The Great E-Commerce Analytics Arms Race

Thanks to the rise of advanced analytics technologies, the buying and selling of goods and services may end up looking a lot more like the trading of stocks on Wall Street than the way most transactions are manually conducted today.

Since the beginning of commerce, salespeople and their marketing allies have haggled with purchasing managers over price, availability and the number of goods and actual services at issue. Much of that negotiation is moving to cyberspace, where both sides can use advanced analytics to gain a competitive edge.

Marketers in particular have begun collecting reams of data as part of an effort to figure out not only what customers are most likely to buy, but also when they’ll actually buy it. Their end goal, of course, is to maximize profits.

At the same time, purchasing agents are starting to make use of the same advanced analytics technologies to find the best price for their goal. Their end goal is to minimize their costs, often at the expense of the seller’s profits.

The end result can transform into a contest between machines programmed to try and outwit each other across hundreds, even thousands, of transactions executed in a matter of seconds. In fact, buyers in both business-to-consumer (B2C) and business-to-business (B2B) are evolving towards a point where they place requests for products and services tailored to their specifications, and then expect suppliers to bid to fulfill in a matter of seconds or be eliminated from contention.

Suppliers will need advanced analytics tools in order to discover those requests. But unless they have an established relationship with that customer, there will be little to nothing they can do to shape that purchasing order. As part of an effort to establish those relationships, companies have already begun to invest heavily in customer experience management systems that, among other things, require more agile supply chains while simultaneously reducing dependencies on salespeople.

“You’re already seeing a lot of B2C focus on customer experience management,” said Craig Hayman, general manager of IBM Industry Solutions. “As that matures, there is going to be a greater sense of urgency on the B2B side in terms of not only customer experience management, but also change management.”

Optimizing the customer experience is going to prove critical because, rather than incurring the expense of actively selling and marketing products and services, some companies will simply opt to play the role of the so-called “bottom feeder.” By leveraging advanced analytics, these companies will be able to undercut a competitor’s price at will.

This scenario will come about, suggests Gartner Group research vice president Gene Alvarez, because in the age of social media it’s going to become increasingly impossible for any vendor to hide the actual availability or price of a service from an analytics application. Armed with that information, procurement agents will force companies to match or beat any competitor’s price.

“Companies in B2B love to hide pricing,” Alvarez said. “But with so many social media sources available that’s getting tougher and tougher to do.”

IBM, SAP, Oracle and other application vendors are essentially playing both sides in this new age of e-commerce. By investing billions of dollars in analytics technologies that automate both the selling and purchasing process, e-commerce application providers are transforming into analytics arms dealers to marketing and sales one side, and procurement on the other. It’s even conceivable that one vendor could wind up providing services to optimize the marketing and purchasing processes of two companies involved in the same transaction. One application would be trying to maximize profits for the seller, even as the other did its best to minimize costs for the buyer.

That may sound a lot like two machines playing chess against each other. But the upside of all this, said Emptoris president and CEO Patrick Quirk, is that it forces companies to innovate at a faster rate in order to have a product or service that is truly unique. IBM acquired Emptoris earlier this year to expand its reach into supply chain and inventory management.

The Quest for an Advantage

The advantage from innovation may not be sustainable forever, but it does help companies avoid becoming overly dependent on the analytics game. In addition, companies may try to differentiate themselves on delivery times, an eco-friendly footprint, or giving customers the ability to customize products or orders. Quirk believes all of these options are driving the emergence of “strategic sourcing” activity across the supply chain, which is allowing purchasing managers to play a much bigger role within their organizations.

“There will be more machine-to-machine e-commerce activity, especially when it comes to commodity products,” Quirk said. “But like everything the devil will be in the details in terms of how that plays out.”

But no matter what companies do to mitigate the impact, a “the race to zero” in terms of reduced profit margins—unless a company can get customers to value a unique service capability—is being accelerated by the rise of advanced analytics.

Some companies stand to profit from the increased use of advanced analytics by taking market share away from slower rivals. In other scenarios, startups will appear that make use of advanced analytics to usurp incumbent vendors. What’s for certain is that we’re on the verge of a period where advanced analytics are not only used to automate the buying and selling process, but also fundamentally accelerate e-commerce in ways that wind up fundamentally realigning vertical industry segments forever.

 

Image: mtkang/Shutterstock.com

Post a Comment

Your email address will not be published.