DIFFERENTIATION in DISTRIBUTION

Differentiation in Distribution DIFFERENTIATION in DISTRIBUTION PRESENTED BY: i-Report A look at the challenges distributors face today to set themselves apart from competitors, and innovations they can implement to do so. Differentiation in Distribution 2 Attendees at any industrial supply or distributor trade show tend to hear common themes and discussions during the general session and speaking sessions. Lately, those discussions have included updates on the state of the ongoing industrial recession, and the challenges industrial distributors are having finding new young talent to replace baby boomers at or nearing retirement age. But there’s another topic that various association executives have been highlighting in their speeches – a topic of equal importance: how to differentiate in industrial distribution. And it’s not just trade shows where this topic is trending. On Industrial Distribution Magazine, page views on articles discussing differentiation show that it’s a topic of utmost importance to readers. Industrial Distribution’s audience is primarily comprised of C-level management at distribution companies of all sizes. These executives are always on the lookout for best practices that might give them a competitive edge. Product Quality No Longer An Edge So just what is a competitive edge? It used to be having a superior product to sell. But that hasn’t been the case for years. With so many industrial distributors selling the same exact products made by the same manufacturer, prod- uct quality – while still important – is no longer the key factor that makes a customer choose a particular distributor. At the Industrial Supply Association convention this past April near Chicago, the keynote speaker for the general session was Ken Schmidt, former director of communication strategy for Harley Davidson. Speaking to an audience of industrial distributors and suppliers, Schmidt illustrated why product is no longer a differentiator. “In order for product or quality to create a competitive advantage, it requires your competitor/s to have a product or quality that is substandard. That’s almost never the case,” Schmidt said. “Your competitor’s products are great, just like yours. It makes you another competitor who just meets expectations.” Differentiation in Distribution 3 Price Isn’t What It Used To Be Many would think price has replaced product quality as the top differentiator in distribution. According to Industrial Distribution’s 2016 Survey of Distributor Operations, it’s not even in the top 5. The survey – conducted in March from a pool of nearly 300 management-level employees of distribution companies – asked respondents to pick the primary reason customers do business with them (Figure 1). The results showed that the people aspect considerably outweighs a price point. Able to choose all that apply, respondents picked relationships (85.7%), product avail- ability (74.2%), technical support (68.4%) and delivery time (62.2%) all ahead of price (50.7%). This shows that while having a better price point than competitors can be helpful, it doesn’t have nearly the impact usually seen in the retail industry. Differentiate With Service Industrial distributors – especially the small and mid-sized ones – boast about their level of top-notch quality service. But this tends to be a blanket statement. Just like with prod- ucts, it can be said that all distributors claim to have great service. Service is a distributors’ bread-and-butter. Many industrial distributors have been offering services like free shipping, tool repair, product installation or training, facility inspections and vendor managed inventory for decades. Those distributors often promote those services just as much as the products they sell. Of the following, which do you feel are the primary reasons your customers do business with you? 0 20 40 60 80 100 Product availability 74.2% Technical support 68.4% Delivery time 62.2% Price 50.7% 28.2% 24/7 support 30.6% Vendor managed inventory 31.1% Engineering capabilities Relationships 85.2% Other 3.4% Figure 1 Differentiation in Distribution So how does one differentiate with service? The key is having unique attributes within those services, and commu- nicating them to current and potential customers. In a 2015 article for Industrial Distribution, Reilly Sales Training President Paul Reilly gave four examples of ways distributors can differentiate with their service: • We’re the only local distributor to open at 5:30 a.m. We can also arrange weekend office hours upon request. • We’re the only distributor to guarantee one-hour delivery within a 25-mile radius. • We’re the only distributor to offer monthly training courses for our customers. • We’re the only local distributor that offers an extended warranty on our tools. Local distributors can take a page out of Amazon’s book, using a same-day delivery offering like that of Amazon Prime. This could be reserved for top clients and by invitation-only. More distributors are now offering 24/7 custom- er support, or at least on weekends. Distributors increasingly see the necessity to become a one-stop-shop for everything a customer needs. While adding as many services as possible helps a distributor cater to a broader customer base, it also runs the risk of spreading that distributor’s expertise and resources thin. Instead, distributors can pick a handful of services to focus on doing especially well. Not only does this put less strain on resources, it also helps a distributor gain a positive reputation for those services. At the National Association for Hose and Accessories Distribution annual spring convention in Colorado Springs, Reilly held a session on Value-Added Selling, which focuses on selling concepts before products. It’s a way of get- ting the customer to think long-term and solutions-oriented. A value-added salesperson aims to be a problem solv- er. To do so, they need to understand a customer’s business to make solutions more visible. Then those solutions must be communicated. “To differentiate with service, you have to clearly define those service differentiators. Then explain why these differences are meaningful to the customer,” Reilly said in his article for Industrial Distribution. “The next step is to brand these differences so they are unique to your organization. A meaningful difference is more important than a cheap price.” 4 Differentiation in Distribution 5 Differentiate Online Distributors today face more competition than ever, and not just from other distributors of different sizes. Retailers have become technologically sophisticated and easy to work with to a point that some have begun bypassing wholesale distributors entirely and buying direct from manufacturers. To meet this challenge, distributors have slowly but surely adapted to meeting customers’ technological demands. The obvious first step is by offering e-commerce, which has taken industrial distributors longer to get with the times than most other industries. Many distributors have been offering e-commerce for a decade or longer. Others fear they’ll lose that personal touch with their customers, or they’re scared away the cost of entry. Industrial Distribution’s 2016 Operations Survey revealed a disconnect with distributors’ stance on e-commerce, as 90 percent of respondents said they buy products online, while only 56 percent said they are currently generating web-based revenues. This shows that by offering e-commerce, similar distributors can differentiate from that 44 percent that still don’t. Furthermore, offering robust website content can help separate distributors from those that offer e-commerce but not much else. Overall, distributors can make life easier for customers by providing access to information about inventory, enabling them to check order status, pricing and product availability at any time. And since today’s customer is so used to seeing online reviews, letting customers post and view product reviews is another way to gain a leg up on the competition. 6Differentiation in Distribution Distributors already offering online sales can take things a step further by offering a mobile app. Industrial Distribu- tion’s Survey showed that only 31 percent of distributors have a mobile app. Alternatively, distributors can bypass the need for an app by having a mobile-responsive website. Having a website that looks good on smartphones and tablets is a definite advantage over those that are difficult to navigate on a mobile device. Differentiate With Culture Any company is only as good as its employees, which is why hiring is such a crucial process. Lately, more and more businesses are hiring for a cultural fit over an experience fit, ensuring that new employees fit its current values or the ones it’s transitioning into. During his speech at ISA, Schmidt emphasized the importance of having passionate employees, especially sales staff. “We’re magnetically attracted to visibly passionate people, and opposed to unhappy people,” Schmidt said in his speech at the ISA trade show. “Seeing an employee at the counter staring at the floor kills business. The booths that will be empty at any trade show will be the booths with representatives staring at the floor.” Differentiate With Innovation Over the past few years, distribution association conventions have preached a culture of innovation. With markets changing constantly, so must distributors. The top growing distributors don’t remain at the top by staying idle. They’re always introducing or enhancing services and technology offerings to help their customers. Today’s con- sumer-driven world entices a “race-to-the-bottom,” leading distributors to reduce prices as much as possible to win customers. This hurts the bottom line, and can be avoided when a company finds ways to differentiate from the competition. Better yet, differentiating gains a distributor a positive reputation – and reputation just might be the most important differentiator. “Here, one of your customers is going to be standing next to a potential customer you’ve been trying to get for years,” Schmidt said at ISA to open his speech. “While they’re talking, your name is going to come up. What’s that per- son going to say about you and the business represent? What do you want them to say? What would you be willing to do to make that happen? At the end of the day, nothing else – form a business and competitive standpoint – matters.” 7Differentiation in Distribution i-Report: Advantage Business Media’s i-Reports present fresh research and analysis on compelling and timely industry topics. The information in this report, Differentiation in Distribution was researched and produced by Industrial Distribution in May 2016. About the Author: Mike Hockett is the Managing Editor of Industrial Distribution. He has been working on the publication since August 2014, covering all topics from company acquisition and consolidation news, market trends, and distributor profiles across the MRO landscape. Mike graduated from the University of Wisconsin-Eau Claire in 2009 with a B.A. in Print Journalism, and spent the first 7 years of his career in sports writing and editing. About the Manufacturing Group (MFG): The Manufacturing Group (MFG), a division of Advantage Business Media (ABM), is comprised of eight brands: Chem.Info (CI), Food Manufacturing (FM), Industrial Maintenance and Plant Operation (IMPO), Industrial Distribution (ID), Manufacturing Business Technology (MBT), Manufacturing.net (MNET), Pharmaceutical Processing (PP), and Surgical Products (SP). 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