GMT - The Real Internet Revolution

Although it seems everyone has a different definition for the term "e-business," conventional wisdom says it means selling products online. Many consumer products manufacturers are concerned that, if they do not begin to sell direct to end users, they will lose market share to competitors who move more quickly.

But, for most manufacturers in the hardware and home improvement (HHI) industry, the conventional wisdom is wrong. While the potential for online business-to-business transactions is enormous across all industries, business-to-consumer Internet selling in HHI probably does not make sense yet for manufacturers, primarily due to the nature of the industry.

That said, the Internet cannot be ignored. Although it may not be the best channel for manufacturers' direct sales, the World Wide Web can and should play a crucial role in communicating with consumers. Corporate Web sites can distribute product information, build brand strength, and—most important—give manufacturers the ability to listen to consumers' needs and concerns.

Online Selling and HHI: Assessing the Fit

Why is the HHI industry not ready for direct online selling? There are a number of answers.

Consumers often feel the need to touch or demonstrate HHI products before they purchase them. While the "virtual reality" technology that enables this on the Web may be on the horizon, it does little to change the habits of consumers today.

In addition, HHI consumers often feel that time is of the essence in receiving products, especially for repairs. Instead of waiting for an item to be shipped to them, they simply drive to the nearest brick-and-mortar store and buy the product—even if it costs more.

HHI manufacturers also face logistics obstacles in selling direct. When dealing with brick-and-mortar retailers, manufacturers ship in large volumes, with predefined routes, to keep costs low. But, when dealing with individual consumers online, typical orders are less than $100, and consumers' dispersed physical locations drive shipping costs higher.

In addition, low-value or high-bulk HHI products such as lumber, tape measures, and paint may pose significant shipping problems. In some cases, the cost of shipping could be more expensive than the product itself. Other products are considered hazardous and can only be shipped on special trucks.

Perhaps more important than these obstacles, HHI manufacturers cannot afford to jeopardize their relationships with traditional channels, especially "big-box" retailers and mass merchants. Many retailers, including Kmart and The Home Depot, have warned suppliers that selling products online could weaken their retailer relationships. Although online HHI sales are expected to grow to $5 billion by 2003, manufacturers must use traditional channels to capitalize on the total HHI marketplace, which will be $170 billion that same year.

As more manufacturers begin to sell direct to consumers, this threat may be diminished. And improvements in logistics and technology are already on the horizon to improve the "fit" between HHI and e-commerce. Still, the message for most HHI manufacturers is clear: the Internet is probably not a profitable direct-to-consumer sales channel for most products—yet. However, there are online alternatives to manufacturers selling their own products direct to consumers. One such alternative is to sell through an "e-tailer," a company that sells to consumers exclusively via the World Wide Web. Most e-tailers' business models are addressing the logistics issues associated with e-commerce by bundling products together—to complete a certain do-it-yourself project, for example—leading to better logistics and higher margins.

In addition, many brick-and-mortar retailers have Internet sites through which manufacturers can sell their products—including truevalue.com, ourhouse.com, and walmart.com. Other retailers, including The Home Depot and Lowe's, are in the process of developing e-commerce sites in which manufacturers can participate. Such sites will allow manufacturers to participate in online selling, while strengthening—not endangering—their retailer relationships.

Looking Beyond Online Selling

Manufacturers must remember a crucial point: they are not retailers. Not even the Internet—with all of its promise to change the world as we have known it—will change that fact.

However, manufacturers are marketers—and therein lies the key to capturing the true power of the Internet. While channel shifts over the last decade have weakened manufacturers' positions in the marketplace in favor of retailers, the Internet has the potential to shift some power back into the hands of manufacturers through the use of marketing and end-user communication.

Manufacturers should be more interested in developing long-term relationships with consumers than in trying to make an immediate sale. Realizing the importance of that distinction—and acting upon it—can give manufacturers a significant competitive advantage.

Manufacturers' Web sites can create greater demand for their products—wherever they are sold—by increasing knowledge of both broad applications and brand-specific features. Internet users say they value this kind of information over the ability to actually purchase something online.

By increasing consumers' knowledge about applications and features, manufacturers can use their Web sites to further build their brands by reinforcing their corporate identity and core values—which will influence consumers when they are ready to make a purchase through any channel. More important, the impression of a strong brand will carry over to subsequent HHI purchases—resulting in increased sales in the long term.

Manufacturers' Web sites should also be a central point for consumer service and support. Such functionality gives consumers a "one-stop" destination to help with problems or answer questions about the product, its uses, care and service, and warranty information. Offering this function on a Web site can significantly cut down on overall service costs and further build brand confidence—while also reinforcing an image of standing behind products and caring for consumers.

Using a Web Site to Listen to Consumers

Many manufacturers in HHI and other industries have used their Web sites only as a way of imparting information to visitors. While supplying information is still a necessary function for a site, manufacturers must realize that Internet communication is two-way—and that the Internet can be a valuable channel for gaining market insight.

Manufacturers can use their Web sites to gather and respond to consumer complaints or suggestions—as well as collecting such valuable information as:

As new as these ideas might be to manufacturers, they represent the real power of the Internet—to increase communication, enhance consumer insight, and drive sales through all channels.

Creating Internet Success

How can manufacturers accomplish these goals? Increasing product knowledge and brand awareness—while also creating consumer insight—requires a Web site that is attractive and content-rich, but also easy to navigate. Although it may seem obvious to some, a Web site must be well designed and user-friendly if manufacturers expect potential customers to continue using it.

In an effort to better reach their audiences, manufacturers should customize their sites to better meet visitors' needs—and include sections for different kinds of users, such as builders and do-it-yourselfers.

A variety of product information should be available—more data than appears on a point-of-purchase display or on product packaging—because the Internet is not constrained by physical merchandising rules such as shelf space or packaging size.

While many HHI manufacturers have Web sites, too few are applying creative solutions and capitalizing on available technologies to create truly powerful sites that accomplish all their marketing objectives. It should be noted, however, that the industry is still in a state of transition regarding the Internet. Every manufacturer's Web site is constantly evolving, adding new features and functionalities.

A few sites, including Owens Corning and the Sherwin-Williams Company, are already capitalizing on the true power of the Internet. But the real Internet Revolution will begin when Web sites begin to include such features as:

Finally, no Web site is effective unless potential users can find it. Manufacturers who are committed to educating their end users—and learning from them—must direct their marketing efforts to drive traffic to their site. This can be done through traditional marketing tactics and advertising, but those efforts should be coupled with an online marketing strategy.

Preparing for the Revolution

The rise of the Internet has been called the most important breakthrough in business since the Industrial Revolution—not only enabling consumer contacts, but also creating cost-effective transactions with suppliers, distributors, and other business partners. While that may be true, it will take considerable time before HHI manufacturers realize how to capitalize on all the opportunities created by this powerful new medium. But those manufacturers that move quickly can leverage the Internet today to build their brand and create a meaningful competitive advantage.

HHI manufacturers must resist the temptation of equating e-business with e-commerce. A successful e-business strategy does not necessarily—and probably should not yet—depend on selling products over the Internet. Limitations in manufacturers' current product lines, business models, and logistics infrastructures—combined with the potentially disastrous repercussions of channel conflict—make selling online impractical for most HHI manufacturers. Instead of focusing on the Internet as strictly a sales channel, too little attention has been paid to its true power as a tool for two-way consumer interaction—and this represents the true Internet Revolution.

How Does Your Web Site Measure Up?

While your company most likely has invested significantly in the creation and maintenance of an Internet site, are you maximizing the return on that investment? To begin assessing your site's effectiveness, answer these questions:

	Is our site customized to the needs of different customer segments—both builders and end users? Have we studied those needs?
	Does our site provide the information and interactive features that customers need to make a purchasing decision—or will they still need to spend time comparison shopping at other sites or in the store aisle?
	Have we created a timely capability for answering online questions?
	Does our site adequately communicate our brand identity and our competitive advantage?
	Does our site make it easy for end users to connect with us regarding such issues as product values, service requests, and product suggestions?
	Most important, does our Internet site reflect our top-level strategic objectives—emphasizing the products, channels, and consumer segments that will lead to long-term success?