It’s 9 o’clock. Do you know where your customers are?
Over the past decade or more, there has been a broad movement by distributors to make operational improvements, including supply chain optimization, process standardization, lean methodologies and technology advancements such as ERP, CRM and ecommerce. In many cases distributors have reaped tangible efficiencies that have manifested at the bottom line.
While there is still more benefit to be realized from operational improvements, for most companies that benefit will be incremental rather than a quantum leap.
At Distribution Strategy Group (DSG), we know that the next major frontier for distributors is to develop more significant marketing capabilities that empower the company to respond to market opportunities. Based on what we have seen, the companies that act on this marketing imperative will outperform the market even and perhaps especially in a down market cycle.
Here’s the state of marketing in distribution:
- Most distributors, whether they do mainly MRO or OEM business, have solid outside sales and inbound telephone sales. However, capabilities for in-store marketing, outbound telephone sales and ecommerce vary widely.
- Smaller distributors have less capability and are usually limited by outside sales reps and handling inbound sales calls.
- In contrast, many larger distributors, typically with more than $500 million in revenues, have grown by building multichannel capabilities and by regularly measuring their effectiveness to continually improve.
The imperative for distributors of all sizes is to further develop and to continually evolve multichannel distribution capabilities and strategies. In less competitive markets, the ability to urgently respond to the market opportunities through appropriate channels can mean the difference between barely surviving and thriving with steady profits.
In highly competitive markets such as electronics, the ability to leverage sales and marketing channels effectively will mean the difference between sustaining business and not surviving at all. Market leaders apply more resources to multichannel capabilities and related marketing activities, and they clearly demonstrate the resulting improvements in measurable terms of more and better business.
At Distribution Strategy Group, we specialize in helping distribution companies develop internal strategic marketing capabilities that enable them to become more competitive and to meet and exceed their growth objectives by knowing where to apply resources. The rest of this article covers some basic ideas that can be used to prioritize where to spend time in your business.
What is a Marketing Mix? (And How Do You Get It Right?)
Since the early 1960s, most companies have organized marketing activities into the “Marketing Mix,” or the “4 Ps”: Product, Place, Price and Promotion. When we work with distributors we try to look at the “question behind the question” by using customer analytics to understand more about what types of customers are purchasing from a distributor and which types of products and services are being consumed.
This typically includes some primary research with customers such as interviews or surveys, but will also include quantitative analysis of actual transactions with end customers. A straightforward way to begin to understand how the marketing mix applies to a distributor’s business is to dig into each P:
Distribution companies differ greatly from manufacturers or single-product companies in that they generally offer a wide selection of products. The product assortment is the main foundation of a distributor’s value proposition, although most distributors know that they must offer more than just a catalog of products to grow a successful business.
More recently, distributors have realized that customers are looking for additional services from distributors for more complete solutions. Understanding the products and services offered by the distributor is the first step toward getting the marketing mix right. Some of the important things to consider include:
- What types of products and services are customers purchasing from the distributor? This includes product categories, original manufacturers and supplier brands, and products or services that are a customer’s primary purchase vs. which products are add-ons and accessories. This can have a dramatic impact on how we generate leads and how we think of new customer business compared with repeat customer business.
- Distributors have recently realized that services provide significant opportunity to differentiate from other suppliers in addition to opportunity for increasing operating margins and profits. How can the distributor leverage value-added services to increase revenue and profits?
- What does the customer want from the products/services? What needs does it satisfy? Are there specifications for the products or are the needs more general? This may be critical when considering products aimed at manufacturers for OEM situations as opposed to products targeting end-users and service providers for repairs and maintenance (MRO) needs.
- How well is the distributor meeting customer needs? Are there any product features missing or that require additional products and services? For example, do certain products require tools or accessories such as soldering irons and solder? Or is there an assembly or kitting task that someone is required to perform that may be an opportunity for the distributor? Is there a range of premium vs. generic functionality that could affect cost?
- How does packaging affect the product a customer wants to purchase? Are we requiring quantities or bundles that the customer will not actually use?
- How are products and services differentiated from your competitors? Is it the supplier’s brand that matters to the customer, is it the function— or is it the complete solution? Is the differentiation at the product level or is it more about the way we do business, such as through onsite vending machines or managed inventory solutions?
At Distribution Strategy Group, we provide several services to analyze customer accounts and transactions to create detailed customer profiles. In particular, Customer Demand Estimation uses a statistical analysis of sales by segment, by account and for specific product categories to estimate the size of the addressable market and determine where there is additional opportunity to increase business within the distributor’s market.
Additionally, the demand analysis can be used to understand how much additional market potential a distributor has for the types of products they sell. By analyzing actual sales transactions and asking customers how they want to purchase and use products or services, we identify the best customer types and the best opportunities for the products offered by the distributor. In addition, we often identify opportunities for improving cost-to-serve efficiencies and foster customer loyalty.
In traditional environments, a significant part of the marketing effort is dedicated to the question: Where do buyers look for your product or service? As distributors, you are the place where suppliers and end customers meet. However, for distributors, the marketing imperative addresses the critical importance of omnichannel marketing considerations such as:
- If they look in a store, what kind? A specialist boutique or a branch warehouse? Or online? Or direct, via a catalog?
- How can you provide access to the right distribution channels for the customer? Do you have the technology in place to meet the customer where they want to encounter you? In recent months as social distancing has become the norm, many distributors have been hurt because they failed to prepare for the sudden shift to online business and digital communication channels. While we always hope that change is gradual, the reality is that business often needs to be prepared to respond to cataclysmic shifts.
- Do you need to use a sales force? Or do customers contact us directly? What is the primary role of field sales: to hunt for new customers, or to manage the existing customer relationship over time?
- How will you use telesales? Are they inbound order-takers or do the proactively reach out to prospects and customers on a regular basis?
- Do customers mainly submit orders online, by fax, email, phone or ecommerce? For distributors, the point-of-sale contact is also a critical place for driving potential upsell and cross-selling activities. So, understanding how communications with customers and prospects occurs and how these contacts result in orders is central to understanding how the distributor grows business.
- Do customers attend trade fairs or events? Are these physical events or online events? Where do you go to meet potential new customers? While we have seen dramatic changes over the past decade or more due to digital marketing, this doesn’t mean that traditional contact approaches have disappeared completely.
- How important is self-service and fulfillment controlled by customers in your market? In recent years, many distributors have seen significant business opportunities develop from providing on-site vending and inventory solutions, especially for quick needs such as safety products and other job-site situations.
- What do your competitors do, and how can you learn from that and/or differentiate?
One way to view the distributor’s role is as “The Place” in the overall market, mediating between original suppliers and end purchasers. As new technologies appear and new business models evolve, the distributor is always in the most opportune situation to invent new ways of engaging customers where they want to be met.
Over the next several years, we will no doubt see new capabilities and opportunities such as with online marketplaces and with more intelligent ways of interacting using AI chatbots, voice and video technologies that enable searching catalogs and providing better product information to empower customers during the increasingly complex shopping and buying process.
While product selection, assortment and availability are generally considered the basic function of a distributor, most distribution companies inevitably get dragged into pricing and cost-related discussions as a central theme. As a result, pricing strategies and tactics are an important aspect of how the distributor competes or excels over competitors. Years of marketing experience and knowledge based on analysis provide ways to address fundamental cost and value questions such as the following:
- What are the most important considerations for the cost of a product or service that enables a distributor to make sufficient profits and compete with alternatives?
- What is the value of the product or service to the buyer? For example, what are the total costs incurred by the customer, and is the price of a product SKU just a component of the overall solution?
- What happens if the solution doesn’t meet the customer’s expectations? Are there opportunity costs for the end customer if the product is not the best match for the customer? Is there a way to increase prices to compensate for the value of guaranteeing success or eliminating risk through customer support, warranties and other aspects of delivering solutions?
- Are there established price points for products or services? How are they affected by delivery time or other things that customers expect or require?
- How price sensitive is the customer? Will a small decrease in price get you extra market share? Or will a small increase be indiscernible, and gain you extra profit margin?
- What discounts should be offered to trade customers, or to other specific segments of your market? Are there trade practices such as consolidating and combining orders, in-store pickup that can lower costs to deliver lower prices where both end customer and distributor benefit?
- Lastly, how does your price compare with your competitors? Is this because your competitor has an actual cost advantage, or because the competitor is willing to give up potential profit?
At Distribution Strategy Group, we specialize in using analytics to understand the actual costs of providing products and services to end customers compared with what customers actually value to ensure that the distributor is fairly compensated.
Some analytics are used to understand the market demand for products and solutions while others are used to determine where is the cross-over point between leaving money on the table or losing money. Pricing is sometimes strategic, but for distributors it is more often a tactic for optimizing net revenues from particular customers or during specific transactions.
Historically distributors have established their businesses by growing catalogs and line cards of related products from common suppliers. Early promotion of the distributor and key products took advantage of common print media and traditional advertising approaches.
Do you remember the “Yellow Pages”? Do you remember when a catalog was mailed or dropped off at your office? Did you drive by billboards and notice the new pictures? Did you hear ads on the radio for the local store when you were driving to or from a workplace or jobsite? What about periodic flyers or postcards advertising a sale or limited-time offer on some tools or other products?
As the world has become more digital, most of the traditional ways have been replaced by websites, email newsletters and other less personal contacts. For distributors today, the need for promotion is more important than just where and when can you get your marketing messages across to your target market:
- Will you reach your audience by advertising online, in the press, on TV, on radio, or on billboards? By using direct marketing mailshots? Through PR? On the internet?
- When is the best time to promote? Is there seasonality in the market? Are there any wider environmental issues that suggest or dictate the timing of your market launch or subsequent promotions?
- How do your competitors do their promotions? And how does that influence your choice of promotional activity?
We specialize in helping distributors build capabilities in digital marketing and ebusiness, from SEO (search marketing) to email marketing and web promotions. We are experienced in leveraging traditional marketing campaigns with print materials and direct marketing campaigns.
A key aspect of marketing promotion is understanding how to test and measure the effectiveness of any marketing campaign. Every aspect of the distributor’s business can be measured and analyzed to quantify the financial impact to the business.
Your Marketing Mix is a well-defined lens for viewing your business and an effective way of evaluating the business to complement operational efficiency improvements. While operations measurements can identify cost reductions, the Marketing Mix highlights the far more important aspects of revenue growth, customer retention and loyalty benefits, and increasing profits.
Learn more about how Distribution Strategy Group can help you use marketing strategy and tactics effectively.
In subsequent discussions, we will dig deeper into the marketing mix and explore how each marketing activity grows the business and increases net profits. As always, we welcome your feedback. Please feel free to post a comment below or you can email me at firstname.lastname@example.org.
Robert Kelley is Partner with Distribution Strategy Group. He’s had an extensive career as a technology leader with high-growth companies from high-technology startups to large public corporations. Using quantitative analytics models and software applications, Rob now helps distributors optimize pricing, quantify economic value, analyze the competition, and build customer profiles and market segmentation. Reach out to Rob today to take a data-driven approach to your business problems: