Amazon continues to be a disruptive threat to distributors with its massive footprint and unparalleled efficiency. As I watch the industry respond and attempt to adapt to Amazon’s inroads, it reminds me of what I saw while working on Wall Street into the early 2000s. At that time, discount brokers began to use their scale and efficiency to challenge full-service brokers in the same way that Amazon is now targeting distribution.

Full-service brokers survived by aggressively differentiating their value proposition. Discount brokers focused on individual trades and transactions, and they weren’t shy about competing on price. But they weren’t looking at the bigger picture. They weren’t collaboratively helping clients fine-tune their investment strategy as a whole.

On the other hand, full-service brokers would incorporate their clients’ goals, their own understanding of the market, and relevant industry benchmarks to custom tailor — and continually manage — client portfolios. They rebranded themselves as “financial advisors” dedicated to adding value through a holistic, data-informed, hands-on approach.

Why Portfolio Management Works in Distribution

I see a unique opportunity for distributors to regain their foothold by applying a similar portfolio management approach. Distributors are well-positioned to work intimately with key customers. They can devote the time and resources to engage proactively with customers to understand needs and goals. They can analyze both transactional and customer-provided data to generate industry-specific insights, develop robust benchmarks (in the form of spending patterns seen across similarly grouped customers) and tailor advice to match customer objectives. The benefits of doing so are immense.

Amazon simply isn’t designed for such a hands-on strategy. They also rely more on transactional data than customer-provided data. And there aren’t any indications that Amazon will shift their approach any time soon. They just aren’t set up to provide that type of intimate, collaborative feedback loop with their customers.

Distributors would be well-advised to focus portfolio management efforts on the “core” customers who generate the bulk of revenue and profits. The key is to design and review customers’ “investment portfolios” (spending allocations) as matched against their overarching objectives. With a portfolio management strategy comes a host of benefits, as high-end financial advisers can attest:

  • Differentiation in a copycat market. It’s hard to differentiate in distribution because many companies offer the same products, provide the same services and mimic the same hollow selling points. A portfolio management approach will set you apart from your competition.
  • First-mover advantage. With any significant shift in value proposition that departs from the industry status quo, you immediately set yourself apart as an industry leader if you move before your competition. Use your data to reinforce your expertise, demonstrate value-add and set a new service standard that leaves others playing catch-up.
  • More share of wallet. As you establish yourself as a collaborative partner and help customers develop more robust portfolios, they’ll have an incentive to consolidate their spending with you. Moreover, your insights will be more valuable if you can capture and analyze their full breadth of market spending.
  • Lower churn rate. The value provided through portfolio curation and industry insights is challenging to recreate elsewhere. Customers’ spending history (and associated insights) don’t travel with them, which means that departing customers will find themselves back at the starting line with a new distributor. Effectively, a portfolio-driven approach creates higher switching costs, which discourages churn.
  • Cohesive sales and marketing strategy. Developing, maintaining and adjusting portfolios across a range of customers will naturally lead to the insights that shape a cohesive sales and marketing strategy. You’ll identify and document critical trends across customer segments and product categories — as matched up against your capabilities — to help segment your market, select key target segments and tailor a powerful value proposition.
  • Less focus on price. By shifting focus to a holistic, portfolio-centric view of customers’ spending and away from a transactional view, customers will be less focused on price and bargaining and more focused on achieving their overall goals as tied to market trends.

These are just a few of the benefits distributors could see if they incorporate portfolio management as a powerful differentiator when serving their best customers. And it’s something that Amazon simply can’t match.

Learn more about these concepts as well as other insights featured in our NAW best sellers.