Report: Manufacturers too reliant on Amazon
Historically, manufacturers have leveraged their network of distributors to get their products in the hands of the end consumer. But in recent years, that model has been expanded and evolved, with more manufacturers selling both to distributors and consumers.
According to a study we recently conducted with Sapio Research, 67% of manufacturers today are selling directly to consumers. Much of the growth opportunity resides online. Our data found that 50% of all revenue for manufacturers is now generated via online channels: a nearly $430 billion market and growing (DigitialCommerce360). Specifically, manufacturers are seeing an increase in sales on their own e-commerce sites and also on marketplaces, such as Amazon.com and eBay, with both platforms playing pivotal roles in revenue generation.
However, that’s not to say that manufacturers should view their e-commerce web site and marketplaces as equals in their strategies. Rather, it is likely that manufacturers over rely on marketplaces to bypass the complexities of their own e-commerce websites and as a solution to marketing challenges such as driving traffic or conversions.
Cutting into profits
An over reliance on marketplaces can be tricky. Marketplaces cut into profits, charging up to 20% in fees. Manufacturers should instead look at marketplaces as a way to diversify their revenue streams, not as a replacement for an e-commerce site or a solution to a poorly performing one. It would behoove manufacturers to make most of these sales on their websites, but for a few reasons, some are finding it difficult to create the right experience.
Manufacturers’ e-commerce sites often suffer from a poor experience because they are too complex. They sell to consumers, retailers, wholesalers and other distributors. Depending on the industry, and the type of purchase, orders can vary in terms of the number of steps. For example, 36% of respondents to our survey said that their biggest challenge was handling complex and lengthy “order-to-cash (O2C) process:” procurement, shipment, payment, etc. This was especially evident in the automotive, food and beverage and construction industries.
If Amazon.com is known for one thing, it’s a great user experience. They make it ridiculously easy for a shopper to compare products and check out. But, given the dual life that manufacturers now live, selling to both to consumers and suppliers, their e-commerce websites struggle in comparison. To remedy this, 42% of our survey respondents said they made investments in 2020 to streamline the user experience and 36% invested in a payment service provider. For those companies, these investments are paying off: 45% are seeing an increase in sales as a result of investing in digital strategies, while 42% have improved customer relationships.
What are the solutions?
However, for many manufacturers, capitalizing on the consumer opportunity hasn’t been as easy. They face both internal resistances to change and underinvestment, among other struggles, but have sought workarounds: 55% set up an internal e-commerce team, and more than half involved C-level executives to address both the resistance and budgeting challenges.
With 2021 still being economically uncertain, manufacturers need to take back more control of the reigns of their business and invest in those strategies that will help to future-proof them. With 94% agreeing they will change their market strategy in 2021, they need to be in a state of continual assessment and investment in growth strategies. Yes, manufacturers have to be on Amazon, but they should not sacrifice the growth potential of their own websites in lieu of a marketplace strategy.