By 2006, according to a survey by Cap Gemini Sogeti, nearly 10 per cent of sales will be made in front of a computer or TV screen. For PC distributors and dealers, competitive pressure to provide online ordering via the Web is growing. But although it will cut down on paperwork and enable dealers to carry on selling round the clock, the move towards electronic trading could be a retrograde step in at least one way. By forcing suppliers to formalise their pricing structure, it will mean that small customers lose in pricing flexibility what they gain in the ability to place orders at any time.
?The dilemma we face is how we price-band our customers,? says Steve Tester of Datrontech, which opened a Web site in November and is now looking to add online ordering facilities. ?That means quite a change for us internally, because we operate on a customer basis and not a band basis.?
A number of suppliers that set up electronic commerce systems in the pre-Web days have already had to grapple with this problem. Computacenter, for example, has operated a system using electronic data interchange (EDI) for several years now. Its large customers and suppliers are provided with a PC-based interface which allows them to dial into the Computacenter system, check stock availability via the company?s On-Trac virtual warehouse system and place orders electronically.
Phil Williams, Computacenter head of corporate marketing, says the system works well for customers, suppliers and Computacenter itself. As well as cutting out paperwork, he says it means ?we can estimate demand quickly and plan our inventory better, so customers get quicker delivery and fewer out-of-stock situations?.
Williams points out that for Computacenter, which deals mainly with large corporate customers, establishing online pricing is not really a problem. ?We?d tend to negotiate contracts up front to cover a range of products, and pricing is done at that level,? he says. Corporate customers logging on to the system see pricing specifically designed for them under the terms of their contract.
Networking specialist Lantec has developed a proprietary online ordering system, called Picos, which it distributes to all its corporate and distribution customers. The front-end software generates an on-screen catalogue with photographs of products and pricing tailored to each individual customer, and this can be updated each time a customer logs on to the system.
?Customers love it ? it?s a huge selling tool for us,? says Julia Roberts, of the company?s electronic commerce department.
Even for firms like Computacenter and Lantec, which already have electronic commerce systems, there are obvious advantages in moving on to the Web, where they can say goodbye to the need to supply, update and maintain front-end software for a range of platforms.
From the customer?s point of view, too, it?s preferable to have just one browser interface to take them into a number of distributors? sites, rather than having to run separate client software for each online service.
Mitsubishi Electric Europe has already set up what it calls a Dealer Club, which can be accessed through its public Web site via a logon and password. As well as looking up product updates and technical bulletins, dealers can access Mitsubishi?s electronic commerce module for online ordering and order tracking. The dealers can order when and how they want to ? for Mitsubishi, the advantage is that the order process is handled automatically, enabling it to focus its resources on manufacturing and fulfilment.
Computacenter says it plans to move to a Web-based system ? although Williams feels that security is still a concern.
But James Wickes, managing director of distributor Ideal, is sceptical about the security risks in a market where customers have no hesitation about reading their credit card number to a total stranger over the phone.
?In my opinion, the internet is more secure than using the phone,? he says.
Although Ideal launched its Web site 18 months ago, and is investing #2 million a year in it, Wickes questions the value of the Web as a selling, rather than an information, tool.
?If you look at how dealers are approaching the internet, each approach has been different, and reflects the way they operate in the real world,? he says.
?Some companies, like Ingram Micro, have taken the approach of automating purchasing. At Ideal, we?re aiming to automate the delivery of information. Ingram thinks that all you have to do is make products available and people will buy them.
?We think making the deal is the easy part ? the difficult thing is getting the information you need to make a decision. It?s a philosophical difference.?
Philosophical rather than actual, perhaps? Having said all this, Ideal is planning to get into electronic ordering, which Wickes says is only six months away. And both the Ideal and Ingram Web sites are fairly well stocked with product information ? the main difference is that Ideal also offers a selection of suppliers? white papers plus press releases and industry news, updated daily.
Neither Ingram nor Ideal has a working electronic commerce offering at present. Ingram?s electronic ordering system is still only ?on its way?, although it does have an electronic catalogue listing SKUs, pricing and availability details.
Of the two, solid product information is, if anything, more difficult to come by on the Ideal site. Users have to log on through a software agent to narrow down their product preferences, which makes life harder for anyone who simply wants to browse.
On the face of it, it looks suspiciously like Ideal?s reluctance to get into electronic ordering is less to do with philosophy and more to do with the problem that Datrontech is also grappling with ? how to formalise its pricing structure in order to make it available electronically. ?We sell products of differing complexity, and what is a commodity to one person, will not be a commodity to another,? says Wickes.
?One dealer may consider a #120,000 Raid system to be a commodity product because they?ve installed hundreds of them. But another might find it highly complex, and require a lot of support. We have to find a way of reflecting that in our pricing,? he explains.
Like Ideal, Datrontech is initially rationalising its Web site as a way of providing information rather than a vehicle for online ordering. ?Basically, we see it as just another sales tool, but initially we?ll be using it as an information source for sales people and customers,? says project manager Steven Tester.
The site currently contains information about the group and links to suppliers? Web pages for product information. Soon, Datrontech plans to add an electronic catalogue listing just part numbers, pictorial information, features and benefits ? but no pricing.
Yet other companies in the Datrontech group ? Swiss sister company C-Connect, for example ? are providing pricing over the Web with a view to trading.
?At C-Connect, they take the view that a system builder who?s out there at 10pm, desperate to get hold of a part for the next morning, is the kind of customer who?s highly likely to have internet access,? says Tester. ?To add pricing, we?ll have to structure our pricing policies. But we don?t want to have our dinosaur heads on about this ? we want to get there for our customers.?
The economics of electronic commerce over the internet are compelling. An internet site can be set up for less than #50,000, according to CGS. Once set up, a single site can serve thousands of buyers, and the ongoing costs are very low. This makes it an interesting proposition not only for conventional store-based retailers, but also for companies that normally sell by mail order or over the phone, which have the added advantage of their customers being used to ordering goods long-distance.
Nevertheless, it will take time before most buyers have Web access and are prepared to entertain the concept of online purchasing. Certainly in the broader commercial market, the business benefits of selling over the Web have, to date, been wildly overhyped. Although eight out of 10 UK companies see the development of the internet as a business opportunity, according to research published this spring by Barclays, very little hard cash is changing hands over the electronic counter as yet.
?The proportion of sales over the internet is still minute. People are not making a profit out of it at the moment,? says Ray McCann, business development manager for multimedia at ICL, one of the companies behind the Buckingham Gate electronic shopping mall.
Audio and video giant Virgin is one of the few retailers that is making money out of electronic shopping right now. For over two years, Virgin has featured on the online shopping centre operated by private network service provider Compuserve, and has turned in a profit from sales made electronically, although the company admits it doesn?t make a massive amount of money out of it.
One reason for Virgin?s success is that about 70 per cent of the products sold electronically go to overseas buyers ? to mainland Europe, where CD prices are typically much higher than in the UK, and to the US, where buyers tend to regard the UK music market as prestigious.
The company pays Compuserve about #10,000 a year for its presence on the online site, plus a percentage of all the sales it makes ? a formula that compares very favourably with the cost of an international mail-order operation.
Building on this modest success, Virgin has expanded its online range to include videos and computer games, as well as just CDs, and is considering selling online via the Web. Virgin and other consumer retailers have steered clear of selling via the Web until recently because of security concerns, but the emergence of mature internet security protocols, such as Netscape?s Secure Sockets Layer, has convinced many retailers that it?s now at least as safe to sell over the Web as it is by phone.
The drive for many of the dealers looking into electronic commerce today will be less about making a profit and more about making sure they aren?t left behind ? or as one distributor put it, ?it?s so we don?t miss a trick, really?.
Demand for online ordering is still far from mature, but by getting involved now, detailers can get a picture of what sells and what doesn?t, what is cost-effective and what isn?t. They are also laying the foundations for the next few years by starting the long and painful process of familiarising customers with the idea of buying electronically.
Just as telephone ordering took over from buying by post, electronic ordering will inevitably take over as the future of IT product sales ? it?s too potentially convenient, cheap and quick to just ignore.
For large corporate buyers, it?s a more efficient way to buy; for small system builders, it?s a way to order that vital card or cable at any time of the day or night. But for smaller customers in particular, something will be lost by the move to buying off the Web page, and that?s the flexibility to strike deals with a human being on the other end of the phone.
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