A growing number of manufacturers are introducing ecommerce – selling directly to end customers. In a survey we conducted for the National Association of Wholesaler-Distributors, we asked manufacturers about what’s driving this change in their distribution strategies.
They outlined three key reasons for selling more direct:
Their most important concern is that distributors don’t have good digital capabilities. This limitation became a more painful problem during the COVID crisis when vast numbers of customers switched massive share of their purchases from offline to digital channels. Suppliers who waited years for their distributors to build great websites decided to build their own.
The second-strongest area of agreement among manufacturers, which is related to the first, is that end customers increasingly prefer channels other than traditional distribution. When distributors lose channel power, there’s less risk for manufacturers to sell around them.
The third-most important concern was: “Distributors don’t do a good job representing my brand.” In our experience, this means manufacturers are frustrated that their value propositions, product features and benefits and even selection tools and data are not well-represented on distributors’ websites.
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Manufacturers had relatively few concerns about the profitability of the channel, and they stressed that distributors’ value-added services are very important.
How can distributors become more important to manufacturers?
Manufacturers told us that the most powerful way distributors can become more important to them is by improving the product knowledge of their customer-facing employees.
These respondents are reinforcing a theme we explore in our report for NAW in which we detail the results of this research: Manufacturers rely on distributors to provide the kind of advice, application expertise and other technical knowledge that is not currently possible to deliver digitally.
Suppliers ranked improving digital capabilities the second-most important action distributors could take to become more important to them. Close behind, in third place, manufacturers want distributors to improve their marketing capabilities.
These are likely related, since succeeding digitally is difficult without good marketing capabilities. However, in our experience, distributors are often unsure of how to implement good marketing practices or measure the results of these activities. That makes marketing a cost center with no measurable return and, since most distribution executives are strong operators focused (appropriately) on maximizing the bottom line, the marketing budget is often cut drastically during the budget process.
Interestingly, these three factors all scored ahead of the importance of distributors’ selling a broader portion of a manufacturers’ product portfolio — which was still supported by most respondents. Other items ranked lower, including carrying more inventory, relying less on direct shipments, reducing the number of competitive product lines and lowering prices.
Read our research report, published by NAW, to learn how to address growing channel conflict: Channel Transformation from Supplier to Customer.
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 iheller@distributionstrategy.com.