Three keys for building a successful B2B e-commerce strategy in emerging markets
When it comes to e-commerce, the big consumer-oriented players like Amazon tend to dominate the headlines. However, the COVID-19 pandemic has accelerated e-commerce adoption in the B2B world as well. Companies across sectors like chemicals, agricultural equipment, and heavy machinery are also looking to explore how e-commerce can benefit their customers, partners, and operations. According to our global benchmarking survey amongst multinational executives in July 2021, 65% of B2B executives said they expect to move more of their sales to the online channel over the next five years. 71% said they wanted to use e-commerce to access new customer groups, while 62% planned to use it to gather better customer data to inform their strategies.
But developing an effective B2B e-commerce strategy if you are running a large multinational takes much more than simply building a website or setting up a relationship with an aggregator. There is one particular challenge that is rarely discussed but critical for multinationals – their existing relationships with partners and dealers in emerging markets. Of the multinational B2B companies we surveyed, 50% of their revenue was sold through distributors, largely in high-growth areas such as EMEA, Asia Pacific, and Latin America. This means that as their sales through e-commerce grow, they are likely to be disrupting a substantial proportion of their own existing offline route-to-market, and potentially putting significant revenue at risk.
B2B executives say they would like distributors to play a significant role in their e-commerce channel. 41% of our survey respondents said that they would like their distributors to provide fulfillment and logistics for online sales. 26% even wanted their distributors to have an online presence themselves and to sell on the multinational’s behalf.
However, distributors are not ready for this transition, and multinationals are not really helping them get ready either. 47% of companies we polled said their distributors are not prepared for the way e-commerce will impact their business, and close to 50% of respondents said that they have no plans to help their distributors integrate more effectively with the online channel. Given the accelerated adoption of e-commerce as a result of the pandemic, this can be a recipe for disaster in markets that see sudden increases in demand for the online channel.
What should executives do to reduce the risk from this transition to a more integrated offline/online B2B channel? We found three strategies are key for success.
1. Select the right route-to-market model first
We’ve spoken with dozens of executives at large multinationals about the way e-commerce interacts with their existing offline partners like distributors, dealers, and wholesalers. In the process, we found four distinct models for structuring an effective offline/online route to market in the B2B world: the sandbox model, the complementary model, e-commerce for efficiency, and true omnichannel.
The sandbox model uses e-commerce to test interest, investment requirements, and what it would take to scale by targeting a largely untapped customer. One company we spoke with used that model to enter several markets in Latin America and test demand as well as build brand awareness, before entering offline as well.
The complementary model is very popular among B2B companies. It takes a segment that is unattractive for distributors to go after – spare parts, SMB or occasional buyers, etc. and targets that exclusively with e-commerce. A number of companies we spoke with were using this to efficiently target small mom-and-pop shops who were ad hoc buyers, geographically dispersed, and unprofitable to serve by the distributors’ sales teams, for instance in China.
The e-commerce for efficiency model brings the offline and online channels together at a deeper level, with partners providing online front-end, or supporting e-commerce fulfillment, and multiple channels targeting customers. This model is deeply disruptive for distributors and requires change management for getting them on board, incentivizing them differently, and helping them build the necessary capabilities. One firm we interviewed who implemented this model in the Middle East created a new set of KPIs and trainings for partners, but also off ramped ones who were not willing to work within the new structure.
Finally, we also see a true omnichannel model which is much more popular in the consumer goods space, but is a point of reference and inspiration for some B2B firms who see much more of their channel moving online. In the omnichannel, offline and online are not just working in parallel with specific engagement points, but are truly integrated into a single system with significant data transparency.
1. Define the specific role of distributors they require and what skills distributors need to bring to an integrated offline/online route to market
Each of the models above has implications for distributors and their capabilities. For example, in the complementary model, we see distributors involved in technical support or after-sales service on some of the products sold online. In the efficiency model, distributors may be asked to strengthen their logistics and fulfillment capabilities or, alternatively, to move towards more of a solution-seller and services provider to drive value-added. B2B executives launching e-commerce initiatives need to think about the implications their chosen model has on the current and future capabilities of their distributors.
3. Design a system of incentives, monitoring, and support
To drive the level of transformation of distributors that may be required by e-commerce, B2B executives need to build integrated systems of performance management for partners, focused not just on financial KPIs, but also on capability building. These require clear definitions of behaviors/capabilities required, and a tailored incentive, monitoring, and support system to drive distributors to make the necessary investments. Based on our proprietary benchmarking, companies that have implemented such systems see a 10.9% increase in revenue growth.
The approach we recommend in integrating B2B offline and online channels ensures that companies are not only avoiding disrupting existing sales channels, but also making the most of their investments into e-commerce and building a system that can scale quickly and efficiently as e-commerce grows.
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