Many industrially-oriented distributors lament that they can’t compete versus Grainger for MRO business at their accounts. They say “we now the ‘decision’ makers and can beat them on price but we can’t get the business. The same occurs with large institutional accounts (educational and healthcare facilities.) And the reality is Grainger does $1-2 billion in electrical sales!
Why electrical distributors cannot compete.
Two reasons. Who the decision maker is and why they buy.
1. Who does Grainger sell to?
Grainger’s definition of a decision maker and a distributor salesperson’s definition of a decision maker are two different things. Electrical distributors typically call on people “on the line” or engineers. Grainger calls on D / V / C level personnel.
The higher a person is in an organizational chart the less they may focus on the cost of an item (they don’t know the cost or comparables.) They are focused on the total cost of acquisition and/or total cost of ownership. This is where Grainger has a large advantage over distributors as they have become ingrained in many of their customers’ procurement processes.
2. How Industrial and Institutional Accounts Buy
In fact, in our 2018 State of eCommerce, Electrical Contractors & Buyer Insights report, 35% of respondents said that their companies used eProcurement systems for their MRO purchases! And 69% said they buy from MRO distributors (Grainger, Fastenal and MSC were typically mentioned) with 38% of respondents purchasing more than 25% of their materials “electronically.”
So, if you want to compete against Grainger, MSC, Fastenal and other large distributors for industrial and institution business, you need to proactively promote that you embrace eProcurement as an eBusiness solution. If you don’t you are saying “we don’t want (or more accurately “we can’t handle”) your business.”
To understand Graingers eProcurement approach, click here.
With this in mind, Jeremy Friedman from Greenwing Technology continues his series on eProcurement and how distributors of all sizes can cost-effectively compete with Grainger and other “big boys”. Technology doesn’t have to be a barrier. The right technology, and technology partner, can level the competitive playing field.
Now that we know what eProcurement and punchout catalogs are, (and if you don’t or don’t recall the May article, click here) how do we prepare our company to implement this strategy? eProcurement is big business. Consider that over 40% of Grainger’s eBusiness is conducted via e-Procurement!
There can be many challenges in implementing any digital or ecommerce platform, but eProcurement and punchout catalogs can compound this by adding unfamiliar terms, technical barriers and new customer objections. Let’s tackle these challenges individually, starting with unfamiliar terms.
eProcurement and punchout catalogs have been around for twenty years, but unless your organization had a request from a customer you may never have even heard of either term (and if you had a request, IT handled it as a one-off and you received orders via EDI). Having your IT team understand the technical pieces is only one part. With a technical background IT teams can learn the terms and have a good understanding of those pieces, but what about your sales team? They are going to be on the front lines talking to customers and need to be equipped with the new terms. Even a seasoned sales rep with B2B eCommerce experience may not be familiar with the verbiage used. Over the years we’ve trained sales reps with one year to over twenty years of experience so don’t worry if you’re team isn’t familiar with the process of eProcurement and punchout.
Identifying potential customers can often be a challenge, but looking at your top 100 customers based on organization size is a great place to start. Organizations of all sizes can use eProcurement systems, but generally organizations with over 100 employees and $50M in revenue would be a good place to start. You will find eProcurement systems in smaller companies (especially Biotech/Pharma start-ups) as well.
The best way to identify if an organization is using eProcurement is to ask a simple question, “Does your organization use any eProcurement systems?” Some prospects respond with a blank stare or say “what”? Ask them if they use Ariba, Coupa, Jaggaer or Oracle. These are the leaders but there are over 100 systems. (click here for a list)
They may also respond with “Yes” and hopefully the person shares what type of system they use, the process and how to interface with them. The other responses “no” and “what is eProcurement” are more complex.
A “no” doesn’t necessarily mean that the organization doesn’t use e-Procurement, it may mean that the person you are talking to isn’t the correct person to answer that question. If your sales person is speaking with a plant manager who has ordered directly through the sales person for 20 years, but the parent organization uses eProcurement, this person may simply not know if the organization uses Procurement.
Another potential issue is again just verbiage. The person you are speaking to may know the e-Procurement system as the internal name such as “e-Buy” or they may just know it as “it’s a link on my desktop”.
The other response to this question is “what is eProcurement?” This I would classify the same way – you may not be talking to the right person. A follow up question may be “Can you introduce me with someone in purchasing to ask?” Some sales reps may want to avoid procurement due to all the paperwork, workflow and approvals needed, but someone in purchasing will definitely have an answer on whether the organization uses e-Procurement.
Another option is to work with the right eProcurement/punchout partner. Your e-Procurement partner should be integrated with many organizations already so may have built a profile or at least identified which organizations in your area run which eProcurement platform. This market intelligence allows your sales team to go into a meeting prepared with knowing as much about your customers’ eProcurement system as possible.
After you identify your prospects that do have eProcurement systems, a follow up question might be, “If you do use eProcurement would you be interested in adding our organization’s punchout catalog to your eProcurement system?” This one is key because it identifies if your organization can connect with their eProcurement system. If that answer is “yes” all that’s left to do is turn it over to your IT/punchout team and get started.
If the answer is no, then we have a few more follow up questions that can vary on the objections. The organization might say they don’t have the resources to implement at this time, or they may be out of supplier licenses or they may say they only punchout to contract vendors. All of these objections can be overcome, but obviously require more information. If a contract is required, you may need to wait until your items are rebid or maybe there is pricing negotiation to be had to sway the organization sooner … and the good thing is this can represent an opportunity for you! If the organization doesn’t have the resources, you may ask when they will have resources. If the organization doesn’t have the licenses, you might inquire if they are pursuing adding new licenses to their eProcurement system.
As you can see there are questions and evaluations required on both sides to successfully implement an integrated system that is mutually beneficial for you and your customer. Additionally, it is a marketing opportunity where you can promote that your company offers integration with e-procurement systems.
To learn more about eProcurement, contact Jeremy at Greenwing.
In a competitive marketplace, and especially since it appears that the industrial market in many parts of the country is experiencing slower growth, another “arrow in your sales toolkit” could be the difference between winning or not, profitable growth and taking share or frustration and stagnation. This is how technology can be part of your service offering and a revenue generator (rather than an “investment”.) Coupled with a robust online catalog (and you should have a minimum of 100,000 SKUs on your site that are regularly updated and match what you’ve traditionally sold), you can differentiate yourself, beat Grainger and make your eCommerce business a revenue generator (yes, you can get to an ROI!)