Grainger is often recognized as a leader when it comes to distribution e-commerce, but the company recently recognized that its high list prices might be deterring potential customers from becoming buyers. MDM Editor Jenel Stelton-Holtmeier spoke with CEO D.G. Macpherson and Geoff Robertson, vice president, global digital business and innovation, at the 2017 Grainger Show in Orlando, FL, about the company’s strategy for addressing its e-commerce challenge.
While Grainger has no plans to become a low-cost distributor, its “high-list, less-discount model” may be starting to restrict its online growth, according to CEO D.G. Macpherson, who spoke about Grainger’s pricing strategy at its show in Orlando, FL, earlier this month.
Potential customers that visit the company’s website are currently greeted with those high-list prices – prices that aren’t even in the ballpark with other sources. “It’s become a source of contention with some customers,” Macpherson says.
But it’s not as simple as just lowering prices across the board; the price rationalization has to be part of a broader strategy focused on the overall customer experience. “The idea is that we have to be able to acquire customers through the Grainger brand,” he says.
The pricing dilemma
Most purchasers today at Grainger.com are large customers with contract pricing that they have to log in to see. Smaller customers tend to be more interested in the lower list prices available at Grainger’s other online platform Zoro Tools, which is targeted to smaller customers.
But if Grainger were to apply the “everyday low pricing” model it uses on Zoro, the downside risk to the company’s gross margin could be 200 basis points, according to an analysis published by Baird at the end of 2015.
The price adjustments won’t go that far, Macpherson says. “We don’t have to have the lowest price (on Grainger.com); we just have to be in the ballpark.”
“This is going to be very appealing to someone who doesn’t have a contract, and this will be very appealing to a medium customer that might be new to Grainger,” says Geoff Robertson, vice president, global digital business and innovation. “And we’re trying to acquire that (type of customer).”
The other challenge: Grainger still has no desire to become the source for non-business buyers, according to Robertson. “We cater to business-to-business companies, and so it was very important to make sure that we continue catering to the businesses of small, medium and large,” he says.
That meant coming up with a way to verify the buyer was a business in order to see the lower “web price” without it being too much of a barrier for potential customers. The solution: create an opt-in process that requires new visitors to answer two questions to confirm their business status (which for Grainger’s purposes means having at least 10 employees). Once they’ve completed that process, they can create an online account and have access to that web pricing immediately.
For customers who don’t want to provide that information or for individuals looking to purchase from Grainger.com, the guest checkout will still be available, but the web pricing won’t, Robertson says. The process also helps determine if a customer might be eligible for Grainger’s RED PASS program, a subscription service that offers bundled pricing and free shipping to qualified customers.
Grainger started lowering its list prices in January and expects to complete the process within a year. But making sure its web platform is a fit for customers will be an ongoing process.
Overcoming e-commerce barriers
“I think people sometimes get the wrong impression about digital e-commerce, that it makes everything easy,” Macpherson says. “It actually doesn’t. It’s very difficult … to get the right information to customers to help them search and find products.”
It’s easy to think about e-commerce in terms of revenue. Grainger reported that 50 percent of its sales in 2016 came through electronic channels, including the website, EDI and e-procurement. Another 10 percent can be attributed to its KeepStock inventory management program.
But e-commerce isn’t just about purchasing, Robertson says; it’s also an acquisition vehicle and an ongoing resource. And in order to have an effective solution, e-commerce has to be grounded in customer experience.
“When you think about delivering an experience, I want to make sure that it’s comprehensive, so no matter when they interact with Grainger, it feels like one company and one experience,” Robertson says. And that means focusing on metrics that measure the experience, not just revenue.
Robertson organized his e-commerce team in terms of the “customer journey” to understand how customers interact at every point – and what barriers prevent them from continuing on the journey.
“The first area of the journey is called ‘discover,’ and that’s a ‘How do you learn about Grainger?’” Robertson says. What gets the customer to the site and what do they see when they get there? Do they stay on the site or quickly go elsewhere to continue the shopping process?
Pricing harmonization comes into play in this phase, but so does the relevancy of the products and information that’s displayed on the home page based on where the customer is coming from.
The second step on the journey is “find.” Can a customer find the product she’s looking for and easily purchase it? What friction exists in the process to prevent the customer from achieving his goal? Grainger continues to invest in the search experience, including launching a tabular search function that allows customers to select different parameters to filter down to the exact product they need. For example, customers can select the strength of an adhesive needed for their specific application or the temperature range in which it is most effective.
And when something gets into a cart, what stops the customer from buying – the final step in the journey?
“We believe that if the experience is right, then people will return and come back, and that revenue or more transactions are a result of the driver metrics, which is let’s get (the experience) right,” Robertson says.