While disruption will take its slice of distributor business, many distributors will not just hunker down and make do with what is left for them. Instead, many will work to create new value for customers with an audacious goal. Innovative and entrepreneurial distributors will look at Change and see Opportunity, and they’ll seek to grow their sales and profits!
This view is shared by many manufacturer leaders, including one executive who shared this comment for our book, Becoming a Digital Distributor: Strategies and Tactics That Create Value:
“Digital tools will drive increased sales, increased sales productivity, closer distributor relationships, and cost out of distribution channels.”
President and Chief Executive Officer
This executive and many other manufacturers have recognized that the strategic use of digital tools is about creating new value for customers. Moreover, customer experiences are delivered by the value chain—a collaborative partnership between manufacturer and distributors. Yes, digital tools may enable manufacturers to have a more direct relationship with customers. Some may even sell directly to customers. But in total, digital transformation of the value chain is much more about disruption by incumbents working together, than it is about disintermediation by former partners working against each other.
There is a lot said in this manufacturer’s quote and it’s worth unpacking some key points. First and foremost, digital tools will drive change. We don’t mean react to change, we mean drive it. The adoption and use of digital tools—e-commerce platforms, advanced data and analytics, CRM and marketing automation software, and mobile devices—is about using new methods to achieve old (and new) business objectives. Digital tools require investments and those investments must deliver a return. Otherwise, why bother?
For many manufacturer/distributor partners, change will lead to mutual benefits around four primary measures:
- Increased sales. Digital tools will strengthen some manufacturers and some distributors, and for forward-thinking partners in particular, it will strengthen the outcomes of their partnership. Some, not all, incremental growth will come from distributors and manufacturers that do not keep up.
- Sales productivity. The collaborative use of digital tools will be about new processes that deliver differentiated customer experiences (increasing win rates, for example), but it also will be about getting more from people and assets, and removing redundancies. Improved productivity will be a much-desired sweet spot of profitable growth.
- Closer distributor relationships. Many manufacturers and distributors identify an essential new requirement for effective partnership programs . . . mutual investment and competencies around digital tools. Legacy partnerships between digital savants and technology luddites will collapse. Digital partnerships will be about collaborating around sales activities, marketing programs, complementary websites, and above all, sharing data and information. All of this will lead to much closer working relationships
- Costs out of distribution channels. Just as distributors and manufacturers share responsibility for delivering customer experiences, they also share costs. In the real world, the costs worth incurring are those that are closely aligned with customer needs. As always, selling direct does not eliminate costs, unless customers no longer need support. Most often, taking costs out of the distribution channel is hard work, achieved through collaboration between distributors and manufacturers, each of whom own a piece of the costs and the associated value created for customers.
I am not offering any specific ideas for improved collaboration in this blog post, but you can read more about reinventing manufacturer/distributor partnerships and the related adoption and use of digital tools in our books, Becoming a Digital Distributor: Strategies and Tools That Create Value (Chapter 5: Leading with Suppliers) and Getting Results From Your Digital Investments (Chapter 3: Digital Tools Require Channel Strategies). You may also get some ideas from my article, Digital Progress Requires Reinvented Channel Partnerships and What Manufacturers Say About Digital Tools.
And, we have a new electronic, condensed research report coming out soon that will track digital tools progress and suggest new strategic solutions. We’ll share more on this research report later.
In the meantime, the first step for creating a partnership is to identify shared business goals. It’s obvious, but shared goals can really enable partnerships when each party brings complementary competencies to the table.
In our research, we found ample evidence that manufacturers and distributors do share common goals. We asked both to list their top business priorities, and the clear majority mentioned improved profitability, growth, customer experiences, and sales productivity or value-add. In fact, these four combined are components of a virtuous cycle – improved experiences and value-add necessarily lead to improved sales, market share and profits!
For distributors that want to lead with their suppliers, the first step is to get these mutually desired goals on the table and then look for ways to leverage digital tools to create new and improved results.
It’s all about being willing to think differently while building on your established relationships. As with all partnerships, the hard work of success is about open communication from the beginning of reinventing working relationships through to ongoing day-to-day management. The Marketing Director of a fluid power distributor summed up the essential requirements, saying:
“Speed of information, better coordination, and open communication can all be improved through collaboration. But all of this requires strong partnerships and trust between distributor and supplier.”
Change is here. The best partnerships are upgrading for improved customer experiences and better results by collaborating around the adoption and use of digital tools.
About the author:
Mark Dancer, President of Channelvation, Inc., is a channel strategist and leading authority on digital transformation. He is also an NAW Institute for Distribution Excellence Fellow. You may reach Mark at firstname.lastname@example.org.
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