Industrial distribution companies are under intense pressure to defend their market positions and grow sales and profits.
While this situation is not new, the level of intensity, and the underlying drivers of change, have not been experienced before and include:
- Amazon – the e-commerce giant has rapidly grown its B2B business and has captured significant market share across numerous product categories. As Amazon continues its aggressive warehouse buildout, and expands its programs, it is likely to gain even more market share.
- Digital marketplaces are growing rapidly as end customers have shifted more of their purchases to them. The growth in digital marketplaces is being driven by better customer experiences, and significant maturation in the underlying technology to make it all work.
- Big Box retailers have made huge investments in their e-commerce and supply chain capabilities, while leveraging their national footprints to offer more value to contractor professionals.
- Manufacturers going direct – several factors are driving manufacturers’ move to go more direct to end customers: the Industrial Internet of Things (“IIoT”), e-commerce adoption, and a push to capture more share of aftermarket spend on products and services. The risk of channel disintermediation has increased.
- End customer preference – End customers are shifting their buying preferences as they want “Amazon-like” purchasing experiences, improved controls, lower costs, and easy integration with their systems. In addition, by going direct to manufacturers, end customers can obtain lower prices, customized solutions, and improved aftermarket service and technical support.
While distributors have been fighting back with some success, for many, there are significant opportunities that they can take advantage of such as:
Adjust the service model
There are several ways to deliver more value to end customers than just selling products. Adding more services focused on helping customers improve their business performance can create new growth opportunities and increase stickiness.
Build out, or even add, e-commerce to the Go-to-Market approach. Meet customers where they are and lower your cost-to-serve.
Develop value propositions to targeted customer segments to match revenue and margin opportunities.
Partner with Manufacturers
Capture local market service opportunities beyond product fulfillment (e.g., IIoT service partner).
Adjust pricing approach to capture more value, especially where value-added services are provided and there is a wide array of customers served.
Highly fragmented sector that will continue to consolidate to capture economies of scale.
Choose carefully the locations and local models that can help drive customer acquisition and retention.
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