Delivering for Best-in-Class Wholesaler-Distributors
November 5, 2020  |  ByJ. Michael Marks, NAW Institute for Distribution Excellence Fellow

When was the last time you saw an ad for FedEx? Yet their brand remains synonymous with fast shipping. As Peter Drucker says, “The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself.”

No effective sales transformation happens without also building a business model where products and services begin to sell themselves. Here are four things distributors must do now to transform sales.

1. Know what your customer actually buys from you.

AED Superstore changed their business model to reap an unprecedented profit margin. The defibrillator battery company flipped the playbook and instead of just selling batteries, they focused on selling a service that insured and maintained their batteries. They determined what the customer actually needed and then brought it to them: risk management. AED differentiated with a service-centered business model with much higher margins than their product-centered competitors and a value proposition that makes it difficult and costly for their customers to switch.

2. Know how your customer wants to buy from you.

Remember when small high-margin contractor tradesmen made a mass exodus from their electrical and plumbing distributors in the ‘90s? They switched when stores like Home Depot finally added desirable value propositions for them like open accounts and delivery. Many distributors were left scrambling after losing these high-margin customers because they failed to recognize their value. The high margin of those small customers supported the lower-margin large customers.

Appropriately segmenting customers by understanding how they want to buy from you is key to creating distinct value propositions to serve and keep customers. Some customers need full service and others are self-sustaining. This hugely affects how you invest your sales teams in certain customers and knowing how to both add and extract value.

3. Push the pull systems.

Pushing customers to buy product in recurring transactions doesn’t cut it. Forward-thinking distributors are focusing on pulling customers toward investing in services. Not only are these sales models higher earning, but they also reduce costs by streamlining field sales reps’ time and energy into market-making transactions as opposed to just market serving.

Most distributors know all their local competitors extremely well, but that doesn’t mean they can lean on executing their similar business models just a little bit better than the competition’s model. They need a new model. Otherwise, they’re exposing themselves to disruption from outsiders.

4. Maximize competitive advantage.

How easy is it for your customer to choose you over your competitors? If you’re not maintaining top-quartile performance, you don’t have competitive advantage. Focus on unique activities that add value to your customers, but make sure they meet these three criteria:

  1. Something that is valued by the customer
  2. Something that is expensive or hard for a competitor to duplicate
  3. Something that can be transferred to other markets

Consider a drywall distributor that started delivering drywall to the actual room where it was being used for residential construction. Their customers loved it. But every other drywall provider started doing the exact same thing two weeks later because it was relatively easy to do. After two months of this, everyone discontinued the service after realizing it was a bad and costly idea in the first place.

Now consider a utility company that is highly regulated by the government with restrictions on buying equipment. A distributor comes along with a rental fleet for this hefty necessary equipment — think tree trimmers — and solves the utility company’s budget problems while renting at a high margin that gives them a rebate on the back end. This is a unique, valuable offering that reflects the distributors core competency. When unique activities are deployed effectively, they amplify the core competencies of your business.

Believe it or not, some distributors are getting away with actually charging their customers for traditional sales calls. Their sales reps stopped selling products long ago and instead they go into hardware or home and lawn stores and sell replenishment services that automatically track their inventory and triggers auto-replenishment that ships overnight.

Distributors are facing an unprecedented year of challenges, but they must continue to offer innovative ways to reach customers. Sales transformation requires many moving parts. Creating value propositions, reducing sales costs and developing new business models must be done thoughtfully.

Check out Innovate to Dominate: The 12th Edition in the Facing the Force of Change Series  and Value Creation Strategies for Wholesaler- Distributors to begin assessing your business model and creating a strategy for change. Don’t hesitate to reach out to us for help.

To learn more about Mike’s approach to value creation in distribution, read his NAW-published books: What’s Your Plan? Smart Salesforce Compensation in Wholesale Distribution, Working at Cross-Purposes: How Distributors and Manufacturers Can Manage Conflict Successfully and Value Creation Strategies for Wholesaler-Distributors

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J. Michael Marks, NAW Institute for Distribution Excellence Fellow
J. Michael Marks, NAW Institute for Distribution Excellence Fellow J. Michael Marks is Managing Partner of Indian River Consulting Group (IRCG). He became a NAW Institute for Distribution Excellence Fellow in 2002. IRCG is an experience-driven firm that continues to focus on the wholesale distribution channel. Prior to forming IRCG, Mike held the position of Executive Vice President at Lex Electronics, a vertically integrated electronics distributor. Prior to that, he was Director of Corporate Training and Development at Ducommon Inc., an industrial distribution company.

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