A company’s level of maturity is a decisive factor when it comes to their e-commerce success. In an interview with Springer für Professionals, Springer author Markus Fost explains how companies can become successful multi-players in the online retail world.
By Eva-Susanne Krah
Springer Professional: Mr Fost, in your new book, you explore e-commerce strategies for manufacturing companies. Is there an “ideal” model for achieving success online?
Markus Fost: Decisions about the right model for a particular company depend on a number of factors. However, companies should always think in terms of modular building blocks with potential for further development, as this will enable them to react to market developments in an agile way. In many cases, it can be beneficial for manufacturers to opt for an online shop system rather than a pure content management system (CMS) when relaunching a website. Even if a manufacturer is not interested in pursuing B2C sales via its own shop, the establishment of an online shop has advantages with regard to digital visibility and the integration of a B2B retailer portal; such a shop can also aid in the realisation of different business models and online business types. Ultimately, if a manufacturer wishes to secure the future viability of their business, it’s essential that they adapt their processes to suit the drastically changing retail landscape.
In what ways do you think the e-commerce strategies and activities of German industrial enterprises could be improved?
Markus Fost: Unfortunately, many German industrial enterprises have a significant amount of catching up to do in this regard. It’s now common knowledge that digital media play a role in almost 70% of purchases, even if they are not always used to carry out the transaction itself. This “Research Online Purchase Offline (ROPO) effect tends not to be taken into account in the marketing budgets of industrial firms, where the majority of cash is still set aside for offline marketing. This development serves only to justify my view that the online marketing know-how of many marketing managers is somewhat lacking. We see something similar occurring in sales: when employees have built up their conventional stationary retail experience over decades and are suddenly confronted with pure play formats like Amazon or notebooksbilliger.de, or modern multi-channel retailers like cyberport, they often become overwhelmed. However, since these retail formats are only going to become more dominant in the future, sales departments are strongly advised to equip themselves with the necessary specialists – individuals who are able to hold professional, informed discussions about cooperative marketing concepts and the provision and exchange of data within the context of these new retail formats. The far-reaching interlinking and integration of distribution channels in real time is a particular challenge for producers with a multi-level retail structure, demanding both appropriate investment and a high level of e-commerce maturity. To be successful, manufacturers require comprehensive knowledge of the customer journeys undertaken by their customers within their individual touchpoints. The goals of a company’s future retail structure should be anchored in an e-commerce strategy with top management’s support. This is absolutely vital, since the scope of change required by such a digital transformation is often underestimated.
When we talk about e-commerce activities in the B2B sales arena, a common theme is the existence of channel conflicts between retail and supplier. How can these best be resolved?
Markus Fost: Depending on the digital maturity of the sector, the risk of channel conflicts between manufacturers and retail can be the limiting factor in e-commerce strategies. While, in the textiles industry, it’s become an accepted fact amongst retailers that manufacturers like Hugo Boss, Esprit etc. operate online flagship stores in addition to distributing their products via retailers, the same situation can lead to massive channel conflicts in sectors with low levels of digital maturity. The amount of leeway a manufacturer enjoys depends on their brand strength. The question that must be addressed is: to what extent can a possible loss of profits from the phasing out of products in stationary retail be compensated for by the acquisition of new profit from modern multi-channel retail or in cooperation with pure players? If, as a manufacturer, you want to work towards a higher level of digital maturity from a procedural point of view, it’s often advisable to relaunch your web presence in the guise of an online shop with integrated B2B transaction portal. Since the B2B and B2C worlds should look roughly the same in terms of customer experience, it is possible – so long as the sector in question is mature enough – to develop B2B processes that are also suitable for B2C use. Dealings with modern multi-channel retailers and pure players should be reviewed on a case-by-case basis, since the various business models differ significantly from each other. In light of this, it’s advisable to use a scoring model to determine the relevance and price-aggressiveness of each individual retail format.
In e-commerce, manufacturers frequently cooperate with sales partners, wholesalers, other digital affiliate partners and intermediaries…
Markus Fost: As a general principle, manufacturers with a multi-level distribution structure should take care of their digital visibility themselves – relying on the retail industry or industry associations would be a fatal mistake. We only need look at the sanitation industry (reuter.de, for example) to see what happens when a disruptive pure player upsets the distribution structure of a more conservative sector: three-tier distribution via wholesalers had existed for decades prior to Bernd Reuter thoroughly shaking up this ageing sales structure. In the next 18 months, AmazonSupply will arrive in Germany and change the sales structures of many B2B industries. It will be exciting to see how wholesalers and industry associations attempt to counteract it. Whatever happens, the market power of Amazon is bound to increase.
Cleanly set-up technical processes are a further significant consideration for fully mature e-commerce models. How mature are German firms in this regard?
Markus Fost: Completely. Mature, efficient processes are a vital prerequisite for any degree of successful participation in the e-commerce market. Unfortunately, manufacturing companies have a great deal of catching up to do with regard to their quality of data, provision of data, business intelligence and supply chains. The role of IT is vastly underestimated in the majority of companies, despite the fact that scarcely a single process optimisation (in indirectly related areas) does not involve IT in some way. Many manufacturers set their IT budgets at less than two per cent of turnover. For comparison: Amazon invests around 11 per cent of its turnover in IT every year.
How will things develop in the next few years?
Markus Fost: I think the speed of digitalisation will continue to increase in the coming years and that the change will encompass all sectors. The tsunami of digital natives will only arrive once those born after 1983 assume decision-making roles within companies. Major players like Amazon, Alibaba and eBay will continue to expand their share of the market. The digital transformation will bring about shifts in market share and a consolidation effect in the manufacturer environment. Since, in the digital world, speed is more important than company size, start-ups will enjoy big opportunities. Manufacturers that have understood this change will address the topics of e-commerce strategy and digital transformation on a CEO level, and invest in innovative start-ups.
E-commerce reports on the subject show that electronic retail in digital channels is a source of enormous potential. What will be the significant drivers of growth in new business models?
Markus Fost: On the one hand, I see a growth driver in technological development; the market penetration of mobile internet will increase sharply in emerging markets. A second growth driver exists in increasing consumer confidence and consumers’ convenience orientation. Furthermore, thanks to new media such as the iPad, the 50+ generation will increasingly find their way online and bring about high e-commerce growth rates. When it comes to the design of new business models, I recommend decision makers to think disruptively, to view the business concept purely from the perspective of the target group and to develop USPs that will offer the target group true added benefit in comparison to Amazon & Co. Those who settle for a “compromise solution” in the hopes of appeasing widely divergent stakeholder interests might very well find themselves part of the next wave of consolidation (if not the next, then the one afterwards). Without “getting wet” and revolutionising existing structures, it is impossible to implement a single successful strategy in the e-commerce minefield. Source: Springer (2014)
Now available: the German-language book E-Commerce Strategien für produzierende Unternehmen (“E-Commerce Strategies for Manufacturing Companies”) by Markus Fost. The book supplies an outstanding overview of current theoretical and practical discussions and is aimed at business leaders and managers from a diverse range of disciplines, including sales, marketing, business development and more.
Further information can be found at:
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