Distributors have experienced market disruptions, uncertainty, new coronavirus variants and constraints none of us could have forecasted over the last year or so. We can no longer rely on how we have always done business. A recent McKinsey study indicates more than 60% of CEOs restructured their organization in response to the pandemic and many plan to continue to adapt in the years to come.
With so much change, how do distributors strategically adapt? Below is what I predict how distributors will plan and adapt for 2022.
20% of distributors will do nothing
They will continue to do what they always have done — “how business is done around here” for the last 30+ years — and many of them will be forced to make deep cuts to stay in business and might be acquired as market consolidation continues.
They will continue to experience high price overrides and they will lose at least two, if not more, of the key customers they have today. Shareholder value will decrease, and they will grow frustrated because doing more of what has always worked will not drive the results they want and need today.
Sales are more transactional than strategic, and the cost per sale will increase. Their key top talent will exit and work for competitors.
30% of distributors will make strategy and structure decisions based on their financial data alone
These inward-facing businesses will analyze their ERP data over the last 12-18 months and make adjustments to their structure, product mix, how they sell, inventory, and even what manufacturers’ products they will have their sales teams focus on more than others.
They will continue to invest in digital marketing and e-commerce but fail to receive the expected ROI they were sold to make these investments.
Many in this category are positioning their business for sale. Some of their most experienced team members will retire, taking with them valuable knowledge not captured anywhere.
30% of distributors will make strategy and structure decisions based on transaction data and voice of customers
These organizations are asking their customers now how they want to be served, and what they need to do to grow their share of wallet. They are reviewing their transaction data and identifying net profit by customer. They are training their sales teams on how to help clients that are break-even or profit-leaking customers move into a more profitable quadrant.
They will review their transaction data and clearly understand what products contribute the most value to their bottom line and negotiate new terms of trade with those vendors who have products that fall under their strategic minimum profit expectations.
They will continue to pass along price increases to their customers. However, they will find in many cases their sales teams will override these targeted new prices because they lack the skills, and often relationships, with some of their clients to make price increases stick.
They will have three- or four-day executive strategy retreats, develop a new more agile strategy, and financially model various scenarios for 2022.
They will not achieve their strategic net income objectives because their sales and marketing teams often lack the skills, tools and systems to execute the plan they just developed. And, they do not have a sales up-skilling plan based on common sales skill gaps by sales role.
Structurally, they will make changes but often not have the right people in the right roles based on their skills.
20% of distributors will make strategy and structure decisions based on transaction data, voice of customers, and also by assessing skills of their customer-facing roles.
These distributors will strategically close any gaps they discover with sales skills training, tools, marketing, systems and coaching. These strategic distributors are gathering data from their transactions, customers and they are clearly understanding the effectiveness of their sales team today.
They understand what skills their sales team needs to have to execute and deliver on their strategic plan. They understand the sales team is often skilled in the product, application and sometimes market knowledge. However, very few of their salespeople can sell in a consultative manner based on value and have the business acumen skills to speak the language of business their customers want and need. They realize 50% of the salespeople have never received formal sales training in most cases, and now is the perfect time to change that.
They are investing now as they ride the sales and profits of the post-pandemic bubble in digital marketing and an omni-source strategy. They are investing in training their salespeople based on the gaps discovered in their sales effectiveness assessment and the voice of customer research. They clearly understand their customer satisfaction and have identified any current customers preparing to defect and are making plans to keep them.
They are investing in coaching training for their sales leaders as well as new sales tools and systems to support profitable growth. These distributors will grow faster and at higher profits than other distributors and often use their extra profits to make strategic acquisitions that strategically support their growth plans.
Where do we go from here?
How can your distribution company be one of the top 20%? The below questions, once answered, will provide the actionable insights to build your profitable revenue and market share growth plan.
- What are your core customer’s biggest struggles you can solve today?
- Why do customers buy from you?
- Why do customers buy products from other distributors you could have sold to them?
- What buying criteria do your buyers use today?
- Do your buyers like virtual human-to-human interaction or would they prefer face-to-face?
- What percentage of your current customers only buy one or two product categories from you when other businesses like them buy from seven or more product categories?
- How effective are your sales team, systems and processes today?
- How much more effective could they be?… and when gaps identified are closed what will it mean in terms of additional organic revenue?
- What are common skills gaps your sales team has today that once closed will add the most value quickly?
- With so much supply chain disruption, what level of service and terms of trade will you offer your A, B and C customers?
- Do your salespeople know how to sell based on value or just price?
- What customers represent between 200% and 300% of your net profits today?
- What customers leak profit each time you ship or serve them?
- What is your value messaging for each of your three top buyer personas by market segment?
- Do you have a targeted new customer list that matches your ideal customer profile? (Is the data current?)
- Why don’t prospects buy from you? (Interview buyers who did not buy and find out why. From our teams’ experience price is rarely the No. 1 reason.
- What is your product or service’s distinctive competence that sets you apart from competing distributors?
- Do you have the right sales and marketing structure with the right people, in the right seats, with the right skills, tools and systems to deliver the most value to your organization while creating a market-leading buying experience?
When you have the answers to the above questions you are well along your journey to having a buyer-centric strategic sales plan that will deliver results.
Mark Roberts is a senior-level sales and marketing leader with more than 35 years’ experience driving profitable sales growth in market-leading organizations. He has led sales and training at companies like Timken, VMI, Gardner Denver, Mobility Works and Frito-Lay. He is the founder of OTB Solutions, LLC and business development blog, nosmokeandmirrors.com.