2010 Internet Sales Channel Review

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The Web has evolved from a marketing or support function to become the core part of an organizations sales and distribution strategy. However, companies often mistakenly think of the web a 'one' Internet. This white paper provides a review of the seven distinct sales channels; direct sites, ecommerce / etailers, referral networks, auction systems, supply chain / b2b systems, knowledge centric sites, and of course the ever hyped social networks. This is a must read for anyone looking to expand their online sales and distribution systems.

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2010 Internet Sales Channel Review

  1. 1. Internet Sales Channel Primer It’s time to rethinking how your products are sold and distributed on the Internet For the last 15 years, online sales and distribution strategies have been a work in progress for most organizations. The rapidly changing technologies, vendors, and available bandwidth constantly open up new options for selling products via the Internet. Adding a new option or channel typically requires investment in software Reassessing your and staffing. Combine this cost with the fact that many of the “great ideas” on the Internet fade faster than the Cubs’ World Series hopes, online sales and and you find that most companies understandably move slowly with distribution Internet sales models. strategy will help Instead, most manufacturers and publishers rely on their traditional you connect more downstream channel to sort it all out. In the pantheon of business meaningfully with blunders, this is a big one. If you rely solely on your traditional customers, make downstream partners, you don’t just dilute your pricing and brand power; chances are you will miss many sales opportunities entirely. more online sales, and extract more The Seven Internet Sales Channels value from the chain. It’s time to rethink your online distribution model. As the Internet matures, the rate of change has slowed dramatically, giving you an opportunity to catch your breath and reassess your online distribution strategy. Doing so will help you regain control over your online sales and distribution chain, which in turn will help you connect more meaningfully with customers, make more online sales, and extract more value from each transaction. www.yeomantechnologies.com 800-667-6098
  2. 2. The Internet is no longer a single point; it is a series of channels that have their own unique collection of partners and resellers. While there are literally hundreds of thousands of different methods, partners, systems, and sites that give an original manufacturer, developer, or publisher options for Internet sales, there is order in all that chaos. All of these options can be segmented into seven distinct categories: 1. Auction Based 2. E-tailer Centric 3. Supply Chain Systems 4. Referral Based 5. Knowledge Centric 6. Social Based 7. Direct Site It’s worth looking at every channel. Trust us; U.S. total Internet revenue topped $800 billion last year. The actual breakdown of sales may surprise you. 2009 Internet Sales by Channel Direct Think you don’t E-Tailer 4% need to look at Bid every channel? 8% 14% Supply We can think of Referral $800 Billion 31% 28% reasons why you Social should. 15% Source: 2009 Review of Market Statistics of U.S. Dept. of Commerce, IDC, and Gartner Group Which channel is right for you? A business should look at every channel to assess whether the business (or a partner) should have a presence in it. An area should be considered a viable sales channel for your company if any one of the following criteria is met: • Presence: Target customers are active users of the channel • Propensity: Customers are likely to purchase while in this channel • Purchases: Similar products (i.e., competitors) are in the channel The following sections provide an overview of each channel, the types of customers they typically serve, and the interconnectivity to other channels. ©2010 Yeoman Technology Group May not be reprinted without permission Page 2
  3. 3. Channel Review E-tailer Centric Internet ecommerce has been the fastest growing segment of the retail industry for the last year, up almost 5% in 2009 to over $200 billion in U.S. sales. There are thousands of players in this space, with the most notable being Amazon.com, Buy.com, and Overstock.com, as well as traditional retailers who have expanded online. Most “pure Internet” companies do not carry inventory, instead opting to integrate with manufacturers, distributors, and general resellers. All have their own authentication and billing systems. Companies using these systems tie in via manual or automated integration systems. Most companies assume this channel is purely for consumer products. However, the ease and flexibility of ecommerce systems has created a dramatic rise in corporate, healthcare and government purchasing using E-tailers. Connectivity with other channels Fair – major players such as Amazon have extended product listings to include searching by Google and other appliances. The industry also has a major connection to price comparison engines that extrapolate catalog If you’re not prices. Over 50 comparison engines exist including Google, Yahoo, tapping into an Shopzilla, Pronto, etc. Each of these engines requires a customized feed available sales to properly represent your products. channel, your However, these sites do not have any cross-connectivity with resellers will. competitive sites and even actively block banner ads that may be competitive. ©2010 Yeoman Technology Group May not be reprinted without permission Page 3
  4. 4. E-tailer Centric (cont.) NOTE: The graph above shows the customer presence probability ranking for different types of customers. Yeoman has created this scale for all channels to help companies gauge the appropriate level of investment in a particular area. For example, consumers looking to purchase low-value consumer goods have a high probability of searching on E-tail sites (90% rating). Education customers that purchase a complex product (such as technology) have a lower probability rating (25%). Missed opportunity study Amazon has long been considered a consumer retailer, so it came as a major surprise to a medical device manufacturer when it discovered its products being sold on the site. The products had been put into the system by a reseller who had become aware that Amazon is one of the fastest-growing sellers of medical and other testing equipment in the U.S. To cut out the middleman, the device manufacturer needs to establish a distribution relationship with Amazon and any other E-tailer that sells directly to its end users. ©2010 Yeoman Technology Group May not be reprinted without permission Page 4
  5. 5. Supply Chain Systems These systems differ from E-tailers in that they are specifically designed for business or government agencies as part of an integrated procurement system. Twenty major systems exist, including Ariba, Emptoris, and Global eProcure. Supply chain sites typically have strict access rules and limit visibility into EPS or products available without prior authorization. EPSs using these systems tie in via manual or automated integration systems. This market has over $230 billion in sales the U.S. alone and is a major avenue for enterprises of all sizes as well as a growing base of state and federal purchasers. Connectivity with other channels Poor – systems have no search or link connectivity to other systems, to search engines, or between sites. Your lack of presence in one or more channels gives your competitors the opening they need to walk away with your potential customers. Missed opportunity study Sonicwall is a large manufacturer of firewalls and other security appliances. The company has actively been trying to move out of the small business market and target larger enterprises. A large buyer recently attempted to purchase 250 Sonicwall units on the Ariba supply chain system. When a product doesn’t exist on the system, the system generates a bid notice to all relevant Ariba suppliers. Even though the buyer had already decided on Sonicwall, it was presented with competing Cisco and Fortinet quotes. As part of its strategy to reach larger markets, Sonicwall needs to establish a relationship with all major supply chain systems that sell to enterprise customers. ©2010 Yeoman Technology Group May not be reprinted without permission Page 5
  6. 6. Referral-Based These systems are primarily focused on linking complementary products and services. Thousands of systems exist, with the most popular systems specifically designed for certain markets. Yeoman feels that this segment is a separate channel from traditional ecommerce retailers, since their primary focus is to aggregate sales of multiple retailers. For products, Shop.com is a good example. They have over 1.3 million unique shopping visitors per month, referring all to partner retailers. The company continues to expand its operations, starting with women’s apparel and expanding to home and other goods this year. For services or complex products, ServiceMagic is another example. It has over 2.5 million unique visitors per month looking for custom services and creations. Both get their revenue via fees, either per click or per sale. This group also includes pay per click systems, which represent a significant approach to driving direct revenue models. Connectivity with other channels Good – all link back to general search systems, but not to other channels. Referral systems put you one click away from millions of potential customers. Missed opportunity study Gibson is a world-renowned manufacturer of guitars. The company has an extremely tight network of retailers and keeps strict control over Internet-based sales. Its limited set of E-tailers each has its own site and planning strategy. The problem? This small group is missing from 10 of the 20 major referral systems on the web. The result – Gibson’s brand is underrepresented in major portions of the Internet, despite having nationally recognized retailer partners. Who’s to blame? Referral systems aren’t a requirement for ecommerce; they’re a separate channel that can sit untapped. ©2010 Yeoman Technology Group May not be reprinted without permission Page 6
  7. 7. Knowledge-Based Content is king. More people use the Internet for accessing information than for any other purpose: email, search, social networking, or even ecommerce. If your product is complex or is tied to installation and consulting services, your customers are likely to be heavy users of content- or knowledge-based systems. Content is King. It’s good to be (in the company of) the King. Activities online as a % of time The modern knowledge site is more than just a simple newsletter or blog. These systems represent the evolution of the traditional chat room or blog site and provide extended information about a product, service, or technology. Knowledge systems are different from social networking sites in that the owner of the site controls the information flow, including posts. Social sites such as Facebook are peer based, with no control over information posted. Connectivity with other channels Good – these systems are heavily searched and often linked to from multiple sites. ©2010 Yeoman Technology Group May not be reprinted without permission Page 7
  8. 8. Knowledge Based (cont.) Don’t be shy about promoting your products on your own information sites. That’s what they’re for. Missed opportunity study The Independent Search Blog – Enterprise search (search within a corporate network) is a multibillion-dollar industry with several hundred players. The price for a system ranges from $10,000 to over $500,000. Sales efforts focus on traditional enterprise sales, heavily relying on the indirect channels of consultants and partners. Vivisimo has invested heavily in a marketing blog called searchdoneright.com. This seemingly independent site is sponsored by Vivisomo. The site itself has excellent postings and white papers and regularly appear at the top of major search engines. The site draws over 8,000 visitors per month. The problem? There’s only a limited connection to their product, just a sponsor link, no demo, no pricing, no way to draw the client in. Their early lead is quickly eroding as other vendors are mirroring their approach, even adding key terms in their blogs to draw away clients. ©2010 Yeoman Technology Group May not be reprinted without permission Page 8
  9. 9. Social-Based Social networking has exploded into the consciousness of the modern business over the past few years. These sites are essential frameworks for discussions, whether among consumers or businesses. The options are seemingly endless, with over 100 different social sites (like Facebook) alone. An important point to drive home is that these sites aren’t just for consumers. Specialty sites (often called professional networking) have exploded in multiple industries, including healthcare, high tech, and engineering. 2009 Growth of Professional Networking Sites – Compete.com Data How do you pick a Should you invest? If so, in which one? The key point for a sales channel site to invest your review is to determine whether it is a medium in which clients will buy. efforts in? First determine if it is The first step is to split out your branding/marketing discussions and the potential benefit for customer support. Determine if you should adopt an environment one or more of these options to sell directly to your client. where customers are likely to buy. At a minimum, you should identify 5–10 sites to watch. Then plan on establishing a presence in each. Your IT team needs to create a system that lets you write a blog post once, and then have it post automatically to all sites. This will let you establish a foothold in each system, letting you track activity to help guide future decisions. Remember – presence of customers in these sites is high. Actual sales activity is still very low. Get in there, just don’t overspend. Connectivity with other channels Good – these systems are heavily searched and often linked to from multiple sites. ©2010 Yeoman Technology Group May not be reprinted without permission Page 9
  10. 10. Social and Professional Networking (cont.) Twitter? Maybe... Opportunity study The Twittering Banker – Marketing departments seem to love Twitter. It’s got a great buzz and everyone seems to tweet. But can you sell anything? The short (140-character) text streams that flow aren’t necessarily the easiest way to reach clients; they might be a way to push special offers – not necessarily something you’d do multiple times per day. A New England bank figured out how to make Twitter a sales channel, not just a place to market. One banker (only one) twitters for the bank multiple times per day. His tweet? Daily mortgage rates and mortgage lock-in instructions. He regularly has thousands of followers and his tweet has a direct link for users to lock in and confirm their applications. ©2010 Yeoman Technology Group May not be reprinted without permission Page 10
  11. 11. Auction-Based Systems Most people immediately think of eBay when they think of online auctions. eBay is definitely a major player, with over $25billion in revenue. However, most companies fail to factor in the 15+ other systems, including ESourcing and EBidSystems. All auction-based sites require user authentication and have their own bidding, billing, and electronic communications systems. Companies using these systems tie in via manual or automated integration systems. Connectivity with other channels Most systems do not provide general search indexing with Google or other search systems, nor do they allow searches outside their main avenue. In addition, eBay has morphed from being a pure auction site to providing a mix of retail and auction sales. This change has prompted them to become more restrictive in their search systems, cutting out other ecommerce vendors from their search results. Exploring your untapped sales channels not only reveals opportunity, it also gives you more control over and insight into your brands. Missed opportunity study A U.S.-based coffeemaker manufacturer sells its product line to high-end customers throughout the U.S. They felt that they didn’t “need” to be on a consumer auction site like eBay. A review of eBay and other auction sites not only turned up listings for the company’s new products, it also revealed several instances where clients searching for specific models were redirected to a competing brand. To avoid situations like this, the coffeemaker manufacturer should establish a position on the major auction sites, either directly or through an authorized partner. This will not only re-establish the brand but also open up the option of selling overstocks and older models. ©2010 Yeoman Technology Group May not be reprinted without permission Page 11
  12. 12. Direct Sales Almost everyone understands this channel. It’s the direct buy that often causes the most conflict with traditional channels. Do you need a direct site? YES! A 2009 study of 13,000 web users showed that two-thirds of them went to a manufacturer’s or publisher’s site first to get product or pricing information. If you don’t give them an option, chances are they’ll go to one of the other channels, where competitors may have equal or better access. Many companies believe that having a direct site is too cumbersome or causes channel conflict. These are fallacies from the earlier days of the Internet. The two most common concerns: Complexity – While it’s true that a manufacturer, publisher, or software company may not have the capabilities or team to run a site, the options for complete outsourcing, including delivery, are plentiful. Multiple options exist that let a manufacturer sell direct, but leverage its downstream retailers for delivery (e.g., Panasonic USA). When your Conflict – The example above used downstream partners for delivery. customers are New web innovations can take the process one step further, letting your looking for your client see multiple vendor options right on your main page. Not only do website, what will you support the channel, it gives you a powerful tool for partner negotiation. they find? Hopefully not your Even if you are leveraging some of your traditional channel, you need to competitor. take a hard look at how their direct sites run, especially if they’re already doing a lot of direct business via the web. Connectivity with other channels Fair – Direct sites are indexed by major search engines, but there are general design requirements that need to be considered to ensure proper representation. ©2010 Yeoman Technology Group May not be reprinted without permission Page 12
  13. 13. Direct Sales (cont.) Missed opportunity study A U.S. software firm opted not to have a direct site, vowing full support for the traditional technology distribution channel. The main competing products all had direct sites that clearly displayed their list prices. This gave the competitor’s partners an established street price to either sell at or discount based on the deal. The firm without the direct site had wild swings in end-user pricing, resulting in frustration when two divisions of one company were charged two radically different prices by different resellers. The software firm needs to create a direct site to establish the baseline list price for all sales. Not only does this support indirect channel pricing, it also opens opportunities to sell to larger firms that will only purchase software directly from the manufacturer. ©2010 Yeoman Technology Group May not be reprinted without permission Page 13
  14. 14. Where should you be? Keep in mind that not all the above categories will be relevant for every business. An area should be considered a viable sales channel for your company if any one of the following criteria is met: • Target customers are active users of the channel • Customers are likely to purchase while in this channel • Similar products (i.e., competitors) are in the channel Keep in mind also that online is different from brick and mortar in more ways than one. One of the most brilliant features of the Internet is that it allows a customer to buy a product in the exact location (or within a few clicks of) where they first heard about it. But just because a particular channel is brilliant for one purpose, that doesn’t mean it should be a target for distribution. This blurring of lines can make it difficult for you as a seller to separate marketing and customer support goals from sales goals. However, sales must be the ultimate driver for all activity; often organizations overspend for web marketing with no direct link to sales. It is important to review all channels individually for their fit with distributing your product line. Focus on whether or not a channel is a place to sell, regardless of whether it is a good marketing or customer support match. In other words, how easy is it for a customer to purchase Don’t reinvent the the product when engaged in a particular channel system? wheel. Contact The review process should factor in: Yeoman for an in- depth analysis of • Presence in channel your Internet • Ability to purchase • Ease of purchase channel efficiency. • Completeness of process • Delivery options • Relative price ©2010 Yeoman Technology Group May not be reprinted without permission Page 14
  15. 15. Why Yeoman? Of course, an extensive review is easier said than done. Yeoman Technologies Group specializes in Internet Channel Optimization and can help you with the hard work of sorting through your options and laying out an action plan. We’ll review your Internet distribution model from top to bottom and deliver a road map with concrete action steps to untangle your supply chain and improve your Internet sales. About Yeoman Technology Group Yeoman is a unique collection of engineers and consultants focused on implementation and usage of technology to drive a business. If it doesn’t deliver sales or better profitability, it’s not a useful technology. The company’s headquarters are in Portsmouth, N.H. The consulting team works throughout the U.S. and overseas. Michael Healey is president of Yeoman and has over 23 years of technology leadership experience. He was CTO of GreenPages Technology Solutions prior to taking the helm at Yeoman. He also served as president of TENCorp for more than 15 years prior to its acquisition by GreenPages. Mike is also a contributing editor at InformationWeek Analytics. His primary focus for InformationWeek is (naturally) the implementation and usage of technology in the enterprise. Contact the Sales team at Yeoman at 800-667-6098 or info@yeomantechnologies.com to find out more. ©2010 Yeoman Technology Group May not be reprinted without permission Page 15

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