In 2015, researchers at Forrester estimated that B2B e-commerce would reach $1 trillion by 2020. They were wrong: B2B e-commerce topped $1 trillion two years ahead of schedule. The industry is changing quickly, and distributors rarely get the chance to step back and plan for the future. In this first post of 2020, I’ll review the biggest development of the last few years and offer a cutting-edge strategy that distributors can use to dominate in the next decade.
The recent advent of e-commerce somehow demonstrated both the strengths and weaknesses of the distribution industry. The strength of distributors has always been their ability to serve customers. In a competitive environment, distributors win by providing the right mix of products, availability, technical expertise and superior customer service. However, in the 2010s distributors lagged behind other industries that provided digitally enhanced customer experiences like e-commerce.
That does not mean distributors are slow to adopt all technologies. In fact, over the last decade, distributors eagerly adopted tools that improved supply chain efficiency and warehouse productivity. However, many distributors approached e-commerce reluctantly.
One obvious reason for this is that B2B deals are usually more complex than B2C sales; whereas civilian consumers can easily shop online, B2B buyers frequently need to talk to reps to place orders or ask questions about niche items.
What many distributors failed to see, however, was that even if e-commerce didn’t replace traditional sales structures, it could still be a useful addition. Customers approached e-commerce as a beneficial service, using it to make simple purchases and reorders, while saving the complicated conversations for expert reps.
Once distributors began to recognize e-commerce as a way of enhancing the customer experience, the industry began changing rapidly. The stat I mentioned earlier indicates this clearly. In 2015, distributors had put themselves behind other industries. B2C brands were investing heavily in online shopping. Distributors balked, insisting that digital platforms could not replace traditional sales.
However, in the latter half of the decade, outlooks changed. Companies suddenly stopped seeing digital channels as the antithesis of personal service and invested in online selling. E-commerce sales surged to $1 trillion in nearly half the anticipated time and continue to rise rapidly today. Online sales are now pacing for roughly $2 trillion in 2023. Judging by the industry’s history, even that prediction may be behind schedule.
Yet, this enthusiastic adoption of e-commerce is as much a story of success as it is one of failure. It’s true that distributors are now successfully using technology to improve customer experiences. But, in the years that it took distributors to come around on e-commerce, new competitors shouldered their way into the industry — and it is those newcomers who pose the biggest threat to distributors today.
Amazon’s B2B branch alone is expected to eat up $52 billion in sales by 2023. Those who are calling for the demise of distribution are overreacting. But, distributors who do not invest in customer-facing technology will lose ground to the competition over the next decade. Distributors don’t need to reinvent sales to stay competitive. They simply need to do a better job of adopting technologies that customers value.
Distribution’s next big advance is AI that personalizes customer experiences. What is so exciting about this technology is that despite its intensely mechanical nature, its effects are profoundly human. AI analyzes customer data and predicts future customer behavior, thereby enabling distributors to revolutionize the selling process and customer experience.
Empowered by this technology, distributors will be able to offer customers the exact items and services they most want, at exactly the right times … and not just online. Predictive analytics on customer behavior doesn’t just mean personalized online shopping experiences and emails, it also means smarter reps and customer service teams that finally understand what customers want. Like e-commerce, AI does not replace traditional sales structures, it simply enhances them.
In the coming decade, distributors will use AI to drive growth and connect with customers like never before. However, the 2020s will not offer slow movers the same sort of leniency that the 2010s did. Technology is changing faster than ever, and customer loyalty is trending lower and lower. As McKinsey advises in a comprehensive industry report: “Our experience suggests that proactive distributors have levers to adapt and win in the new landscape — but the clock is ticking.”
Distributors must see that digital technology is now synonymous with personal customer service. Those who do not leverage technology like AI to please customers won’t have customers for long. Fortunately, I don’t believe this will be true for most distributors.
Distributors have always put their customers first, and that shouldn’t change anytime soon. In the last decade, distributors showed an ability to respond to customer desires by adopting new technology like e-commerce. As AI redefines personalized service, distributors will embrace it as a way of adding value for customers. As distributors celebrate the new year, it’s time to learn from the past and prepare to dominate the new decade with AI.
P.S. I hope to see you at the NAW Executive Summit: Innovate to Dominate, January 28–30, 2020, in Washington, DC, where I’ll be a featured speaker.