2019 Distribution Insights: When Disruption Threatens…Differentiate!

Alexander Group has identified the four areas that will have the most impact on distributors in 2019.

For customers of distributors, the definition of value is fleeting. In the past, it meant simply fulfilling sales orders in a timely fashion, with relationships built on handshakes and trust. Not so in today’s digital realm, with information, resources and tools at customers’ fingertips. Value now means so much more: ease of ordering, efficient processes, immediate delivery; basically, being able to anticipate a customer’s need before they even place the order. Value goes beyond offering products through e-commerce channels. It extends to creating a unique customer experience that sets you, the distributor, apart from competitors.

How can distributors find new and innovative ways to provide customer value amid constant industry challenges like low margins, talent shortages and increased competition from every channel? The key: differentiation: providing value-added services to distinguish yourself from competitors.

Alexander Group has identified the following four areas that will have the most impact on distributors in 2019; here’s how you can influence these situations for a profitable future.

Amazon Business Branches, Coming to a Region Near You

Amazon Business is a known threat for distributors. Annualized sales hit $10 billion in 2018 and are expected to reach $25 billion by 2021. Amazon’s foray into the space creates a huge disruption for small distributors and industry juggernauts alike. Lack of innovation and fragmentation have left the B2B distribution industry particularly vulnerable to an Amazon intrusion.

One factor at least partially attributable to Amazon’s meteoric rise is its use of existing warehouse and delivery networks already in place for their retail operations. Amazon has been particularly adept at picking off MRO business or segments by offering a greater proportion of commodity goods. What has stopped them from competing with more engineering-intensive models or differentiated goods? Institutional capabilities and local market knowledge. If Amazon were to purchase an existing electrical or industrial distributor, it could expand its place in distribution.

How can distributors contend with Amazon’s domination? By offering better, more innovative solutions to distinguish themselves from competitors. For now, Amazon provides simple product specifications with little to no customer service. Go deeper—on content, products and customer service—to provide an invaluable user experience.

Chief Revenue Officer to Lead Marketing, Sales and Service

As Amazon Business and other digital disruptors continue to take share from legacy distributors, business transformation is inevitable.

Distributors can differentiate themselves with progressive leadership. Enter the Chief Revenue Officer (CRO): an executive who owns the entire customer continuum, has a pulse on customer needs and a solid vision for the company’s future. As the sales process continues to evolve and distributors look to add that extra touch to deliver value, synergy between marketing, sales and service is imperative to capture digitally enabled buyers. The CRO is the catalyst for change—one who finds ways to create new revenue streams through the coordination of traditionally siloed functions. A CRO ensures that all departments are held accountable for their part in maximizing revenue growth by setting metrics. The CRO understands how a customer buys and then relays that insight to sales resources to ensure efficient deployment. And to top it off, the CRO creates a culture that encourages accountability and celebrates success, thereby instilling a positive work environment which can help with talent recruitment efforts.

Partner Program Alignment

It has always been critical for distributors to foster strong relationships with manufacturers. A manufacturer partner program is a proven way to align priorities and rewards. These alliances are crucial in offering customers a complete solution–the resources, support and specialized knowledge.

Manufacturers are becoming more prescriptive about segmenting partners and tightening the criteria for partner tiers. At the top are committed and capable distributors that have developed fully aligned go-to-customer plans with manufacturers that include marketing, sales, and engagement processes to provide an opportunity to directly interact with customers. They recognize the importance of gaining more visibility, business growth and validation—the ingredients that demonstrate your unique value.

Differentiation Through Service

Salespeople have experienced a fundamental shift from product pushers to service-oriented experience providers. Buyers want automation and ease of process. But they also require subject matter experts that hold technical knowledge (perhaps for complex products, software integration, and subscriptions) to maximize effectiveness and simplify purchasing.

As customer requirements become more complex, distributors can take advantage of customer intelligence acquired through digital resources. Greater customer information exchange between marketing, sales, service technicians, and customer service agents can lead to new opportunities to provide additional offerings that the customer has yet to identify. Distributors can then stay ahead of customer requirements providing additional convenience, which is even more value-add for a unique customer experience.

Distribution is in a state of disruption. Take the necessary steps in 2019 to build for continued success. Stay ahead of the game by providing customer value through differentiation.

Andrew Horvath is a Principal and Distribution Practice Lead for the Alexander Group. Alexander Group is a management consulting firm specializing in revenue growth.

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