At the end of January I was fortunate enough to attend the National Association of Wholesaler-Distributors (NAW) Executive Summit in Washington, D.C. The annual Summit provides best practices, insightful content, and thought leadership for the entire distribution industry, and this year was no different. With much of the industry currently facing a variety of disruptive forces, this year’s Summit focused on a theme of “Innovate to Dominate” that was geared toward providing industry executives with “a roadmap to innovation.”
While I was there, I definitely got the impression that the industry as a whole is facing some big challenges. But rather than succumbing to an atmosphere of doom-and-gloom, the various speakers at the Summit instead seemed energized by the steps they knew needed to be taken, as if the coming “crisis” had provided a kind of clarity of purpose. Hence the title of the Keynote Address by Ian Heller, Founder and Senior Partner of Real Results Marketing: “Distribution Disruption and an Industry Call to Arms.”
Overall, there were a lot of interesting ideas presented, but many seemed to revolve around three key trends: artificial Intelligence, commoditization of services, and the rise of B2B marketplaces.
The idea that A.I. is driving innovation across industries is not new. However, one aspect that really hit home is just how present this revolution already is. For a lot of laypeople, the notion of artificial intelligence conjures up images of the Terminator or the Matrix, a distant threat that may or may not come to pass. But the reality is that A.I. is already here, in things like search, image recognition, and even marketing, and consequently impacting distribution at a number of key touch points:
- Big Data
- Machine Learning Algorithms
- Measurement and Feedback
Each of these areas influences the next, in a kind of feedback loop whose endpoint, presumably, will be better and better service with less and less intervention needed. Just look at Amazon’s Alexa. It’s getting easier for distributors to imagine a future version of Alexa that becomes the world’s most knowledgeable product expert, who knows customers on a personal level, has superhuman knowledge of every product ever made, and is always available in a store that sells everything. It may sound like science fiction, but for distributors, this future is also starting to seem frighteningly possible. In fact, A.I. is already the main tool powering Amazon’s recommendation engine, which generates 35% of the company’s e-commerce revenue.
An example of wholesalers currently utilizing AI comes from Benjamin Cohen and Proton.ai. Proton.ai helps wholesalers by presenting their sales personnel with the products customers are most likely to buy based off of previous purchase data. This data can be as simple as tracking when a product is depleted or providing the most likely product pairings. You may have experienced something similar with Alexa telling you it’s time to buy more dog food. What this kind of technology does is it gives salespeople a much more targeted conversation and has had a lot of success in increasing average sales and bundling company-wide.
In his keynote address, Heller likens the current state of A.I. to the state of the internet in 1995. While it’s still early, and A.I. still certainly needs to be refined, there’s no putting the genie back in the bottle. Moving forward, A.I. is going to continue to have a bigger and bigger impact on industry in general, and the way distributors do business in particular. In other words, having a strategy in 2020 that doesn’t take A.I. into account is sort of like having a strategy in 1995 that neglected the internet. It’s not just bad business—it’s ultimately unsustainable.
Commoditization of Availability and Delivery
If a distributor’s value proposition centers around having a bunch of SKUs in a warehouse that are priced, available, and able to be delivered in a timely manner, the bad news is that this space is becoming more crowded and commoditized. Again, one only has to look at Amazon, with their own fleet of trucks, fulfillment centers, and incredibly short turnaround times, to see that value needs to be found in other places.
This is where the services that are offered around products become key differentiators to any distributor business model. Whether that’s financial services, installation services, product training, or any number of very particular niche services that can be offered, distributors are realizing that it’s important to take stock of and prioritize the value they can provide beyond the standalone transaction.
In the past, it might have been normal to simply bundle these services and essentially offer them for free as part of the customer’s reward for doing business with you. But now, more than ever, it’s going to be necessary for companies to market these services as additional offerings that carry their own value—in other words, making sure that this value is clearly communicated to the customer. Again, there seems to be a sense of urgency involved here, as some industry experts have suggested that the only way distributors will survive in the face of Amazon and increasing eCommerce is by commoditizing these services and having a concrete plan of action for doing so.
The Rise of B2B Marketplaces
Traditionally, marketplaces have been the realm of B2C activity and transactions. But as we’ve seen this idea of marketplaces proliferate into its own sustainable business platform (see: AirBnB and Uber) massive companies like Amazon and Walmart have taken this traditionally B2C idea and innovated it into the B2B space. Now, if I’m a wholesaler, I can still sell my products through Amazon—in fact, nearly 60% of all of Amazon’s transactions actually occur through a third party—but the question is . . . do I want to?
When you join a marketplace like the one Amazon has created via Amazon Business, it certainly provides reach for you and ease of use for your customers. However, it also forces you to give up the valuable relationships you’ve built with your customers over time, and forfeit the potential for building new ones. It also makes it difficult for you to offer the above-mentioned services. Nonetheless, opportunities do exist out there for distributors to participate in a B2B marketplace in a way that doesn’t necessarily rob them of the extra value they can provide to their customers.
For example, it was pointed out that while the company Alibaba serves as more or less a Chinese equivalent to Amazon, it takes a slightly different, more distributor-friendly tack when it comes to B2B transactions. On the one hand, Amazon’s primary aim as a B2B marketplace is self-enrichment, providing the best prices to customers at the expense of third-party sellers while also refusing to share user data that could potentially help those sellers. On the other hand, Alibaba seems to be doing a better job of empowering sellers on their platform by releasing this data and essentially serving as a middleman rather than a withholding competitor.
Ultimately, the key takeaway for me on this was that there’s more than one way to marketplace. Distributors could participate in one that actually enables them to provide real value to their customers—such as with smaller independent marketplaces that are designed specifically for wholesalers. Or they could even create their own, one that gives customers an alternative experience to Amazon and is tailored specifically to their customers’ needs.
Of course, none of this is to say that adapting to these changes is going to be easy. After all, that’s why they call it disruption. But the “call to arms” that was impressed upon attendees like me at the Summit suggests that there is hope for the distribution industry as a whole. However, it’s going to require flexibility, innovation, and a willingness to take small steps rather than trying to boil the ocean all at once.
As far as next moves, some suggestions included:
- Becoming a technology “fast follower.” Focus on obtaining the right talent, getting educated by attending conferences, getting your technology ready, setting up IT vendor meetings, evaluating your current tech strategy, and making sure you’re well-positioned with A.I. opportunities
- Surrounding your customers with services. Stop bundling and start valuing the things that make you better. Add a “services” tab to home page of your website. Attack your service offerings with the same rigor as you would product management.
- Developing a marketplace strategy. Track your current exposure to marketplaces and meet with marketplace leaders. Learn from experts and develop a strategy to navigate this new normal.
- Implementing loyalty programs. Give your customers an incentive to continue doing business with you, even as your industry undergoes widespread disruption and change.
With the specter of Amazon hanging over the Summit and the distribution industry at large, one final point really hit home for me, and maybe it will serve as the rallying cry that will help individual wholesalers overcome this next wave of challenges.
As Ian Heller stated: “No distributor can beat Amazon. But maybe we all can.”
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Photo by Riccardo Annandale on Unsplash