This article expands on the Product section of the article Marketing Mix: The Value of Getting It Right.
Traditionally, the go-to value proposition of distribution companies is a combination of product assortment and product availability. It may seem that the most competitive distributors are those with the widest selection of products.
But, as I wrote, most distributors know that they must offer more than just a catalog of products to grow a successful business.
As important as wide selection is, it may be more important to understand which products provide the most revenue and profits. It may also be critical to understand which products are responsible for bringing new customers to the distributor. And which products can be used to leverage value-added services or additional product sales from upsell and cross-sell opportunities.
Distribution Strategy Group works with distributors to understand their capabilities and offerings, as well as who their customers really are, what they want and need, and how they want to do business.
Perhaps the most interesting aspect of industrial distribution as a business is the apparent mismatch between the number of products available and the number of products customers actually purchase. This causes a significant amount of challenges in how they interact with customers, including attracting and acquiring new customers and engaging customers with offers that they need to growing revenue and maximizing profits.
Many outside consultants, investors and top-level managers are focused on operating the business efficiently. This may be because the management perspective often focuses on simply getting products from suppliers to end customers. As many distributors have come to realize, understanding marketing, sales and customer service is more important to creating value and sustaining a long-lasting business relationship between consumers and producers. The traditional role of distributor as providing product assortment and availability is far too limiting.
Here’s what to consider when considering what “product” means to the business and your customer relationships.
What’s the role of products in your business?
- What are the products customers associate with your business?
- Why do customers come to you first to fulfill a product need?
- Because you have a large catalog of products, which do you lead with to find new customers?
- Which products actually bring in more profits?
- And which products can you also sell when a customer first comes to you?
These questions directly affect all phases of the customer lifecycle and determine whether you sustain a profitable and growing business.
We have worked with many distributors to develop strategies that empower them to leverage their capabilities to grow more business and to maximize their profits. Analytics for profiling ideal customers and target market segments includes proprietary tools and methods to estimate which products customers prefer to buy from you, how much opportunity there is in specific customer segments and which products can be used to attract new business, increase revenue with existing customers, and increase profits.
Customers need solutions; companies want to sell products
What else is the customer looking for when shopping and buying from you? In many cases the customer needs more than a “vending machine for commodities,” and is relying on your company for expertise, knowledge and experience.
Based on numerous surveys and interviews, we know that most distributors claim that customers do business with them because of their customer service and other things beyond just supplying products. However, there is often a large gap in understanding whether the customer is just looking for “free consulting,” or whether they are willing to provide compensation for value-added capabilities.
Most distributors have realized that services provide opportunities to differentiate from competitors, expand the customer relationship, build customer loyalty, and grow more profitably. Treating “services” as “products” is one way to increase the value of the business.
Distribution Strategy Group is working with distributor clients to identify the best opportunities to provide value-added services to their customers and has developed a process to effectively “productize” services as complete offerings with demonstrated customer value and meaningful economics.
A distributor’s knowledge is power
Showing customers how to use products is often themost valuable part of fulfilling their actual needs. But as distributors grow and need to leverage expertise held by key personnel, they reach a limit on how much they can grow and how well they can serve customers. In these cases, distributors need to be able to either add more staff or leverage the knowledge and skills in other ways.
For example, training can often be used to compensate for the limitations of not having enough skilled people available as customer needs grow. Other areas of opportunity are high-quality documentation including detailed specifications, solution briefs and example blueprints.
Information is the real value
A final aspect of what the “product” is requires a discussion about product content. This is especially critical as customer experience increasingly depends on electronic communications. This may in fact be the most important point in this article: The content IS the product.
We began this discussion with an observation about how large a potential product catalog is and how focused a customer must be to narrow down the process of finding the solution they are looking for to make a purchase and be satisfied with the results. How big is this problem for distributors?
While it depends on the types of products and market segments addressed by a distributor, the size and complexity can quickly become overwhelming. Based on our work with electrical distributors, for example, we know that even moderately sized distributors have to deal with a universe of well over 2,000 brands and as much as 2.5 million SKUs. So, a modest catalog would likely include dozens to hundreds of manufacturers’ product information to create a catalog with 10s of thousands to hundreds or thousands of product SKUS.
The level of information required to support a medium-sized distributor is often overwhelming. Distributors are forced to invest in technologies such as Product Information Management (PIM) systems and Master Data Management (MDM) solutions just to begin to collect and maintain data about products to work with ecommerce and ERP solutions they need to deploy.
Even though this is necessary, it is not nearly enough to get where the distributor needs to be. Some associations and some companies have been formed to create and maintain industry-wide product information. The IDEA4Industry initiative formed by NAED and NEMA for example has taken nearly two decades to develop sufficient product catalog information to enable an industry segment to be able to provide enough up-to-date and accurate product information to begin to meet customers’ basic information needs.
Consider the information a distributor needs to support easy customer shopping online, as well as providing the necessary levels of support for end-customers. This information must go way beyond simple retail information such as clothing size or available colors. Instead, detailed specifications are required for electronic components for proper engineering of customer solutions covering functionality, efficiency, safety and regulatory requirements.
The industry has already reached a point where there is simply too much information for a human to always find a suitable solution. We have tried to address these needs by leveraging a small number of experienced human experts such as consulting engineers, designers and other skilled workers. But we are fast reaching the limits of people. We have worked with some of the latest technologies including AI and analytics to dramatically improve distributors’ ability to help customers find the right products, best solutions and answers to their questions.
DSG has brought together the best solutions for optimizing the customer experience, including analytics tools to understand customers and products as well as the integration of marketing, sales and service throughout the customer lifecycle.
Learn more about how Distribution Strategy Group can help you.
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 email@example.com.
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: