There’s a perception that distributors must choose between a high-tech or a high-touch business models – they can’t be both.
But that couldn’t be further from the truth: Now more than ever, distributors must be both.
Even though B2B sales can be immensely complex, and a high-touch model has been historically the go-to for distributors, that won’t stop customers from comparing your website with leading digital players like Amazon or Walmart. So, if you aren’t building high-tech platforms that make it hyper-efficient for your customers to execute simple transactions, you’re losing the game.
But simply adopting a high-tech model isn’t the answer either.
On a recent episode of of our live online show, Wholesale Change, we discussed how distribution differs from retail to understand how distributors need to build a high-tech B2B platform that suits your customers’ more complex needs. But we also stressed that distributors must continue to invest in and the high-touch offerings customers have come to expect over the years.
In other words, distributors must be high-tech AND high-touch.
What makes B2B eCommerce different from B2C eCommerce?
Picture the systematic workflow required for many professionals researching and selecting products for construction projects or production line MRO using blanket purchase orders, complex credit agreements and specified products. The stakes are high: These products have to be available and must work to meet production schedules. What’s more, companies are making big financial investments that involve bidding and negotiating with multiple parties and working out and delivery commitments and terms with their sales reps. Compare this with a single customer in front of a computer making a one-time purchase with their favorite online retailer using a credit card.
Distribution transactions could not be more complicated, yet retailers like Amazon have set the gold standard for digital purchasing that has set customers’ expectations for fast and easy ordering. To build competitive high-tech and high-touch capabilities, distributors must account for and embrace the following ways B2B is distinct:
- Complicated transactions
These must accommodate blanket POs with scheduled releases and auto replenishment, sometimes hundreds of professionals on one account with a variety of purchasing-level authorizations, and open lines of credit.
- High stakes
Mistakes can result in thousands of dollars lost from suddenly-halted production lines or jobsites.
- Varying segment requirements
Digital platforms must be designed to handle different types of products as well as the requirements of various segments. MRO customers, for example, have very different needs than construction product buyers.
- Consultative product-selection requirements
In retail, buyers can simply “send it back” if a product doesn’t work. Business customers need a purchasing platform that integrates with professional support and selection advice because the costs can be high if someone buys the wrong product.
- Substantial switching costs
Both customers and distributors have a lot at stake. It’s very expensive for customers to switch suppliers. It’s costly for distributors to lose a business customer, which is typically much larger than a retailer’s customer. Having the right blend of online capabilities and services avoids these costs.
- Freight costs
Many business transactions are too big to be shipped by small-package carriers. The delivery costs of heavy products factor into every transaction affecting how customers make decisions online and how distributors manage the relatively limited number of carriers and fees.
- Need for professional sales reps
Distributors and their customers often engage in long-term relationships. Understanding needs, establishing often variable, complex pricing agreements and connecting business processes between suppliers, distributors and customers often requires the involvement of professional sales reps.
- Conflicts in sales channels and supply chains
Traditional sales channels like phone/email orders through sales reps compete in-house with digital channels such as websites, mobile apps and EDI etc.. However, distributors also must compete with traditional competitors, retailers moving into B2B, various disruptors like Amazon Business and manufacturers who are increasingly selling directly to end-users.
Distributors must maintain their high-touch capabilities, but they must also build high-tech platforms to meet the complex requirements of business customers. Instead, their websites often fail to meet the expectations Amazon and other retailers have set, relying instead on traditional in-person high-touch methods that are no longer sufficient in a digital world.
Distributors must be high-tech and high-touch
At the beginning of the pandemic, customers flocked from distributors to retail competitors. Why? It wasn’t better pricing. When the chips were down, customers cared more about getting materials quickly and through low-touch suppliers with great digital capabilities. Much of this purchasing will not go back to the traditional model, so successful distributors in the future must be both high-tech and high-touch.
Get the technology right
Can a Shopify site address the needs of a contractor? Probably not. Yours is not a pure buy-and-sell relationship, so don’t just build a working site, build a site that works for your customers. Base your technology stack on the needs of your customers and prospects. Distributors often buy retail or limited-functionality platforms, resulting in costly re-platforming projects.
Customer data and product data are as valuable as your inventory. Without systems and dedicated personnel to rigorously manage this data, it’s impossible to deliver world-class capabilities.
Accept that your ROI is probably wrong
Major tech players are looking at getting into wholesale distribution within the next 10 years. Meanwhile, few distributors have ROI models that project beyond three years, let alone factor in disruptors on the horizon. Failing to entertain models that predict losing 20% of revenue to disruptors will send distributors without broad-minded ROI models scrambling as they miss bigger trends.
eCommerce ROI models are often wrong, too, because they use shopping-cart revenue as the numerator and expenses as the denominator. But most business customers don’t buy with credit cards; they buy with POs. That means your website is driving revenue you are not measuring. Try pulling 300 random transactions from your recent sales history and calling those customers. Ask them if they used your website in the process of placing that order. That’s a much better measure of the value your website is delivering than the shopping cart.
Do what disruptors won’t
As important as it is to build an effective ecommerce site, it’s equally important to understand where B2B won’t ever be as high-tech as Amazon or Google. Trying to beat them at their own digital game is a doomed strategy. B2C will always have more sophisticated tech tools because they are built around removing human interaction to maintain fixed costs.
B2B has an opportunity to differentiate by swiftly adopting sufficiently high-tech platforms alongside a variety of excellent high-touch services that deliver value in ways in ways pure digital companies do not.
Effective distributors make it rewarding for customers to stay and painful for them to leave. Add a general manager of services. Make an inventory of the hundreds of value-added services you could add — from assembly, to tagging, to kitting, to safety audits and ask your customers which ones are most important to them. Then, invest in those and figure out how to manage and monetize them.
Embracing High Tech and High Touch
Distributors need a strategy for a high-tech platform will keep customers from wandering to retailers for quick digital purchases. But they must also differentiate with exceptional high-touch services that build trust with their customers by delivering on high-stakes orders, offering consultative support and negotiating complicated orders with specialized terms.
Don’t focus on being one or the other. Embrace both, and you’ll build a moat that will be difficult for disruptors to cross.
Ian Heller is the Founder and Chief Strategist for Distribution Strategy Group. He has more than 30 years of experience executing marketing and e-business strategy in the wholesale distribution industry, starting as a truck unloader at a Grainger branch while in college. He’s since held executive roles at GE Capital, Corporate Express, Newark Electronics and HD Supply. Ian has written and spoken extensively on the impact of digital disruption on distributors, and would love to start that conversation with you, your team or group. Reach out today at firstname.lastname@example.org.