As B2B distribution channels continue to change and become more complex, distributors are left trying to figure out how they can best add value to suppliers and customers.
As a B2B distributor, your main job used to be straightforward: maintain local stock for branded products by concentrating on building warehouses close to customers. Suppliers created demand through advertising and a small sales force to promote products. Resellers, dealers and larger customers went to a limited number of distributors to buy. Distributors made a reasonable margin for having the right products where customers needed them. And everyone was happy.
Now, global suppliers have disrupted local markets, eroding margins and creating an explosion of products to fill even tiny niche markets. Sophisticated logistics systems mean shorter delivery times. And suppliers have expanded their distribution channels to get closer to customers.
All the changes make navigating the channel ecosystem tricky for distributors as they redefine their place in the channel.
B2B Distribution Under Pressure
It’s easy for distributors to feel stuck in the middle—always pushed and pulled by suppliers and customers to stock more, provide greater value and sacrifice margin in the name of volume.
Many suppliers look at B2B distribution channels and ask, “Do we really need all these distributors?” and “Is there a cheaper way to get our products to customers?”
The changing economy has brought additional challenges for distributors. The internet introduced many competitors who didn’t exist a few years ago. Consolidation and mergers created large regional and national organizations that can invest more to create a huge brand name. And e-commerce is driving increased pricing transparency, which can hinder margins.
What can a distributor do to take control and optimize their distribution channel strategy? Start by embracing your data and mindshare to create value for suppliers and customers.
Creating Value for Suppliers
The changing channel ecosystem might make distributors and suppliers seem at odds because they have different objectives, strategies and stakeholders. However, B2B distributors and their supplier partners need each other to succeed.
Distributors should be asking themselves, “How do I make myself the most valuable distribution channel for my suppliers?” and “How can I bring in new suppliers?”
The answer to both questions is the same (and simpler than you think). After all, you already own the customer relationship—which means the answer is hidden within your invoice system.
Every transaction gives you a wealth of valuable data about what, when, where and how customers buy. Use this data to target suppliers’ co-op and market development funds to increase their sales.
Chances are each of your supplier agreements includes a paragraph about a “co-op marketing budget” or a “market development fund.” Suppliers typically allocate one to two percent of your annual purchases to help you market their products and services. In the past, this meant passively putting some co-branded ads in trade magazines or buying some branded hats instead of taking a more active approach to controlling these funds. Thinking strategically about how to use the funds not only makes you a stronger partner for suppliers, but also can set you apart from competitors.
For example, one of our distributor clients in the crowded building supply industry found success by offering a loyalty program that generated incremental sales growth among their customers (contractors, service shops and replacement parts retailers).
ITA Group built the program so that it created value up and down the distribution chain, especially through audience assessment elements that provide insights which benefit suppliers and distributors when targeting funds for sales growth
Related: Learn more about how our distributor client’s loyalty program yielded results like $82 million annual sales revenue.
Short-term sales of targeted products to a wider range of customers clearly benefit suppliers, but you can go a step further.
Make yourself a preferred distributor to do business with by offering suppliers roll-up reports of contractors purchasing from a specific product category, as well as the supplier’s share of that category. Doing so enhances your discussions and helps them identify strengths and weaknesses while planning future offerings and marketing initiatives.
Creating Value for Customers
Consider using your market development funds to reward customers for purchases. Incent them to allocate a greater share of their purchases toward your organization.
Returning to our earlier distributor client example, their loyalty program included targeted communications for extra promotions (e.g., turn purchases into a trip), goal tracking and an online digital storefront to choose personalized, meaningful awards. The program targeted key contractors who met certain growth criteria. The result? Targeted contractors had 187% greater purchases compared to non-targeted contractors. The program created value for distributors and contractors alike (plus the supplier partners who help sponsor the promotions).
Data Is Power in the B2B Distribution Channel
Using data makes you a more valuable distributor partner. Sharing just a little of your incredibly rich data provides suppliers with information that’s nearly impossible for them to get anywhere else. Even more importantly, leveraging the data differentiates you from competing distribution channels—not only in the eyes of suppliers, but also with customers.