Online Marketing Gains Momentum

Online marketing offers a natural extension of a wholesale distributor's business model. And the real beauty of the medium lies in the ability to track response and focus efforts to yield the best results. This article looks at the importance of leveraging the interactive power of the Internet to win and strengthen customer relationships.
This article is excerpted from Outlook 2009: An Executive's Companion to Facing the Forces of Change - Lead the Way in the Supply Chain, published by the National Association of Wholesaler-Distributors.

This article was originally published in Modern Distribution Management's premium newsletter for distribution executives. Learn more here.

As the National Association of Wholesaler-Distributors' Facing the Forces of Change® study pointed out, customers are using the Internet to bypass some of the information, education, and sales functions distributors have traditionally provided.

For example, the study reported that the percentage of customers gathering price information from a wholesaler-distributor's Web site more than doubled between 2003 and 2006, and is expected to double again by 2012.

Wholesaler-distributors are starting to respond to this shift in customer behavior. According to the Outlook 2009 survey, distributors plan to more than double their online marketing efforts in the next five years, from just under 10 percent of their total marketing budget today to more than 20 percent in 2012.

That's a significant increase. These numbers align fairly closely with estimates for the overall increase in online advertising spending in the U.S. and migration of advertising dollars from broadcast and print media to online media. Some distributors are investing significantly higher percentages of their total marketing budget.

One industrial MRO distributor said in the Outlook 2009 survey: "We have two full-time people building flyer and Web site content and a marketing executive who spends almost all of his time managing salespeople. If you exclude sales and look at our meager marketing budget, we are probably spending 50 percent of costs unpaid by manufacturer's coop funds on our Web site today, and that should grow to 60% by 2012."

Wholesale distribution as an industry is about to become much more interactive. We'll see a larger investment in online marketing and much more rapid adoption of online marketing tools in wholesale distribution markets for a simple reason: return-on-investment (ROI). In spite of spam and the sometimes wacky World Wide Web, strategic use of the Internet offers buyers and sellers enormous leaps in efficiency.

Much of the attention on electronic commerce and the Internet in wholesale distribution has naturally focused on back-office operational and transactional efficiencies, such as paperless ordering, invoicing, payment, inventory, and order status.

Product sectors with low average order size and high transaction volumes, such as industrial MRO, have seen the most ROI in these areas.

As distributors refine back-office processes with technology to increase visibility for customers, suppliers, and associates, the logical next step is to focus on how to leverage online tools - whether e-mail or the Web - to integrate front-end marketing functions.

The Marketing Capabilities Gap
Many wholesale distribution companies today would not define marketing as a core competency, but rather as a complement to a strong sales effort. Traditionally, that has centered on the sales force, call centers, direct mail, print advertising, and events such as trade shows and open houses.

Fewer still would characterize themselves as "digitally advanced" when it comes to marketing. Some traditional catalog marketers are notable exceptions, because that segment migrated first to CD format in the 1990s and then to Web-based catalogs as an extension of its core business model.

Traditional branch-based distributors need to create a more comprehensive and integrated approach to marketing, simply to meet the challenges so well described in Facing the Forces of

Change. Traditional competitive boundaries - whether defined by product, geography, or exclusivity - have decreased in every line of trade.

Customers are finding alternative sourcing options globally, and they often are using the Internet to make those connections. In many product lines, distributors have had to develop new markets and customer segments to replace lost business in traditional markets.

Over the next three years, we'll see a significant marketing gap emerge in wholesale distribution channels.

Marketers who communicate effectively with this growing online-savvy customer segment will connect to a broader universe of prospects and deepen relationships within existing customer bases.

Quite simply, distributors who integrate an online component into their marketing strategy to match the estimated potential of this emerging customer segment will gain advantage in two critical areas: customer acquisition and account penetration.

The core engine of effective online marketing is the company Web site. First-generation Web sites typically are developed as brochureware - often a direct transplant of a distributor's line card and other basic printed contact and company information. Second-generation Web sites include interactive transactional systems and e-commerce tools.

Third-stage e-commerce sites, which will expand in wholesale distribution markets over the next few years, include conversion architecture to turn Web site visitors into customers. Based on their online behavior, these customers can then view a more interactive, customized Web site based on products bought and Web site pages viewed.

Using Metrics
Online marketing tools also offer significant cost reduction and shorter lead times for production of marketing materials, as well as flexibility to focus messaging to specific niches or even to specific individuals. In terms of metrics, the bedrock of efficient marketing, online marketing provides precise customer behavior data quickly to refine efforts.

For example, the most advanced Web sites integrate the transactional tools from the distributor's main business information system - order entry, price, and inventory information - with customer relationship management (CRM) tools to create interactive marketing opportunities. Based on product inquiries, Web pages visited, and product orders, the system generates follow-up e-mails or custom Web pages with complementary offers or resources that might add value for that person's identified area of interest.

Leading distributors will take the knowledge-based personal relationships built through powerful outside sales efforts and transfer these core capabilities into the interactive ways their online segments want to do business.

They will convert Web site visitors into customers by giving them carrots - product and service information that builds trust and communicates the unique value the distributor delivers. They will participate as product and solution experts in online discussions and customer networks, and even create online communities to position as market and product solution experts. The level of online engagement can transform how customers feel about a particular distributor, product, or brand.

Your Web site is a central touch point for customer transformation because online communities influence brand perception and decision making. Delivering a user experience that is uniquely designed and customized, service-oriented, and collaborative translates in ways that create brand awareness, drive transactions, build brand preference, and increase loyalty.

Customers have already been trained to expect a functionally fast site where they can click and shop. In the future, effective online selling will focus much more on the interactive ways in which distributors differentiate their Web site - ease of use, depth of information, and how well that site can customize content to match specific interests.

This excerpt is reprinted with permission of the NAW Institute for Distribution Excellence. To order copies of OUTLOOK 2009: An Executive's Companion to Facing the Forces of Change®, go to http://www.naw.org/outlook2009 or call (202) 872-0885.

Purchase OUTLOOK 2009 and the Facing the Forces of Change® report together and save: www.naw.org/ftfol09bundle.