Industrial buyers are increasingly purchasing products online, both through digital marketplaces and directly from manufacturers. This is putting pressure on traditional industrial distributors. How can industrial suppliers differentiate themselves and ensure they can keep up in this changing market?
UPS captures the relationship between industrial buyers and suppliers in the UPS Industrial Buying Dynamics Study. 2,700 decision-makers at industrial suppliers participated in the study. The study shows that industrial buyers are increasingly using the internet to purchase products. For instance, European buyers spend on average half (49%) of their total budget online via digital marketplaces or manufacturers' websites, which is 8%-point more than in 2015. This percentage has also increased in the United States (US) (+5%-point) and China (+6%-point).
Global purchasing is increasingly tolerated
The change in the use of sales channels is striking, as industrial buyers seem to be relatively rigid in their buying behaviour. For example, 32% of respondents say they can only buy from specific suppliers, while 21% say they can only buy from a limited list of product types. However, UPS notes that the industrial buying market is evolving and global buying is becoming more tolerated, which is presumably why the change in buying patterns is accelerating. For example, 33% of industrial buyers say they purchase products internationally, preferring suppliers from other European countries.
Traditional industrial distributors are losing market share to digital marketplaces and direct sales by manufacturers, also known as direct-from-manufacturer (DfM) sales. In Europe, 92% of industrial buyers now buy directly from the manufacturer, down from 65% in 2015. On average, European buyers spend 44% of their budget through this channel, putting Europe ahead of the US (31%) and China (35%).
Digital marketplaces
75% of industrial buyers additionally purchase industrial products through digital marketplaces. This puts Europe in line with the US (also 75%), but behind China (94%). However, the percentage of the budget spent via digital marketplaces is relatively low worldwide. In Europe, it is 21%, in the US 24% and in China 30%. European industrial buyers currently spend 35% of their budget with distributors.
The percentage of the budget spent through online marketplaces and DfM is expected to increase. For example, a third of respondents who are not yet using these say they are "very to extremely likely" to buy directly from manufacturers in the next three to five years. 27% say the same about digital marketplaces. At the same time, 57% of respondents say they expect to spend a larger percentage of their budget through digital marketplaces and DfM. UPS warns that this poses risks to traditional industrial distributors, which are being squeezed by the growth of buying directly from manufacturers and buying from digital marketplaces.
How can distributors differentiate themselves?
Distributors will therefore have to differentiate themselves to compete with digital marketplaces and DfM purchases. For example, UPS states that distributors must continue to invest in online and mobile capabilities to stay in the market. For example, almost half of industrial buyers in Europe indicate that a more user-friendly website is likely to cause them to switch to a new supplier in the next three to five years. 42% indicate that the availability of a mobile app would have the same effect.
In addition, industrial suppliers can differentiate themselves through their service offerings. For example, 86% of European industrial buyers say they expect on-site after-sales service from industrial suppliers. This is 8%-point higher than in 2015. The forms of after-sales service that buyers value most are returns (77%), on-site maintenance (73%) and on-site repairs (71%). In addition, 68% expect suppliers to provide training. More than half of buyers say they need on-site service at least every three months, while almost a fifth need it at least every month. A quarter of respondents say they currently get on-site service within 24 hours. For a response time of 48 hours, this figure is 80%.
Delivery speed
Many buyers also place great value on the speed of product delivery. 50% expect orders to be delivered within one to two days, while 10% want products delivered the same day. UPS therefore concludes that, above all, buyers have become much more sensitive to the speed and reliability of suppliers' service. According to the company, this reflects the increasing importance of insurance as part of suppliers' offerings. This includes insurance for loss of delivery as well as business interruption. In the survey, half of all European buyers say they are likely to switch to another supplier if that party has a better insurance offer.
It also shows that industrial buyers are interested in suppliers that can 3D print. Two in five industrial sellers say that the range of 3D capabilities offered by certain suppliers makes them likely to switch. Respondents see several advantages of this technology. For example, 47% expect 3D printing to give them more freedom in customising products, 44% to receive better-quality products as a result and 31% to be able to get products faster in case of emergencies.
Author: Wouter Hoeffnagel
Source: UPS
Source photo: Pixabay / MustangJoe
