The 2020 Mid-Year Economic Update_long

Differentiation Has Never Been More Important

Culture, service and value are competitive assets.
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Distribution has experienced a shift similar to what most other industries have in the past decade. The products – printing, cars, chemicals, industrial supplies, left-handed widgets – have become commodities. Companies have had to find new revenue sources in the services they can provide for customers. Printers, for example, have focused on design and marketing services they used to bundle with the printing jobs. Car companies are moving as fast as they can to a new generation focused not on product but on efficient transportation. Some distributors long ago shifted to selling cost-effective holes, not cutting tools.

Manufacturers, distributors, associations and marketing groups are all wrestling with defining their unique value to their customer segments. How do you differentiate in a marketplace that today offers more sourcing alternatives, delivery options, products and service options than ever before? Where there is so much greater access to information and knowledge, as well as higher levels of confusion and frustration?

There is no easy answer, but a key is to understand the total customer requirements, and then package your services and offerings to meet most, if not all, of those requirements. It’s a fundamental shift from product push to service pull.

I wrote the above thoughts as a commentary 15 years ago, when I had completed a book in partnership with Dr. William McCleave, Jr. on how a wide range of distributors were creating competitive advantage and crafting differentiation strategies in a struggling economy. Customer needs, market dynamics and technology have changed significantly; the fundamentals have not.

Across every business cycle and series of disruptions to markets, certain distributors have fallen victim to the changes and lost ground to competitors that figured out how to leverage the shift, whether in customer needs, new technology application or an innovative service offering (or a combination of all three).

In the course of our research, there was an “ah-ha” moment after we had interviewed dozens of leaders responsible for very different types of distribution models – from the multi-billion-dollar healthcare distributor Owens & Minor to a family-owned carwash supplies distributor that provided a turnkey package of services to local investment groups such as dentists and other professionals to finance, site, build, equip and market a new carwash business. That’s a different business model than selling detergents and boxes of wipes!

A few common denominators emerged from our interviews that applied no matter the company size or types of products sold. The first trait was company leadership – each successful differentiator had a leader with a crystal-clear vision of what customers wanted today and where they were heading in the future. They spent a lot of time on the front lines with customers as well as their own employees closest to the customer. They also articulated that vision clearly and often to their team to the point where almost every single associate had the same answer on the core mission of their company. It was consistently about their unique service differentiation, not a bland “we-do-it-better” statement.

The second characteristic that differentiated these successful companies was in their approach to process. They built systems and metrics for every process in the company and trained everyone on roles and responsibilities. That included effective customer feedback and communication systems that gave the company ongoing and unfiltered input. The systems intentionally kept them in “discomfort zones” that made it next to impossible for a competitor to disrupt these extremely close customer relationships. Their processes fed their ongoing innovation and new services development.

Obsessive customer focus and process efficiency – sound familiar lately? Amazon will most certainly displace a percentage of distribution companies that don’t have a strong enough differentiation strategy. Traditional competitors that invest in improving their productivity, sales models and differentiated service offerings will likewise displace vulnerable distributor models that have not evolved, as has happened across every cycle of consolidation.

In spite of all the uncertainty and speculation about how this plays out over the next five years, I think there is a world of opportunity for distributors that successfully execute on an effective differentiation strategy. There is more competition, more noise and pricing transparency than ever before. But there will be increasing opportunities to clearly define the difference your company’s culture, service and value package make for customers in a sea of clutter.

The solutions that define success are radically different than what they were a few years ago; the core strategy to achieve that success has not fundamentally changed in the last 20 years.

(I hope you’ll consider joining us June 26-28 for our 2018 Sales GPS Conference in Denver, where we will have deeper conversations about what it takes to transform and differentiate your sales team in a digital world.)

I welcome your comments, either below or email me at tom@mdm.com.

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