cost of moving forward was prohibitively expensive; we at River Heights Consulting believed better investments existed for our client’s money. Additionally, I predicted the costs of entry would come down and they have. But, it’s not about technology or our costs. The real deal is growing customer desire to do business differently, even in our line of trade. Those who hesitate further could find their business migrating to others.
Finally, it’s not a situation of just Building a Webstore
If you are thinking about starting up a webstore and then just sitting back and waiting for the orders to come flowing in, I fear you will be disappointed. The webstore is just the first step in digitization. Distributors must have a strategy for allowing their customers to take a “multi-channel” approach to your business. They may enter an order online, then call with questions or add-ons to the order. They may call with questions today and place the order online tomorrow. Your sales team might use the online platform to build a professional quote. Inside sales might steer a customer to the website to answer technical questions or grab suggested “tag along” sales.
It takes time to build a strategy and the time to start is now.
___________________________________________
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