E-commerce portals are growing in popularity, but the move might backfire for some B2B companies. It can lead to disgruntled customers, channel conflicts, or loss of revenue. Therefore, before making the foray into e-commerce, B2B companies need to consider several factors like the nature and value of the product, level of customer interaction required, existing channel partners, and payment authorisation procedures.
An ex-student discussed how his firm planned to launch an e-commerce portal sometime back. The decision would seem justified considering today’s popularity of e-commerce. But the firm was a pure B2B firm and sold high value (unit prices exceeding Rs.50,000) items, which made the decision surprising.
The firm had a well settled and enviable channel structure comprising many distributors. It
had taken nearly two decades for the firm to put the distribution structure in place. And the distributors had invested significantly in their respective sales forces. The sales process involved salespeople personally meeting customers and assisting them in purchasing the products. They helped customers fill out forms and other requirements and assisted them in making the right choice of equipment.
If the customer desired it, the salespeople also organised financing for the equipment, thus allowing customers to pay in instalments. There was also a robust buyback program whereby customers could return their old equipment and get a discount on the upgraded version of the equipment. While the distributor channel did have its issues, it functioned reasonably well considering the circumstances.
The e-commerce initiative conceptualised in the middle of the pandemic seemed like a
response to the wave of B2C firms launching their D2C websites. The decision to launch the e-commerce site was to supplement the existing channel. Another objective that the company wished to achieve with the portal was to reach customers in Tier 2/3 cities and towns. These were not currently serviced well by either the company directly or by the distributors.
It could also have been one of those top-down decisions where someone in the C-suite had
a bee in their bonnet. Or maybe a feeling that investors wished the firm to appear modern, and this appearance involved setting up an e-commerce site. There are also enough articles (like this one) on the internet urging B2B companies to embrace e-commerce. These articles usually make a case for having an e-commerce portal for showcasing the products and the company. Other benefits include providing a place for buyers to leave reviews. There is also a perception that a firm with an active e-commerce portal is more advanced than a competitor without one.
Many of these benefits seemed logical but intangible to me. The only one that made absolute sense was that of reaching hitherto unserviced areas. I had severe doubts about the others and anticipated several hiccups.
Having worked in a bank and having dealt with business customers, I knew the problems
around payments made by companies (except sole proprietorships). Unlike individuals who can purchase using a personal credit card, a firm follows a complicated purchasing process. Banks have to seek and maintain letters of authorisation and approval limits. Before allowing most transactions, a bank must check for these authorisations and limits. In my opinion, duplicating this mechanism online would be a tall order.
Also, it is well-known that decisions in a firm are made by multiple executives (a concept discussed in B2B marketing courses called the buying centre). Family-run businesses and sole-proprietorship firms do not face these issues, but those were not the firm’s primary customers.
I also foresaw issues leading to serious channel conflicts. There was no reason why the
existing distributors would take kindly to an internal competitor. During the discussion, I conveyed my scepticism around the idea. Once I outlined the issues I anticipated, conducting the business transaction online started looking quite complicated and almost impossible. Nevertheless, the project was underway, and the e-commerce portal was launched.
After six months, as I had predicted, the going has been slow. The portal has seen very few transactions, and more issues are emerging. The problems faced were at multiple levels.
Customers were unwilling to go through the cumbersome KYC norms to register on the portal. They were used to the salespeople doing most of the paperwork and were reluctant to do it themselves. For high-priced equipment, demonstrations are vital. The videos showcased on the portal were not sufficient to meet this requirement. Feeling and trying the product was an essential step preceding purchase in the physical world, which could not be replicated in an online transaction.
Also, as I had foreseen, there was considerable unrest amongst the existing distributors of
the company who felt threatened by the online channel. This was a classic case of channel conflicts discussed in Distribution courses. To appease the distributors, the firm was compelled to keep the online prices higher than those offered by the distributors, which further reduced the attractiveness of buying online.
Moreover, when the portal launched, it did not have either financing options or buyback options. These options required physical interventions, which made it impossible for the online transaction to incorporate these practices.
The company had to effect several changes to address these issues arising from their foray into e-commerce. It is in the process of partnering with fintech players to offer financing
options on the e-commerce portal. A positive side effect (not envisaged earlier) is that the portal is becoming an ordering tool so that the sales team can focus on consultation and leave some of the backend office tasks to the online tool. The firm is also considering a commission system for the distributors, which had been one of my original thoughts regarding a way to resolve possible channel conflicts.
Drawing generalisations from anecdotal evidence is dangerous, but there is much to learn from this experience. While there may be companies that may benefit from having a robust
website for showcasing their products and writing blog pieces (creating a perception of thought leadership) or giving customers or prospects the ability to communicate with the company, beyond that, expecting the web to be a key sales channel immediately may be a pipe dream. With blockchain technologies enabling better authentication and a more straightforward approval process, large value purchase transactions may happen on e-commerce portals. But the problems of getting a physical feel for the product will persist.
Commoditised products with standard quality indicators could be sold from e-marketplaces
and may also be sold from individual firm portals. However, problems of authority and payments above a particular limit online may need to be surmounted. Existing customers could reorder using online portals, but pricing issues may remain, and the channel conflicts may have to be resolved by giving distributors credit for such transactions.
It is great to see big firms experiment and be willing to go out on a limb, but seeking feedback from stakeholders and a few uninvolved parties might help them achieve their goals more smoothly. Taking this feedback and plugging it into scenarios (game theory) might help pre-empt many issues.