In his 2009 book “What Would Google Do?”, Jeff Jarvis states that with the internet, the middlemen will be doomed. Ten years later, chemical distributors are facing three vital threats coming from the digitalization wave that is finally hitting the chemical industry.
Threat 1: The customer digitalization
Customers have taken control.
65% of them prefer digital self-education to explore chemicals and screen suppliers. 77% do more than half of their buying process online before contact. Gartner even predicts that 80% of the B2B buyer and supplier interactions will be completed online by 2025.
If distributors are not present digitally where the buyers search, their survival is probably at stake.
Threat 2: The rise of new digital intermediaries
We have seen two families of digital platforms gaining momentum in recent years and playing an intermediation role between buyers and producers, a role that is historically devoted to distributors:
- Transactional marketplaces: for purchase-ready products, ie commodities and specialties bought on specs. Today more than 50 marketplaces are selling chemicals online, mostly operating in China, but they are surely aiming at expanding into the US and Europe. To this end, Shanghai-based Molbase (USD 25Bn of chemical sales in 2018) raised more than USD 60M in Dec 2019 on the NASDAQ.
- Material selection platforms: when it comes to the product recommendation function of distributors, we have seen a dramatic traffic surge in platforms like SpecialChem or UL Prospector® over the last three years. Their product-centric traffic of 15M product views a year is hard to beat, thanks to their unique ability to top search engine results for hundreds of thousands of products.
Over many years, these pure players have learned what works or not in chemicals, and they are now just accelerating, becoming tougher and tougher to fight.
Threat 3: Suppliers go direct
To add even more risk, there is a clear temptation from producers to “go direct” to small customers using digital channels. Suppliers believe these channels will be low cost and effective to serve the long-tail buyers.
Look at what Chemours is successfully doing with its global TiO2 e-commerce portal Ti-Pure™ Flex.
What should distributors do?
Digital transformation is a tough move. It is real foundation work, requiring a major mindset change in the company strategy, to completely rethink the way distributors reach, engage and interact with their customers.
First, distributors should recognize the risks and stop thinking that their business is so complex and specific that they could not be threatened. No business models are safe with the digital revolution.
In parallel, they should think about the fundamental value they bring to their principals and customers, how it can be attacked by these threats, and how technology and data could help them.
Many distributors might endanger their business by digitalizing existing processes and replicating what competitors do. Digital marketing, online orderings and product selectors are just the tip of the iceberg, but it is not addressing the big picture.
Winners should revisit their operating model, the way they sell, which will be very different ten years from now, and in certain cases, even their business model.
Then they should raise their digital maturity. Drastically. Without this
unique mix of digital expertise, every decision may be wrong, ineffective or far from optimal.
SpecialChem Digitalization Solutions
Based on client needs, SpecialChem launched Digitalization Solutions in 2017. This consultancy business, specializing in digital transformation of chemical producers and distributors, is built on 20 years of digital experience and collaborations with more than 1,000 chemical companies.
Our missions help distributors to:
- identify the opportunities in their space and to catch them faster
- make the right choices early on
- move away from the trial and error method historically used, which is too costly and ineffective given the digital urgency.
We not only help them to fight back, but also build new competitive advantages enabling them to lead the pack of distributors; and for the boldest, even lead the entire industry’s digitalization.
GlobalSpec | 2019 Smart Marketing for Engineers®
Gartner | The Future of Sales
Chembid | Chemical marketplaces report 2020