Where is Hvac.com? (December 1999)
Should I Do Business Online?Let’s take a look at a typical business. Table 1 demonstrates how a typical business goes from pauper to prince by implementing technology and e-commerce within their company. The company itself is fictional. So how did Eprod dig themselves out of its bottomless pit? Well, better management has been key. But from a production point of view, credit should be given to Eprod’s in-house communications network, which uses the Internet to compare prices in a heartbeat, boost on-time deliveries, and track orders as they move through the plant. This system managed to show Eprod employees how to work better and smarter. Some distributors still have their gripes about the associated expenses with Eprod’s new system, but most of them will have no choice but to jump on the Eprod bandwagon. Most distributors see Eprod’s new process as money well spent.
As you can see, the rewards from a successful e-commerce program are significant. Of course, it isn’t necessary to go to the extent to which Eprod did. However, it does prove that you should probably do something. Whether it’s taking an order via e-mail or installing a “real-time” MRP (Materials Requirement Planning) system, companies today need to act much quicker than they did only three years ago. The times have definitely changed.
So how do you know if your product or service is sellable online? In most cases, you don’t. The hvac industry is one of the last “big” industries not to tap into the world of e-commerce; leaving most of you little or no benchmarks for comparison.
In trying to figure out whether or not your product or service is sellable, you must first do some research. The best research lies on the Net (see sidebar). Many of these companies are selling large equipment as well as other items. E-commerce is still in its infancy, and there is still plenty of room for business-to-business commerce within the hvac industry.
What is E-commerce?Electronic commerce or e-commerce (EC) is the application of communication and information sharing technologies among trading partners in the pursuit of business objectives. In the real world of business, four distinct types of EC mingle and interact:
- Information access provides search and retrieve capability for public domain and proprietary data archives. An example of this technology would be a large manufacturer communicating engineering change notices to suppliers via a dial-up access to a centralized database.
- Interpersonal communication services provide methods for parties with mutual interests to exchange information, “discuss” ideas, and improve their cooperation. An example here would be a purchasing agent using electronic mail (e-mail) to negotiate an expediting schedule with a supplier.
- Shopping services allow people to seek and purchase goods or services through electronic networks. Examples include the ability to purchase used industrial equipment, commodities, or freight capacity.
- Virtual enterprises are business arrangements in which trading partners separated by geography and expertise are able to engage in complex, joint business activities, as if they were a single enterprise. A prime example would be non-competing suppliers with a common customer using EC to allow that customer to do “one-stop-shopping” with the assurance that a single phone call or click of the mouse will bring the right materials to the right location at the right time.
Virtual enterprises are also referred to as e-businesses, although some use the term e-commerce and e-business interchangeably. E-business works towards what is known as true supply chain integration, where planning and forecast data are transmitted quickly and accurately throughout a multi-tier supply chain. A successful e-business thinks in a 3-dimensional environment, working on multiple levels of efficiency and automation, all in the spirit of making it easier for your customers to do business with you.
Virtual enterprises can exist solely on the shoulders of a single company or as a partnered alliance. Working with partners provides you and the customer with many obvious benefits. Generally, you and your partner(s) will have similar target markets. As a way of increasing business, you now have the option to share customer information with your partner and vice versa. This provides you with the ability to piggyback off each other’s customer database. This is very important from a marketing perspective. Another added advantage is the price and volume stability that generally occurs in such a venture. By building a vertically integrated selling platform where noncompeting suppliers can seamlessly interact with an entire industry, you are thereby promoting the concept of an open and free market. The result is improved price points, shorter lead times, and a consistent flow of quality product. This provides a huge benefit to the customer, one that may steer him or her away from their traditional supplier and into your more efficient arena.
The drawback to all of this is that success does take time. Long-term planning for successful electronic business strategies can open the door to incredible revenue opportunity beyond what is possible today with traditional business models. So the greatest attribute you can maintain is patience.
Basic Building BlocksThe EC presence can dramatically enhance the selling ability of a company if implemented correctly. Prospects can stumble on a supplier without the company having to do deliberate outreach; likewise, customers can have immediate access to products, services, and support without having to directly contact the company.
While the potential is compelling, there is also opportunity to spawn headaches. Simply put, many initial e-business sites have suffered problems because they are not designed for scalability or reliability. The consequence can be severe. If the first experience a prospect has with a company is unsuccessful, that would-be customer will not buy and will not return.
Loyal customers need fast and easy access to information, solutions, and options. Over time, e-business sites will become the primary channels for supply chain integration and management between customers, suppliers, and partners. Therefore, the technical infrastructure for electronic business is critical. But don’t be lulled into thinking that EC is all about heartache. It’s not. Of course there is risk with any new venture, but with EC, the revenue potential far out-weighs the risk of failure.
The key to gaining this massive revenue is long-term planning. Ask yourself a few basic questions. Is my product/service sellable online? What is “the want” vs. “the need?” What are my company’s primary objectives?
Once you solve the more basic types of issues your company is facing, you can then start thinking about the actions you will need to take in order to launch your online identity, such as “Who do I use to build my Web presence?” In this case, you have two options in terms of who develops your e-commerce program. You can choose to develop your program in-house or externally, the latter being the most widely accepted and cost effective. Pursuing such an EC project in-house can result in astronomical upfront costs (server, webmaster, designers, etc.), which most companies are not willing to endure. For small or midsize companies, let someone else build the site for you. The average time to build a successful EC program is about 4 to 5 months.
The first step in pursuing your EC presence is to develop a business plan (along with a supplementary business model). The business plan will help you layout what your common objectives are. This is important in terms of defining goals and making at least some attempt to reach them. The plan should clearly answer what you are doing, why you are doing it, and for whom you are doing it. Integrated into the business plan should be a detailed marketing plan. Here, a company may take the time to layout its branding strategy and how it plans on positioning its product or service. Key aspects to look at are your target markets and what type of promotion you will use to spread the word of your new business offering.
The supplementary business model is also an item that tends to get passed by during the development of your business plan. There are roughly eight types of common business models to choose from when we talk about e-commerce and e-business.
- Category killer. Category killers use e-commerce to create (or redefine) and capture a market. They are often first to market, giving them a healthy lead on their competition, and they remain in the lead by fostering brand loyalty early on and innovating frequently.
- Channel reconfiguration. Here, the Internet is used to directly access customers, make sales, and fulfill orders. This model supplements, rather than replaces, physical or legacy distribution and communications channels.
- Content marketing. Content marketers use content to attract customers initially, then offer them value-added services including more detailed information and enhanced features, to encourage greater usage and build brand loyalty.
- Efficiency. Efficiency involves streamlining, automating, or otherwise improving internal functions and processes.
- Event aggregation. This simplifies major financial events by offering the customer a unified front-end for purchasing related goods and services from multiple vendors.
- Market segment aggregation. Here, the organization defines a customer base and builds a comprehensive suite of services tailored to that customer type.
- Transaction processing. Companies using transaction processing create an e-commerce and payments infrastructure that integrates their existing transaction processing capabilities with e-business capabilities.
- Value chain integration. Value chain integration uses Internet technology to improve communication and collaboration between all parties within the supply chain. Considered the back-end approach within the realm of e-commerce.
Because there are no proprietary technologies, plans, or business models, the only competitive advantage lies in one’s ability to change quickly and stay ahead of the competition. The key is being able to innovate, build, and extend quickly. Focus on factors that are within your control like speed, reliability, scalability, and agility. Adopting a first-to-market strategy (building the first release and revising/extending it over time) lets you establish your brand and grab market share early on.
The development and implementation process requires deliberate attention to seven technology lifecycle stages.
- Awareness training. This provides an understanding of what the technology is, a general sense of what it can do for the business, and how to begin implementation.
- Business analysis. This provides a thorough understanding of how the new technology can help the business.
- Requirement analysis. Yields an understanding of what kind of EC functionality is needed to meet business requirements. As an example: Business need = keep customers informed of changing product availability and price. Requirement = web-based catalog.
- Design. Sets out specifics, e.g., who are my potential vendors? By when do I need dif ferent parts of the system up and running? What will the system cost?
- Implementation. The system becomes real. New technology comes in the door. Training is conducted. New business process begins to function.
- Integration and validation. Make sure the system performs per its specifications.
- Maintenance. Keeps the system running, deals with unforeseen circumstances, and plans for improvement.
An important aspect of setting things in motion and performing proper implementation is the ability to create teams. When developing your e-commerce team, make sure they are constructive, cross-leveled, and representative of all relevant stakeholders. Teams must be given a clear mission, and boundaries of their activities carefully defined. Without these, clear coordination among teams becomes extremely difficult. Teams must also be empowered. Within the boundaries of their mission, they should be left alone to act as they see fit. These sociotechnical issues are vital to the success of your program. Without proper authority and guidance, your e-commerce program will fail before it even gets off the ground.
The Must-Do ListThere are about a million different issues to remember when constructing your e-commerce presence, so many issues that it’s easy to get lost in a seemingly insurmountable amount of information. There are, however, certain things that you must do in order to guarantee at least minimal success.
For starters, keep your site simple, and design to serve. Design your e-commerce site based on simplistic measures rather than detailed ones. The site itself should be designed to serve, not impress, the customer. This means easy navigation and fast page-download times are a must (70-kb maximum for a page). The more important the site, the simpler the design.
Next, design for flexibility and don’t be afraid to change your site. The maintenance of your site is probably the single most important factor for long-term success. In other words, you will constantly be improving your site. Even if you think your site is perfect, you will still need to update it regularly. A website that has not changed for months is boring. It feels abandoned. Therefore, you will need to make provisions for quick and painless changes, which can be implemented on a moment’s notice.
You must also be willing to evolve your business model. You must be willing to adjust if you start running out of steam. One of the biggest issues to tackle is service. You must emphasize service. Simple formula: Happy customer = more profits. Most of the people who visit your site initially will still find the idea of buying online a little strange. You need to reassure them that all is OK.
The most powerful confidence builder is a top-quality site; high production values go to work immediately on the visitor’s subconscious. But it’s also important to reassure visitors explicitly. So make sure you provide your customers with the following:
- Great customer service;
- A satisfaction guarantee;
- Quick responses;
- Personalization and a sense of community;
- Reassurance and explanations;
- Secure online ordering;
- Instantaneous order confirmation;
- A follow-up thank you e-mail;
- E-mail when item is shipped;
- Quickly shipped orders (if you’re supplying a physical product);
- Post sale follow-up (make sure product has met customer’s expectations).
Another surefire way to bring in new online business is to lower your prices. Maybe even give certain items away for free. The emotional satisfaction of getting something at the cheapest price is like a drug. People will go to any length to get it. People don’t decide to buy an air handler or a piece of rooftop equipment on a whim. Prices must remain consistently low in order to compete and gain new business. Not only will this improve your chances of becoming the default seller in a particular category, it will also help establish your firm as one of the industry’s regular stores.
Lowering prices also makes good economic sense in the long run. It’s much cheaper to sell on the Web. If you split the savings with the customer, you both win.
Being Top-Line DrivenSo what is the key to success in the e-commerce world? Stay top-line driven, as opposed to bottom-line driven. Invest, invest, and then invest some more. This most certainly goes against the accounting grain of most companies. At all costs, you must stay ahead of the competition. The Internet world moves very fast. More often then not, it won’t be an old industry player who you’ll be competing against. It’ll be a small start-up you’ve never heard of who’ll be grabbing your market share.
The ultimate prize on the Internet is the creation of wealth. As the Net tears down the walls of geography, companies are creating entirely new businesses and tapping markets they never could have reached before. It’s only a matter of time before you find yourself competing against an Internet company.
There are now 14 billionaires who earned their wealth entirely from companies on the Internet. The World Wide Web generated more than $300 billion in revenues and created 1.2 million jobs in 1998. (Source: USA Today, June 10, 1999). The founders of companies like Netscape, Yahoo, Amazon.com, etc., knew something that nobody else knew: that the Internet would generate mountains of cash for those who understood how to exploit it. But it’s not too late for the rest of us. The Web market is just beginning to impact business and the hvac marketplace.
So get in early, and be patient. Success takes time. ES
How Did E-commerce Evolve?The roots of e-business lie within the consumer side of the corporate world. Companies like Amazon.com, eBay, Dell, and Yahoo all helped revolutionize the concept of e-commerce by literally inventing a new method of conducting general business. After only five years in existence, Amazon.com and eBay have a combined market capitalization of over $60 billion, and they’re still growing.
However, business-to-business e-commerce is being touted as the more profitable playing field over the next 5 to 10 years. According to a report from The Yankee Group, a communication research firm in Boston, business-to-business e-commerce will grow at a rate of 41% a year in the United States, from an overall market of about $138 billion in 1999 to over $842 billion in 2003.
Other groups like Forrester Research Inc. (Cambridge, MA), an Internet-based research firm, predict business-to-business commerce conducted over the Web in the United States will top $1 trillion by the year 2003, compared with an earlier projection made just one year earlier of $327 billion.
“What we’re seeing take place is the nuclear effect,” said one analyst at the firm. “As more businesses go online, it causes their suppliers and competitors to react, and that creates a rippling effect like an atom splitting. Right now, we’re at the crest of the wave.”
Some of today’s more prominent business-to-business online companies are:
- Point2 Heavy Equipment Exchange (online remarketer of heavy equipment for the mining, construction, forestry, and oil sectors; www.point2.com);
- MetalSite (online auction supplier for the metal industry; www.metalsite.net);
- eSteel (online auction supplier for the metal industry; www.esteel.com);
- FreeMarkets (Fortune 500 supplier for industrial equipment and B2B products; www.freemarkets.com);
- Neoforma (supplier of new and used medical equipment; www.neoforma.com);
Marketing for business-to-business companies is very different from marketing to individual consumers; it requires different information, where availability ranks higher than price. Each niche industry has different ways of marketing their products to the individual trading communities and targeted customer. The companies listed above came out of nowhere to carve their niche and capitalize on it through a unique way of servicing the given market.
Yet, these types of industry revolutionaries only count for half of the e-commerce field. Major legacy corporations have also had a profound impact on e-commerce by converting their everyday business practices into a more interactive system. The adoption rate of e-commerce has been much faster than originally expected, partly because analysts did not anticipate the strong-arm tactics major corporations use to bring their suppliers and partners online.
High-tech companies, such as Cisco Systems Inc.; major automotive manufacturers, including General Motors Corp.; and governments, including the State of California, are basically telling suppliers: Get with the program or lose our business. The line has been drawn.
Why the Web Works For the Hvac IndustryThe Web is a powerful tool no matter what industry you’re in. Within the hvac industry, however, the market is somewhat more open.
Why? The hvac industry is driven predominantly by the engineering of the physical product, rather then how that product is sold or marketed. Therefore, hvac companies tend to spend more of their hard-earned dollars on R&D, rather than marketing issues, resulting in a lesser emphasis on projects such as Internet expansion or e-commerce.
What’s the point? The hvac industry is veritably untapped. There is a multi-billion dollar market out there just waiting to be exposed. The Internet and the evolution of e-commerce provides new and expansive ways for doing business faster and more efficiently. From the standard submittal process to purchasing equipment, e-commerce provides you with a faster means to get product out the door and into your customers’ hands. These same customers will benefit through shorter lead times and lower prices. Those who have chosen the e-commerce path have most certainly profited from their experience.
Commercial fan and ventilation system manufacturer Greenheck has made serious inroads in the field of e-commerce. Coupled with its WinCAPS Product Selection Software, Greenheck now sells fans, dampers, and ventilation systems online through its Quick Deliver (QD) Online Program. Greenheck has received high acclaim from contractors, manufacturers, and more specifically, engineers who use these services, stating that their (engineer) operations are now more efficient due to shorter lead times, simpler purchasing procedures, and more accurate ordering and pricing.
The advantage of the Greenheck QD program is that it allows you to perform similar functions both on the road via the CD and at your office via the Web, with similarly efficient and accurate results. In regards to the Internet, Greenheck has developed a huge leg up on the competition. You can visit Greenheck at www.greenheck.com.
Another bustling hvac site belongs to the wholesaler Metropac. Providing online purchasing, order tracking, and shipping status, Metropac has done what few others in their market segment have, making it easier for the customer to do business with them. Offering a slew of name brand products such as Parker and Johnson Controls, Metropac is one of the few mass distribution sites in the hvac industry. You can visit them at www.metropac.com.