According to a study by Frost & Sullivan (2016), the market volume for B2C e-commerce is set to reach 3,200 billion USD by 2020. There can be no doubt that the internet is the sales channel with the current highest growth dynamic – and the growth of the online channel has come at the considerable cost of existing offline channels. On average, the current share of the online channel in B2C sales lies at around 12-15%. Depending on the sector in question, however, online trade often accounts for a much more substantial portion – and the trend is an upwards one!

 

Figure 1: Share of B2C e-commerce in total sales for selected industries in Germany in 2015 (Source: Statista, GfK 2015, FOSTEC)

 

In line with this channel shift from offline to online on the sales side, which is emerging in all markets worldwide, companies should steel their online activities against future challenges – not least because there is a further aspect to this “BIG SHIFT” than the mere move from offline to online channels: the associated shift in market shares. Not only are market shares changing hands from competitor A to competitor B but, even more significantly, market shares previously held by big “brick and mortar players” are being lost to “new, agile online players”.

Figure 2: Illustrative representation of the offline to online channel shift

The creation of a systematic e-commerce strategy covering all relevant channels is recommended to enable companies to withstand and, where possible, to profit from this market development.

 

Figure 3: Classification of existing sales channels with relevance to e-commerce

As shown in Figure 3, e-commerce channels are forming new links between manufacturers/vendors and end users in the B2B and B2C fields. As far as the connection to the manufacturer/vendor is concerned, this can occur via both non-automated order processing (NAOP) and automated order processing (AOP), just as in conventional sales channels.. The main difference is the interface to the end customer, who – by definition – makes e-commerce purchases exclusively online.

In a general sense, e-commerce can be divided into three pillars: online marketplaces, third party e-retailers and direct sales & affiliates. As Figure 4 shows, each of these pillars has different characteristics. Depending on a number of factors (for example product, target group, implementation expertise, etc.), the pillars have different strategic relevance for a manufacturer or vendor.

Figure 4: Strategic assessment of the three pillars of e-commerce

 

  • Online marketplaces: The market entry experienced of seasoned B2C players such as Amazon & eBay is accelerating the growth of B2B online marketplaces. In accordance with its advertising slogan, “Everything you love about Amazon. For work”, Amazon Business now offers business customers a marketplace that is fully tailored to B2B needs (ERP connection, net price, scale conditions, multi-user accounts, etc.) and has proven B2C user friendliness. Manufacturers and other vendors can gain access to this tried-and-tested infrastructure by listing their products, thereby also gaining access to the existing ecosystem, which includes a whole spectrum of service functions such as Fulfillment by Amazon (FBA) and Amazon Marketing Services (AMS). The listing comes with access to the high sales potential generated by a large international customer base; however, notwithstanding these substantial opportunities, a dedicated online marketplace strategy must be used to determine – in a differentiated fashion – the product categories for which the platform is truly suitable. It must also determine the conditions to be met and, most importantly, the associated risks. 

 

  • Third party e-retailers: Third party e-retailers, or online pure players, are providers that run their businesses (usually) exclusively online. These providers often have a very clear focus on specific product categories. Accordingly, when manufacturers and other vendors list their products with a third party e-retailer, they are promised access to a highly relevant target group. However, there are more than 600,000 online shops in Germany alone. In light of this, a dedicated third party e-retailer strategy must be used to analyse the retailers for whom onboarding and the associated connection costs are really worth it.

 

  • Direct sales + affiliates: Direct sales refers to direct sales through a company’s own e-shop. Generally, sales can be carried out via one of three routes. Firstly, a producer can sell directly to end users in the usual way. Secondly, customers from the manufacturer’s e-shop can be forwarded to partners, or “affiliates” (usually selected third party e-retailers). Thirdly, a hybrid of direct sales and forwarding to affiliates is also possible. Overall, the goal is to offer interested end-users a seamless purchase process – whether it occurs directly from the manufacturer or from a recommended partner. This seamless integration – and the strategic yet systematic selection of affiliates – must be defined precisely within the framework of a dedicated direct sales & affiliates strategy.

 

In principle, all three pillars are relevant for developing a comprehensive e-commerce distribution strategy. Since each pillar has different challenges and potentials, any holistic e-commerce distribution strategy should encompass a dedicated strategy for each column.

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Markus Fost, MBA, is an expert in e-commerce, online business models and digital transformation, with broad experience in the fields of strategy, organisation, corporate finance and operational restructuring.

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Markus Fost

Managing Partner
Markus Fost, MBA, is an expert in e-commerce, online business models and digital transformation, with broad experience in the fields of strategy, organisation, corporate finance and operational restructuring.

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