THE HIDDEN POTENTIAL OF WEB CATALOG KITS
A wave of new web catalog software solutions will allow independent wholesalers and retailers to join together to simultaneously create: web selling possibilities; an immediate system-wide fulfillment capability exceeding that of the biggest, most flexible international chain; and, a faster, less expensive way for the end-customer to "special order" goods from participating manufacturers. Call these three applications - webcats, intranets and extranets, respectively.
Alliances that already exist in channels - buying groups for distributors or retailers, integrated supply marketing consortia, distributors and their programmed retailers, manufacturers with selective distribution policies, etc. - should be first movers with these applications or lose to another.
NEW WEB CATALOG OFFERINGS
On October 30th Microsoft and partners started a parade of announcements about Microsoft’s Merchant Server 1.0. You know the pitch - "Snap your fingers and for $5,000 to $10,000 create a full blown electronic commerce (EC) storefront - no headaches, just new business."
Besides Merchant Server, there are over 20 other kits that have or will soon hit the market. Perhaps because of Microsoft’s clout, some of the web kit suppliers are already focusing on specific niches. The only one, so far, with a specific distribution focus seems to be IBM’s "World Distributor Service."
These new kit offerings are timely, because all distributors should have some sort of webcat experiment going by the end of ’97 for at least three reasons: 1) The cost for setting up and hosting these sites is collapsing; there has been a 50% to 80% drop in the last 9 months. 2) The technological feasibility of doing secure internet commerce is now here and other features are improving rapidly. And, 3) 97% of adult Americans are now aware of the "internet" - it has gone mainstream.
In 12 months, most of our customers will be further aware that they can save big bucks by "buying stuff on the web." Once their kids, Kinko’s, or a work associate shows them how easy and convenient it is to do web purchasing , they will begin to wonder why their distributor isn’t offering them "24 x 7" web site convenience for education and ordering with functional discounts. If we can’t take care of this emerging niche of customers, which may grow quickly to a majority (as in the use of ATMs), then someone else will be glad to do it for us.
A quick pay back on our first webcat with new customer sales would be nice. But, if we are too early for new or old customers’ tastes in ‘97, then count on ’98 for sure. The exponential growth forces behind the internet/EC phenomenon are too huge to be ignored. We must start paying to play now as part of a learning, be prepared process. And, we will have to keep paying over the next three years for major overhauls to our webcat experiment.
Because both web technology and customer expectations will unfold and mutate so quickly, we can’t know specifically what the future will look like. Fast change will make our first webcat look like the Stanley Steamer within 6 to 12 months. But, we won’t recognize the shortfalls if we don’t get into the game. We need a low-cost, sufficient solution now. But, which supplier/kit is best?
The cheapest, no brand-name kit might do. But, then again, shouldn’t the ideal provider also be able to help us get a vision of what a 3rd generation solution for 2000 might look like and then survive themselves to help us to migrate there? And most importantly, which suppliers could best help us to seize the bigger, more immediate, hidden benefits of mass-produced web sites?
CREATING VIRTUAL CHAIN INTRANETS:
Let’s walk through a logical scenario: Step #1 - We set up a low-cost web site, because it is the trendy thing to do, and maybe we start to get some new customer orders. The majority of them are apt to be from geographically remote customers - even from foreign countries! We ideally would have thought ahead and started to line up "fulfillment partners" for different geographic zones based on freight and response time expectations of target customers. If these new partners are also setting up web sites, they might ask us to be a reciprocal, regional fulfillment partner for their site.
As our alliance network starts to grow, we might realize that we are all incurring common, web site set-up and hosting costs. If we all chose different solution providers, then our systems might not be perfectly compatible.
Step #2 - The light bulb goes on! Why not set up a buying/marketing group to get huge economies of development and management by mass-producing similar, compatible sites all on one server? For example, one set of digital images for catalog pictures would work for all of the participants. Existing channel alliance groups could seize this opportunity, but will they be able to get the collective vision and will to act? Will new groups form to do it first?
Step #3 - If a virtual chain does form, members could immediately do inter-company purchasing and multi-company servicing of existing customers more efficiently than the chains already do with their legacy systems. This intranet would turn the virtual chain’s dust collecting inventory into the system’s golden service solutions providing a huge instant pay back. Webcat selling would be pure gravy!
Variations of this application will emerge. Some chains may put in similar central systems to parallel their internal systems; then, they could sign up fulfillment partners to fill global or product offering gaps. Wholesalers that sell total programs to retailers will be tempted to set up centralized, mass-produced web sites for all of their (best) retailers. Distributors to big box stores could set up interactive kiosks hooked to the internet in the department that they serve. Then the customers could buy the 10% of the items that the store stocks plus the other 90% from the wholesaler’s (or manufacturer’s!) warehouse on a drop ship basis, giving the box store a commission - an "extranet" application. Web technology is increasingly flexible!
Step #4 - If we must overhaul our site every 12 months because of rapid change, it might be easier to do with one central stand alone web site system in "script communication" with each of the allies’ legacy systems. If a common webcat had to be integrated into many independent host servers, it could be a concept killer. And don’t forget, each overhaul would provide the same repeat mass production economies for each participant with no repeat costs for much of the image and data creation.
Step #5 - There are many more possibilities for an alliance site. Two to consider are: 1) how can we use the extra customer information that the site captures whenever they log in? And, 2) should we include some manufacturers’ inventories on the system for direct customer access? We can get some insights for these benefits from a bold experiment being conducted by Fruit of the Loom.
FRUIT OF THE LOOM’s EXTRANET
Fruit of the Loom, the largest manufacturer of "activewear" in the US, offered to develop free web sites for their 50 largest wholesalers this past Spring. All 50 web sites plus Fruit’s will be housed on the same twin server site. The same common - digital database of images, web site design, algorithms for instant quotes, back-end secure transaction system, etc.- have been used for all sites at huge savings. Snickelways Interactive, the NYC based web design shop that mass-produced the front-end of these sites, then wrote two custom scripts to each wholesaler’s legacy system. One script takes care of updating changes in each wholesaler’s inventory to the web server; the other enters orders from the web server to the local distributor’s legacy system.
This system empowers the end customer. For example, a T-shirt, silk-screen operator might go to "fruitactivewear.com" to source an emergency order at 7PM. The system will route him to the site of the distributor nearest him, if he doesn’t know to go there initially. The search engine then goes to whatever warehouse is necessary to find specific goods, although the initial distributor’s home page continues to frame the data. The customer builds his order, chooses service options, gets an on-screen quote, enters a credit card, and then places the order. No distributor personnel, trade credit or paper is involved; they just get a pick ticket in their warehouse. This saves the distributor between $12 to $20 in cost for a normal out of stock transaction.
When the customer’s needs come out of another distributor’s warehouse or Fruit’s master distribution center, cost and time savings multiply. If the goods were, for example, to come out of Fruit’s central warehouse, Fruit would take the order and get paid though the credit card company. The goods would be shipped directly to the customer by-passing the local distributor.
The distributor shouldn’t feel threatened because: 1) the web site order screen would still appear to be the local distributor’s, 2) Fruit or another drop-shipping distributor would still pay the local distributor a normal profit/commission that it would have made on such a drop ship, and 3) the alliance would better retain old customers and steal new ones from competitive distributors selling another brand of T-shirt the old way.
Consider the "old way’s" process costs and cycle time. First the customer would have to call the distributor the next morning. Then, the distributor would have to special order the goods from Fruit with paper forms even though a next city distributor might have been able to do it faster and cheaper. Next, Fruit would ship the goods and bill the distributor, who would then bill the customer. This scenario has over $200 more in activity costs for both Fruit and the distributor, and it has less convenience and a longer lead time for the customer. The "new way" is a three way win that will steal market share from the competition.
Besides intranet and extranet benefits, the Fruit alliance is starting to realize other benefits, especially from the data that is captured from all of the customers’ inquiries into the web server. It turns out that web server statistics software has become an overnight industry offering new supply channel opportunities.
The Fruit extranet may start an irreversible reorganization of the channel from the end-users back to the manufacturer. Information technology will dramatically reduce the cycle time, inventory, paper, people and errors per dollar of sales for participating distributors. Competitive manufacturers and distributors will have to imitate and improve on Fruit’s initiative or die.
Creating a low-cost web catalog today is the tip of an iceberg. The big payoffs from web technology will be from alliance - intranets, extranets and international web sales fulfillment capabilities.
Both existing and potential alliance groups should immediately start investigating the feasibility and the lower costs, higher benefits of mass producing web sites. For starters, some solution providers with distribution channel experience have been cited in the footnotes.
Finally, if we feel uneasy about any of these electronic commerce possibilities, we must remember that: the channel alliance that does whatever it takes to better serve the end-customer will win over the ones that try to protect the past.
D. Bruce Merrifield, Jr.
December, 1996 Distribution Opportunity Article # 15 - Article7.6
DISCUSSION AND FOLLOW-UP QUESTIONS FOR
(ARTICLE 1.12) "THE HIDDEN POTENTIAL OF WEB CATALOGS"
1. If a web catalog software product is advertised as "getting you going for $10,000", what should a distributor budget for the first full year?
2. Just because IBM's product is called "world distributor" does it really have any different features and benefits from all of the other products being offered by Microsoft, Netscape, AT&T, iCat, etc.?
3. Is secure internet commerce truly possible now? Why? What other technological solutions have become available that are going to significantly improve the feasibility of business -to-business electronic commerce?
4. Are there other reasons why customers of distributors will expect to be able to do 24 x 7 web shopping with functional discounts within 12 months instead of 5 years from now?
5. The article mentions that a majority of the population gets their cash from ATM's, but that took 20 years to happen; won't internet shopping expectations take at least 5 years to catch on? People don't change that fast do they?
6. What do you mean by "the exponential growth forces" that are behind the internet which can't be ignored?
7. What web catalog software provider(s) do you think will be best at - helping wholesalers get a 3rd generation web site vision, surviving until 2000+, and helping wholesalers realize intranet and extranet benefits within a channel?
8. Who might be the new groups that will form to create channel alliances? Will they act first or execute better than pre-existing channel alliances buying groups?
9. If a wholesaler to retailers was tempted to mass-produce web catalogs for its' better retailers, wouldn't this presume that the retailers were computerized and had good inventory accuracy?
10. Although big box stores could and should be the first retailers to leverage interactive kiosk selling within many of their departments/categories, won't little Mom and Pops be able to do the same thing?
Won't this level the playing field and undermine the big boxes capital intensity barrier to entry?
11. What is "script communication" between the central, common server and the legacy systems?
12. If every distributor used a similar catalog, but put it on the host server of their choice, why is that a "concept killer"?
13. What are the specific magnitudes of dollars saved that would come from mass-producing catalogs on a central server versus every distributor doing their own thing? Any case numbers as an example?
14. How could an alliance use the information that they might capture at the server from incoming customer inquiries?
15. What criteria should be used to decide which manufacturers would do best to have their inventory on the common server and offer drop shipping directly to the end-users?
16. If end-users registered for "what's new" information by selected topics, what could this do to the costs for a manufacturer to introduce a new product or service?
17. Could the web catalog be used as a way for traditional customers to order regular goods? Isn't it a bit cumbersome, slow and impersonal compared to the 800# to the inside buddy on the order desk?
18. How much distribution activity and investment will disappear as a result of channel extranets in the next two years, four years and six years?