No doubt, manufacturer sales channels are evolving, and that has a significant impact on how distributors need to think about their business. Distributors that want to grow and lead in their space must have cutting-edge digital capabilities and a value proposition that goes beyond price and availability to succeed.
A growing number of end-users want purchasing options beyond the traditional distributor. That means for some sectors, revenue through traditional distribution will significantly decrease as customers’ buying behavior continues to shift.
Based on Distribution Strategy Group research, manufacturers predict a 1270 basis points drop in the share of sales they expect to get from distributors in the next five years, as published in “Channel Transformation from Supplier to Customer,” our recent National Association of Wholesaler-Distributors (NAW) report. From the distributor standpoint, that is a 20% drop.
Even as manufacturers forecast sales through traditional distributor channels to decrease over the next five years, they expect to see sales increase in retail channels, and with direct-to-end customers, third-party marketplaces and purely digital distributors. When asked what is driving their companies’ channel shift, manufacturers cited:
- Improving ease of buying for customers
- Fewer end-users purchasing from distributors and spending more online due to quick shipping and availability of vast purchase information
- Traditional distributors not making necessary digital investments to meet expectations of “digital-native” buyers
For these reasons, having robust digital capabilities is no longer optional for distributors who want to retain channel share as a distributor’s lack of strong online presence is by far the most important concern held by manufacturers.
We asked manufacturers what distributors could do to differentiate themselves from the competition and solidify their channel partnerships. An overwhelming 96% of respondents said it would help to improve customer-facing employees’ understanding of their products. Other top recommendations included:
- Improve digital capabilities
- Improve marketing capabilities
- Sell a broader portion of the manufacturer’s product portfolio
- Carry more inventory and rely less on direct shipments
- Reduce the number of competing lines they carry
How can distributors offer value beyond logistics to ensure long-term survival?
As manufacturers continue to evolve distribution strategies to reach end-users, it’s clear traditional distributors must rethink their approach. Every year, business is won or lost based on the experience you deliver to the customer and your channel partners.
Protect your business from disruption by:
Simplifying online transactions. Make your company easy to do business with. Ensure your technology stack supports a positive online experience and is flexible to meet the demands of your end-user. Make it as easy as possible for your customers to access information, find products online and navigate your website. This is especially important on those products that don’t require a value-add or have logistical complexity and are thus more vulnerable to channel shift.
Differentiating value-added services. Understanding and monetizing value-added services is critical to the future of the traditional distributor. Offer value-added services for an omnichannel approach that includes logistics services like kitting, labeling and asset tracking, information services like safety consulting, technical support and financing alternatives, and value-added processing such as product modifications, repairs and software setup.
Embracing digital transformation. Distributors need to take bold action and create an omnichannel strategy in line with their customers’ purchasing journey. Increase digital marketing and extend awareness of manufacturer offers and promotions. Help manufacturers gain share with prospects and new buyers. Upskill your teams to sell solutions, not just products. And prioritize online and offline customer experiences.
Implementing multiple technologies for touchless ordering. Touchless ordering through email order automation, EDI and punchout decreases the time and cost for the transaction and increases profit for the distributor. Set a goal to increase the percentage of orders you can automate or process without human intervention. Over a two- to three-year period, you’ll experience significant cost savings if you can move that number to 50%.