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Join Our Research Team at DMA 2014
Nov 16, 2006
How To

Special Report: B-to-B Manufacturing -- 6 Industry Challenges + 9 Strategies to Reach Buyers

SUMMARY: Business-to-business manufacturers face huge challenges -- from global competition and lack of skilled workers to dramatically shortened buying cycles and buyer/seller disconnect. Many companies have successfully adapted, but others have been slow to hear the wake-up call.

In this exclusive Special Report, we bring you the nitty-gritty issues concerning B-to-B manufacturers, as well as:

-> Industry facts and figures
-> How the Internet has changed the cycle
-> 9 key strategies, plus data for reaching buyers
By Contributing Editor Dianna Huff

Manufacturing is more competitive than it’s ever been. That’s because many manufactured goods have become international commodities. With China’s ramp-up, US manufacturers have had to become brutally efficient at levels unimaginable a few years ago.

Manufacturing Fast Facts

According to data supplied by the National Association of Manufacturers, 370,114 manufacturing companies operated in the US in 2004 supporting 20 million jobs.

One of the largest contributors to the economy, manufacturing represents 12% of the Gross Domestic Product in the US, or $14 trillion -- with manufacturers exporting $60 billion every month. 61% of total exports for 2005 were manufactured goods -- about $782 billion. Almost 40% of exports go to neighboring NAFTA countries.

Top manufacturing industries in 2004 include:
- Food Manufacturing, $168 billion
- Computer & Electronics, $133 billion
- Motor Vehicles & Parts, $120 billion
- Fabricated Metals, $115 billion
- Chemicals, $115 billion
- Machinery, $100 billion
- Pharmaceutical, $74 billion
- Plastics and Rubber Products, $70 billion

Although the manufacturing industry was slow to enter the Internet Age, it is happening. In a joint survey with Google, ThomasNet found that industrial buyers use the following online resources:

- Supplier Web sites: 85%
- Search engines: 83%
- Industrial destination sites: 71%
- Trade/industrial association sites: 52%
- General online directories: 37%

According to a June 2006 survey conducted by GlobalSpec, an engineering search engine, engineers and buyers use the Internet to:
- Find components and suppliers: 91%
- Look for product specifications: 90%
- Research: 82%
- Find news and information: 80%
- Look for pricing information: 68%


Top Six Challenges Facing B-to-B Manufacturers

Due to a relentless pursuit for efficiencies, US manufacturers have turned to automation, digital technology and outsourcing in an effort to lower costs. However, despite high volumes and greater efficiencies, they face escalating costs, falling profitability and decreases in R&D spending.

Challenge #1. The Internet Has Changed Things … Big Time

“In the past, buyers went to the Yellow Pages, print catalogs or the Thomas Register, picked up a phone and called for information,” says Linda Rigano, Director Strategic Alliances/Marketing Development for ThomasNet. “That was a supplier’s ‘magic moment’ -- that phone call -- because they then had every opportunity to convince the buyer to do business.”

Those days are gone. And, a supplier’s competition isn’t a fellow supplier. It’s the Internet browser’s “back” button. In both the ThomasNet and GlobalSpec surveys, nine out of 10 industrial buyers start with the Internet when sourcing products and services.

And, where the buying cycle -- including need recognition, identifying and evaluating suppliers, negotiation and, finally, supplier selection -- took weeks and, sometimes, months. Now, the cycle is down to days, if not hours.

“Buyers now go online and search for the products they need. If they land on a supplier’s site and can’t find what they need, they’ll immediately click back out and go on to the next one,” Rigano says. “Once they have a number of suppliers in hand, they’ll send out RFQs or will send the names of the companies to their purchasing agent. A supplier may never know a buyer has been on the site.”

In short, buyers pre-qualify suppliers instead of suppliers qualifying prospects.

“The Internet has put buyers in the driver’s seat -- and, unfortunately, manufacturers aren’t critically aware of how important the Internet is to their business,” says Guy Maser, Senior VP Marketing for GlobalSpec. “Because of this shift, companies can no longer rely on pushing out messages. They need to come up with inventive ways to pull buyers in. And, as buyers increase their power, marketers can expect to see further segmentation of marketing efforts.”

Some of the problem lies with educating the resource-allocating senior management. “The further away the sale is from the Web site, i.e., products with long and complex sales cycles, the harder it is for firms to connect a sale to the site,” says Karen Breen Vogel, CEO of ClearGauge. “Companies have a very hard time correlating sales dollars with the number of Web site visitors. Plus, manufacturers are hard-wired to market their products via sales people, trade shows and print ads. Changing this mindset takes significant education.”

One Fortune 500 supplier we interviewed agrees with that assessment. “Our Web site is ancient, the technology is over five years old and the site really doesn’t support the sales or buying process,” says the Global Web Marketing Director. “But when senior management looked at the site, their response was, ‘What’s wrong with it?’ ”

Challenge #2. Shortage of Skilled Labor

US manufacturers employed 14.23 million people in 2006, down from 17.18 million in 2000. Yet despite this decrease, 80% of NAM’s members say they can’t find skilled workers. A typical manufacturing job that required only a 10th-grade education now requires at least two years of college education, says NAM’s Hank Cox, VP Community and Media Relations.

“In order to work in modern manufacturing, you need a strong basis in math, science and computers, and you need to be able to communicate because jobs and how they’re done change on a dime,” he says. “Our high schools aren’t developing these workers.”

Challenge #3. Rising costs and flat prices

According to NAM’s report “The Escalating Cost Crisis,” US manufacturers face a 31.7% cost disadvantage when compared to nine major trading partners. Non-production costs relating to corporate taxation, employee benefits, pollution abatement, natural gas prices and litigation (torts) have increased manufacturers’ cost burden by 5.8% since 2003.

Because of the global and competitive nature, prices have either remained flat or declined. According to the report, prices have increased by only 4% compared to construction, healthcare, education and other non-manufacturing industries, the latter have soared by nearly 60%.

And, unlike the transportation or healthcare industries, which can pass higher employee healthcare or energy costs onto the consumer, manufacturers can’t. “Their survival is tied to raising productivity,” the report says, “which they have done with extraordinary skill, increasing it by 25% over the past five years -- and keeping a lid on production costs.”

Challenge #4. Loss of R&D tax credit

To spur innovation, Congress created a R&D tax credit in 1981. Manufacturing productivity increased 60% from 1994 to 2004, primarily because of innovation and technological advances, according to NAM. Nearly 16,000 companies use the tax credit, with manufacturers claiming $3.8 billion in credit claims for 2003.

However, the credit expired Dec. 31, 2005, reducing the attractiveness of US-based research. (Note: Congress has let the credit expire 12 times since its creation; NAM is pushing for renewing and strengthening the tax credit -- with permanency as a long-term goal.)

Loss of the credit is becoming a real issue as other countries step forward with generous tax-based incentives to lure US R&D to their borders. Indeed, even with the tax credit, the US lags behind several countries in R&D spending, with Japan, Sweden, Finland and Israel spending 3.1% of their GDP on R&D -- vs 2.6% for the US, according to NAM.

Challenge #5. China -- an Opportunity and a Threat

Yes, China is manufacturing’s biggest threat, yet US companies can also find opportunities. “Companies can either wring their hands or get busy when it comes to China -- because it isn’t going to go away,” Cox says.

For some NAM members, such as a steel fabricator in Alabama, China has become a boon to their businesses. The fabricator, with various plants in the US, recently opened a 400-person plant in China and has seen business grow by 10%.

Challenge #6. Buyer/Seller Disconnect

While the vast majority of manufacturers have an Internet presence, the data show they’ve dropped the ball when it comes to giving buyers the information they need to make purchasing decisions.

ThomasNet’s research indicates that if potential buyers manage to find a potential supplier’s Web site (MarketingSherpa data shows that searchers click on organic listings before the paid sponsor listings and that most manufacturing sites aren’t optimized), they are likely to find the information that they need isn’t available.

ThomasNet


Nine Strategies to Reach Buyers

Buyers spend six to eight hours a week online searching for products. Yet, companies routinely allocate the bulk of resources to trade shows or other less effective marketing tactics.

“We see a significant portion of industrial marketers spending more than half their budgets online -- including online directories and Web sites, email advertising and search marketing -- and this trend is only going to continue,” Maser says. “It behooves manufacturers who haven’t seriously considered the Web to reconsider how they are targeting buyers -- or otherwise lose business.”

What follows are nine strategies -- and data -- to help marketers communicate to senior management the importance of using the Internet to reach buyers:

Strategy #1. Give buyers what they want

The key takeaway for companies making products that go into other products? Include CAD drawings.

“Engineers want really technical stuff. They adore CAD drawings and want to be able to download them into their own specifications to ensure capability with planned or existing products,” Rigano says. “However, few manufacturers will put CAD drawings online -- which is short-sighted, given nearly 90% of engineers will make a purchase recommendation.”

Strategy #2. Find internal champions

“The research is all out there as are the best practices,” says Aaron Kahlow of Business Online. “But you really need to change how people think, which means changing the hard-wiring of your company.”

Adds Breen Vogel: “Instead of tackling the whole enchilada at one time, designate an ebusiness champion that works across divisions to create synergies and build an integrated marketing platform by showcasing online pilot programs and Web success stories. Find the right people higher up on the food chain who ‘get it’ and work with them to help you champion changes to your Web strategy.”

Strategy #3. Don’t rule out video and other “consumer” media

While video isn’t widely used yet on B-to-B sites, Dave Larson, Director Account Planning for Ovation, says it’s something suppliers need to address. Given that buyers want application information in addition to technical specs, video is the ideal method for showing their products in action, without the expense of a sales call or trade-show booth.

One agency, Performance Communications Group, is using video and rich media in industry-specific Web sites on behalf of their B-to-B clients.

“Let’s face it,” says Scott Madlener, EVP of PCG’s Interactive Marketing group, “Many manufacturers don’t have exciting products. What you get is a lot of ‘junk in the trunk’ collateral that lists technical specs but doesn’t really get the message across in a visual way.”

The agency created a new site for homebuilders that uses video to sell Georgia Pacific’s mold-inhibiting drywall. “The video and accompanying text allows prospects to engage at a level that hasn’t been done too well or at all,” he says.

Because the site launched only a few weeks ago, data is limited, but PCG is already seeing higher-than-expected user interaction time. Other findings:

- Average screen time for the entire site is more than 1.5 minutes per viewer per screen.
- Screens with multimedia and video (typically 30 seconds) average 30% longer engagement per viewer per screen.
- So far, data suggest original video holds viewer interest twice as long as repurposed TV commercials.
- Screens with multimedia training and educational content sustain video interest longer than call to action or awareness media.

Strategy #4. Reduce trade-show allocations

“The number of trade-show attendees is rising and has actually outpaced the physical growth of shows, as measured in net square feet,” says Frost Miller Group and Jacobs Jenner & Kent in their 2004 report, “AttendTrend.” “Almost 90% of show organizers said attendance of at least some of their shows has grown, an increase of 14% over 2003. 12% of organizers indicate a decline in their shows.”

And, 40% of show organizers have increased marketing budgets to “increase the number of key power buyers, buying teams and international attendees -- the sectors considered the most difficult to attract.”

However, not everything is bright and rosy in exhibition land. According to GlobalSpec research, 51% of respondents hadn’t been to a show in over 12 months while 39% of ThomasNet surveyed respondents said they use trade shows to find products.

One small instrument vendor at PITTCON, the major life-sciences show, complained to Chemical and Engineering News about the show’s declining attendance and how the show had become “a dinosaur.” And National Manufacturing Week, once the granddaddy of North American manufacturing shows, appears to be on decline with noticeably lower traffic in 2005, according to Manufacturing Automation Magazine.

“Manufacturers’ marketing staffs have also been pared to the bone,” says ClearGauge’s Vogel. “You’ll often see a marketing department of one or two people -- and both people are up to their necks managing and attending trade shows.”

Strategy #5. Keep the print catalog -- yes, really

If you’ve concluded that print catalogs have gone the way of the phone directory, think again. According to recent research by Ovation Marketing, 91% of B-to-B survey respondents said they have a catalog or catalog page in front of them at least some of the time when searching online. (Breakdown: 40% have a catalog or page in front of them “most of the time,” 27% said “sometimes” and 24% said “always.”)

And, respondents reported that they typically spend a whopping 21-30 minutes with a catalog -- “certainly far longer than an average Web site visit,” Larson says.

Survey respondents indicated that what typically triggers a catalog purchase is running out of their current supply. “Companies should be tracking how often customers purchase specific items and then sending targeted emails when it’s time for them to be replenishing their supplies,” Larson says.

The most common way respondents became aware of a print catalog? It simply arrived in their mailboxes (55%). Following at a close second is the Internet at 47% and word of mouth at 45%.

Strategy #6. Print catalogs and Web sites should work in tandem

“Our research shows that if print catalogs offer buyers a more detailed presentation online, 90% said they will go online to see it,” Larson says. “However, what we find is that manufacturers or suppliers will use the same photo shot from the print catalog in the online presentation, which is an insult to buyers’ intelligence.

Ovation data also shows that our expectations as consumers drive what is now expected from B-to-B sites. In a series of interviews they asked buyers, “Which features do you want to see on B-to-B Web sites?” Respondents said they wanted suggestions of what to buy -- similar to Amazon.com's suggestions of different items based on previous purchases. “Yet few B-to-B sites offer this technology,” he adds.

Strategy #7. Fund and diligently support fulfillment of online queries

In addition to not giving buyers the information they need to purchase products, manufacturers and suppliers have trouble fulfilling online queries and requests.

According to GlobalSpec’s research, 42% of surveyed respondents prefer to contact suppliers via the Web while 36% prefer email. Only 21% indicated they use the phone to contact suppliers -- a preference that has seen a decline in the last three years. (Tellingly, only 1% want a visit from a sales rep.)

In addition, 25% of survey respondents said they received requested literature more than 95% of the time, with 38% saying they received information 80% of the time.

Typical response time to email inquiries is so-so: 55% of respondents said they usually receive requested information within 1-2 days with 40% indicating they usually have to wait three to seven days for information. (These companies lost the sale without even knowing it.)

Strategy #8. Segment your email list

In its 2005 Email Response Rate Study, ExactTarget found that email open rates have dropped steadily over the past two years. In 2005, average open rates fell an average of 1.8% per quarter.

Clickthrough rates, on the other hand, have remained relatively stable over the last two years with a slight upturn in the second half of 2005.

For B-to-B, open rates remain somewhat healthy, depending on list size:
- For lists with 1,000 subscribers or fewer, open rates are 45%.
- For lists with 1,001 to 10,000 subscribers, open rates drop significantly to 30.3%.
- For lists of 10,000 or more, open rates drop to a paltry 27.8%.

Obviously, as we’ve been preaching all these years, the more segmented your list, the better your open rates.

Strategy #9. Determine the business value of your site

For national or global enterprises, it can be difficult to determine what you’re getting for your Web strategy dollars. A few of Breen Vogel’s larger clients have put a moratorium on Web development in order to analyze how their sites provide value within the supply chain.

Questions to ask your sales and marketing team include: What are your business goals? How can the Web help you achieve these goals? Then, look for connections between the Web site, your business and financial goals.


Useful links related to this article (in alpha order)

Business Online:
http://www.businessol.com


ClearGauge:
http://www.cleargauge.com


Exact Target:
http://www.exacttarget.com


Frost Miller Group
http://www.frostmiller.com/


GlobalSpec:
http://www.globalspec.com


Jacobs Jenner & Kent
http://www.jjkresearch.com/


National Association of Manufacturers:
http://www.nam.org


Ovation Marketing:
http://www.ovationmarketing.com


Performance Communications Group:
http://www.performcom.com


ThomasNet:
http://www.thomasnet.com





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Comments about this How To

Nov 16, 2006 - Jeff Curie of SupplyFrame says:
Great article. It should also be pointed out that marketers of manufacturers must consider the long tail of the market. Vendors still put feet on the street to meet with the top 10% of the market but the remainder is underserved. The web needs to be seen not just as a branding and advertising channel, but as feeding into the actual decision making and purchasing processes. When done properly, the web is a key piece of the sales funnel. The right systems can capture new sales without the expense of a sales force to visit or make telephone calls to qualify leads.


Nov 17, 2006 - Patrick Goff of HotelDesigns magEzine says:
We provide manufacturers a set of tools for marketing to purchasers of product for interior fitout of hotels. We spend about 10% of our time selling our service but 50% trying to educate our subscribers in how to use the service once they have bought it. Manufacturers need to reqalise that email and the web offers the chance to 'turn the clock back' on relationships. Email combined with web services such as ours offer the opportunity to build or rebuild personal relationships with both other suppliers and specifiers. If the web is treated as another advertising medium the whole game is missed, and too many supliers regard it as just another advert, not as a potentially proactive communication medium. The web can also be negative in exposing those who are not interested in their customers. Manufacturers need to learn to communicate their skills and ability as problem solvers to those specifying or buying their products. Many have not had to do this for years,and the web exposes thoise attitudes that declare 'this business would be great if it wasn't for our customers'....


Nov 17, 2006 - Alan Charlesworth of University of Sunderland, UK says:
Excellent article – another one that my e-marketing students will get as a case study. Whilst the entire report goes to emphasise the importance of web content development, the buyer/seller disconnect graph really brings home the message that a B2B web site should not simply be a marketing after-thought – and nor is it a place for junior techies to show off their newly learned ‘Flash’ skills.


Nov 21, 2006 - Teri Mollison of Penton Media Inc. says:
Good article; but I caution readers not to take everything in it completely on face value. This article seems to imply that if a manufacturer were to only invest in a better, more customer-focused web site -- and concentrate on spending more marketing dollars on the web (in "search" and "directory") then sales would grow. That's jumping to a linear conclusion in a non-linear world. It's just not that simple. Manufacturing is more complicated than that. While having a solid web presence is very important, it should not stand alone as your sole marketing investment at the expense of trade shows, events and other forms of advertising and direct marketing. In b2b marketing, there is no silver bullet -- including the web. I'm afraid this article might lead some to believe that there is. Every medium offers manufacturers unique benefits to help achieve very unique marketing, sales and business objectives. The most exciting thing is to figure out how to balance ALL these tools efficiently and effectively against ALL these goals. "Search" only works if the customer knows what they are searching for -- and it can clearly land many a company in a commodity trap, if not balanced carefully with other marketing communications efforts. Websites are terrific for "asking for the order" and disseminating very specific information -- but they are not so hot at helping marketers connect with targeted prospects whom the company doesn't already have a relationship with on another level on a more visceral level. Remember: your customers -- manufacturers -- are searching for inspiration EVERYWHERE -- not just on the web. Yes, you must meet them on the web, they may be ready to buy a widget from you. But aren't some of a manufacturers best customers the ones they meet BEFORE the RFQ is spec'd? By the time "the job" has gone to an RFQ, your company has missed a great opportunity to influence the buyer -- it is, in many ways, a commodity and a pricing war. Do you really want your company to just be there selling the equivelant of red sweaters because that's what your web site says you sell -- and you can make your site pretty convenient to quote red sweaters? What if your margins and business plan says you do best collaborating with customers to create items of clothing out of lambswool in a custom designed fashion? (In this analogy, you might actually miss out on some RFQs you would "qualify" for -- but maybe, those are business that would be low margin and detract you from pursuing your primary business objective: custom knitware.) The bottom line is that you don't want to reach customers ONLY when they are spec'ing their widgets, as a manufacturer, you also want to meet them when they are thinking, dreaming, reading, designing, networking, and playing. Oftentimes, a manufacturers problem is "solved" not so much at the piece/part specification level -- but at the "dream it/do it" relationship level, before any "products" are even at the mix. To get your company embedded THERE, you need a much broader, multi-media marketing & sales action plan than "key word search" advertising and a killer website. The bigger challenge in today's internet-connected age is not that manufacturers aren't sprucing up their web sites fast enough, it is that their marketing budgets haven't aren't increasing to allow them the opportunity to take better advantage of all the opportunity, without severely handicapping overall marketing effectiveness.


Nov 21, 2006 - Tad Clarke of MarketingSherpa says:
Teri, thanks for your comment. Manufacturers don't have an easy one-stop solution. However, the story doesn't say to give up on other media tactics. The experts we talked with said to keep your DM and print catalogs but use them in tandem with other channels. They also saidtrade shows are still a valuable medium, just not as much as they once were.



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