Table of Contents
“I just can’t imagine anybody not recognizing the need for an ecommerce presence in 2020”
Gary Vaynerchuk emphasized in a recent LinkedIn article.
The convenience, accessibility, and transparency that the internet affords us in our everyday purchases has fundamentally changed our expectations in how we do business.
Gary Vaynerchuk stresses the importance of e-commerce for all transactional businesses in order to adapt to life during and after COVID 19.
However, digital transformation in the heavy equipment and parts industry had already begun prior to the pandemic and will accelerate over the next 5 years.
The pandemic simply makes the need to digitize impossible to ignore.
There is still a belief that the construction equipment industry is immune to the shift towards e-commerce – people prefer to do business over the phone so e-commerce will never work in the construction industry.
Many customers do, in fact, prefer to do business over the phone and that will not change no matter how great your website is.
I am not here to say that those people will change their ways overnight.
I am saying that at least 50% of your customers are changing if they haven’t already.
Some suppliers in the heavy equipment industry are using the stereotype of the “old school” customer to define all customers which justifies de-prioritizing e-commerce.
This is a huge mistake.
Just like with all technology, these customers fall into the “laggard” category in the technology adoption curve. They will be the last people to buy or rent heavy equipment and parts online.
What these suppliers are ignoring are all of the signs that point to the fact we are just at the beginning of the e-commerce adoption curve in the construction equipment industry.
This means that the longer suppliers put off ecommerce, the more they risk missing out on or losing the customers that are innovators, early adopters, early majority, and late majority.
The heavy equipment and parts industry is just beginning to ascend the adoption curve.
Here are the signs.
1. Buyers Adapt To Innovation Patterns
Heavy equipment rental seems to be following the same patterns as car rental, just 40 years behind.
The introduction of car rental came soon after the rapid adoption of the automobile. Hertz was founded in Chicago in 1918, originally as Rent-a-Car Inc, with a fleet of 12 Model T Fords. Following WWII, the rental car industry was flooded with rental companies. Several powerhouse rental companies emerged making it tough on the thousands of independents to compete. Consolidation began as large rental companies and manufacturers started snatching up the independents.
Availability of cars had been addressed. Accessibility was next.
Expedia, one of the first online travel agencies, was founded in 1996. By 2003, 21% of car rental bookings came from online travel agencies and 15% direct from the companies’ web sites.
Then came the sharing economy and beyond.
From manufacturing, to rapid rental business creation, to consolidation, to platforms, heavy equipment rental seems to be a period behind.
However, there is one key distinction that will keep equipment rental from being “platformized” like in car rental – more is at stake in a heavy equipment rental than a car rental.
The human element in the equipment rental transaction is absolutely vital – something many tech companies overlook.
The customer service and category expertise that comes with independent rental will keep the independent business thriving as long as rental companies make it a precedent to provide the same digital experience that the largest players do.
The temptation for your customers to switch purely out of convenience will grow as the largest rental companies continue to invest in their ecommerce channels.
Now is the time to focus on mitigating that temptation.
2. Amazon Business Is Growing Fast
You know that consumers in your industry are shifting towards e-commerce when Amazon makes your customer it’s core focus.
According to a report by Applico, Amazon Business reported $10B in total sales in 2018, $6B of which came from Maintenance, Repair, and Operations supply – their leading category.
18 million of the 56 million products they have listed are in the Maintenance, Repair, and Operating Supply (MRO) category.
To put that in perspective, Amazon Business is already fourth in MRO revenue.
Not only that, Amazon Business is forecasting $75B gross merchandise value by 2023, growing at a 115% compound annual growth rate from the $10B they reported in 2018.
Compared to the 28% growth rate in Amazon Retail, this is massive.
This would make Amazon Business the number one industrial distributor in the US.
Suppliers in these categories need to act quickly in order to compete. Amazon is undoubtedly learning from every transaction as to what parts they should replicate and offer at a cheaper price like they have done in retail.
It will be impossible for any single supplier to compete with Amazon’s SKU selection. Suppliers need to band together and work with a marketplace platform that won’t get in between them and their customers.
3. The Biggest Industrial Suppliers Are Focused On Ecommerce
E-commerce is already the preferred method for buying parts.
Grainger expects that 80% of their revenue will come from e-commerce by 2023. They continue to invest in their ecommerce channel and it’s complimenting in-person service.
Fastenal’s e-commerce revenue has grown 27% year over year and now makes up 35% of their total sales.
“I see ecommerce being 60%, 70% and 80% of our business.” said Holden Lewis, CFO of Fastenal.
Across 300 B2B distributor businesses, ecommerce sales has grown by 11% year over year bringing the total north of $700B in revenue.
It’s clear that some of the biggest manufacturers and distributors are putting a focus on growing their ecommerce channel, especially in reaction to this pandemic.
4. Contractor’s Are Changing Their Buying Behavior
According to the American Rental Association’s 2019 consumer survey, 34% of contractors already expect that their rental transactions will be done completely online.
Catering to these customers is a focus for the top rental companies.
Although only 2.5% of their revenue is coming through the digital channels, United Rentals has seen a greater than 50% year over year growth rate in self service ecommerce revenue according to their 2018 annual report.
For 80% of rental companies, an online transaction isn’t even possible.
This is not an easy expectation to deliver on.
The rental transaction is a complex transaction that is very difficult to be done without human intervention. Most contractors already have relationships with a few rental businesses and tend to stay loyal to those businesses because of the familiarity the rental company has with the work their customers do.
As a result, a large percentage of revenue for these rental businesses is from repeat customers.
Therefore, ecommerce in rental should be implemented to retain and enhance their existing customer relationships first and foremost, not just to bring in new business.
Sales reps will be able to spend less time on the phone answering questions that they get all day long:
- Is this in stock?
- Where is the truck?
- Can you come pick this up?
For sales reps, less time on the phone means more time to find new business.
Incremental business by way of an ecommerce presence would simply be icing on the cake.
5. Buyers Are Getting Younger
According to a Merit study, up to 73% of all B2B buyers are now millennials.
Millenials are no longer teens.
The millennial generation is defined as people born from 1981 to 1995 which means they are currently between the ages of 25 and 39.
Why does this matter?
They prefer to research and buy what they need online. As of 2019, Millennials do 60% of their shopping online.
This is carrying over to business.
This trend will continue as more Baby Boomer business owners pass their businesses on to the next generation.
6. Buyers Research You Online First
The digital representation of your business is now more important than how your store looks in person.
Everything from your website to the reviews about your business to your social media presence needs to be an accurate reflection of the business that you are proud of.
According to Demand Gen’s B2B Buyer’s Survey, peer reviews are just as important as pricing (67% vs 75%).
It also makes sense, especially in heavy equipment and parts.
The cost of down equipment is much higher than the price saved on lower quality equipment, low quality customer service, or slow to ship parts.
Contractors need to be assured that the part they are buying is a high quality part from a reliable supplier. Peer reviews are massively important in building that reputation and trust.
According to a study by G2 Crowd, 92.4% of B2B buyers are more likely to purchase a product or service if they have read trusted reviews about it.
Positive reviews can increase conversion rates by 380% and spending by 31%
85% of buyers trust reviews as much as personal recommendations.
Trust in a supplier that contractors rely on to keep business moving is invaluable. Your online reputation is a major factor in building and maintaining that trust.
7. Buyers Use Their Phones To Research and Purchase
It’s not enough to have a great website, it has to be equally user friendly on mobile.
According to a recent BCG study, up to 70% of B2B search queries are made via a mobile device.
B2B buyers use their phones to research you. A poor mobile experience can be detrimental to your business.
As reported by BCG, over 90% of surveyed users would buy again from a business with a superior mobile experience whereas only 50% of users would buy again from a business with a poor mobile experience.
This data comes from a typical B2B software buyer so you may be thinking that this is all well and good but it doesn’t apply to the heavy equipment and parts market.
Actually, it’s quite the opposite.
Think of your typical contractor.
They are out on job sites working during the day and are rarely behind a computer. They work hard to avoid downtime and the cost that comes with it so they value accessibility, availability, and convenience above all else.
If equipment goes down, they want the parts they need as soon as possible. If they are renting, they want to be sure they are working with a rental company that will reliably be there for them when they need them.
Offering a mobile experience that makes working with you faster than a phone call will keep contractors coming back.
8. Buyers Prefer Self Service
The next generation of customer doesn’t want to call a sales rep.
According to a McKinsey study, 85% of B2B buyers prefer using self service tools for reordering over talking to a sales rep.
I am not saying that technology is here to replace the sales rep like some reports are suggesting. In fact, it is quite the opposite.
Ecommerce makes the sales rep more effective.
Sales reps should focus on converting new business instead of spending their time handling transactions that will happen anyways.
However, businesses in the heavy equipment industry cannot attempt to become an ecommerce company because it will not work.
Heavy equipment and parts suppliers need to focus on becoming ecommerce enabled.
Ecommerce needs to be thought of as job enhancement, not replacement. Humans are an important part of the sales process.
According to the same McKinsey study, 76% of B2B buyers find it helpful to speak to someone when buying a completely new product or service.
This is even more true in the heavy equipment industry.
Businesses will be able to drastically increase output per sales rep while simultaneously increasing customer retention and satisfaction once the concept of becoming ecommerce enabled is embraced.
9. Boom In Construction Technology Funding
There is a giant bullseye in Silicon Valley on construction technology.
Manual tasks will be made easier with online tools as entrepreneurs continue to eye construction as the next industry ripe for innovation.
Many of the construction technology companies on the other end of the funding explosion are on the build side of construction. However, suppliers will need to keep up as contractors continue to digitize.
Behavior and expectations from buyers will continue to shift as digital adoption increases.
Suppliers that do not adopt to this shift in behavior will risk getting left behind by those that do.
10. OEM Distribution Is Evolving
In March, JLG announced the launch of Online Express, their direct-to-consumer ecommerce platform for parts and attachments.
This may not seem like a breakthrough, but it is.
JLG, the leading aerial lift manufacturer, is one of the first to create a completely digital direct to consumer ecommerce channel where any customer can buy any part they need and ship it direct to their location.
The site also allows JLG to capture valuable information about their customers and their competitors’ customers such as the equipment they own, the type of work they do, etc.
Other OEMs have online parts ordering sites, but not like this.
The traditional OEM parts ordering process is done through dealers behind an account login. The gold standard has been CAT’s part ordering system. However, orders are still made through dealers.
Many OEMs are concerned with “competing against their dealers”. JLG has made a statement that they are focused on what is best for the end user.
Approaches like this one could have a ripple effect in the aerial lift industry and beyond.
11. Now Or Never
The global crisis has pushed us further into a digital world, exposing businesses that are ill-equipped to serve their customers digitally. Many online retailers saw a 74% year over year increase in revenue in the month of March compared to March of 2018.
The demand for a digital experience will outlast the pandemic. When everyone goes back to work and it’s time to build, consumer behavior and expectations will have changed.
Now is the time to ask yourself, what you are doing to adjust to the new consumer?
Businesses that take action now will come out the other side of this pandemic more efficient and effective.
Those that don’t risk getting left behind.
Now I want to hear from you.
What do you think about this call to action?
What are some things that your business is doing to digitize?
How do you see the behavior of customers in the heavy equipment industry changing?