B2B Disruption: Pricing, Segmentation, and Technology

According to Forrester Research, B2B e-commerce sales are now more than twice the size of B2C e-commerce and are expected to achieve $559 billion in sales in the US by the end of 2013.

Because of the size of the B2B opportunity, an increasing number of companies are exploring how technology and specifically, e-commerce platforms, will impact how buyers will purchase industrial products in the future. Recently Oracle reported some interesting findings (Oracle’s 2012 B2B E-Commerce survey):

- 28% of respondents said that over 50% of their revenues come from the online channel.

- 31% of respondents said direct sales are still driving most revenue, but online is growing in importance.

- 80% of respondents agree that customer expectations have changed due to B2C/retail practices.

- 80% of respondents said that they invested in their commerce platform in 2012.

While it may yet be a few years before B2B supply chain networks are totally disrupted, we can already see the first signs of disruptive changes. Three major players have already made some critical moves. For example, many traditional and standard industrial goods can already be purchased on the Amazon Supply platform. Google is developing a powerful marketplace for B2B companies to search for product alternatives. And Grainger has become a very large B2B sourcing platform, and is well-recognized as one of the most user-friendly B2B sites.

What are the critical implications for B2B and industrial firms?

  1. Conduct a deep customer segmentation process based on user needs and what they are looking for through each potential trade channel.
  2. Address the role of e-commerce platforms in their current business models. It is inevitable that e-commerce is going to be a prevalent force in the B2B world. Oracle reports that 26% of B2B respondents said that mobile web /apps influence revenue the most.
  3. Be ready to solve channel conflicts quickly as B2B buyers have more choices in the market and faster ways to source standard off-the-shelf products.
  4. Be equipped with price intelligence technology to be able to respond to price pressure and price matching requests, the importance of which has been underscored by recent acquisitions by The Home Depot and McKinsey (more on these in an upcoming blog post by the authors).
  5. Have candid and realistic internal discussions on what might happen when Amazon Supply starts offering a large portion of your products online at a potentially lower price. How do you prepare for it? How do you react? What comes next?
  6. Include all answers from points 1 through 5 into a new business model innovation process to reinvent the core value proposition and make sure key resources are quickly aligned.

The tidal wave of price transparency and pricing pressure is coming to B2B, and it will be disruptive. A wait-and-see position for B2B and industrial companies is not acceptable. B2B companies have a unique opportunity to learn now how brick-and-mortar retail chains are responding to the price transparency challenge created by online competitors, comparison shopping engines and mobile devices. Investments in price intelligence software will not be optional. The real question is whether these firms are prepared to proactively disrupt themselves, or are waiting to be disrupted.

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