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3 Strategies to Tackle Distribution Channel Disruption

The B2B market is looking for better e-commerce tools and a wider product assortment. Applico’s Alex Moazed outlines three avenues for distributors to meet customer needs and achieve channel enablement in the process.
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Coronavirus has accelerated digital behaviors unlike any other moment in the past 25 years of e-commerce. Every distributor needs e-commerce and every business customer wants better digital procurement tools. This shift presents a void and an opportunity for many large distributors.

Across the B2B spectrum we are seeing needs for better e-commerce tools and a desire for a wider product assortment. Large distributors can engage in channel enablement by capitalizing on these three opportunities:

  1. SME distributors need vertical-specific e-commerce tools
  2. Distributors can sell B2C via a retailer’s e-commerce site
  3. Business customers need better operations and procurement software

Depending upon your distributor’s positioning in the supply chain, the above opportunities could be viewed as enabling or disrupting. Channel enablement is about strengthening existing channels that you do business with already. Meanwhile, channel disruption entails opening up a new channel that could be viewed as competitive with one of your existing channels.

To be clear, all three of these opportunities are actively happening across many verticals in B2B. Some with an eye toward enablement and some toward disruption. However, all three present a void and hence an opportunity. As Aristotle said, the vacuum will be filled. The question is, who will fill it?

Provide SME Distributors with E-Commerce Tools

Small- and mid-sized distributors are looking for e-commerce solutions. Large tech monopolies are rushing to the fill void. However, most distributors are reluctant to work with them, having seen how retailers got burned by dominant marketplaces like Amazon in B2C. Large, savvy distributors can present a better alternative — a vertical specific e-commerce solution at a bargain price. By bundling product catalog information like a standardized set of SKUs, imagery and text descriptions with an e-commerce solution, large distributors can launch a better version of what Amazon, Google, Shopify or others are offering.

Small licensing revenues from a simple e-commerce solution isn’t likely to move the needle for most major distributors. However, the data and access to additional inventory that e-commerce tools can aggregate open up a potential bigger platform play, similar to Shopify’s recent moves to open a marketplace for its sellers.

Large distributors can take a page from platform strategy 101: commoditize the complement. In non-tech jargon, this simply means to give technology away for free, in order to build a network. The major tech monopolies use this strategy often. By enabling its customers or suppliers with free technology, the platform gets them to join its network. Then, once it owns the network, it monetizes the transactions it facilitates between its users. The platform does not charge access fees — instead it makes it as easy as possible to get onto the platform by giving SaaS tools away for free.

This model can be win/win: it gives other distributors struggling with e-commerce a free, robust solution to move their sales online. And for the platform owner, it enables them to strengthen their core distribution business with additional data and inventory. Or, as the big tech monopolies do, you can go a step further and aggregate these smaller sellers into a larger marketplace, expanding your margins and market share with consumers in the process.

By investing or buying an e-commerce startup, a large distributor can launch this free or subsidized e-commerce offering to SME distributors in their industry. For a master distributor or redistributor, this is a simple decision. For a large distributor, this can be trickier but worth serious consideration. If you don’t do it, someone else will.

Distributors Sell B2C via Retailer’s E-Commerce Site

E-commerce isn’t new to retail, but many retailers are still struggling to rival Amazon — especially Amazon’s breadth of product catalog.

A universal need across retailers’ e-commerce is to expand their product catalog. This includes top 10 e-commerce sites, but also retailers going through bankruptcy court. Even though retailers are going through bankruptcy, they still have cash and can operate their digital storefronts while they shrink their physical store presence. All of this puts an even greater emphasis on being more competitive in e-commerce. If a retailer can get additional inventory to their e-commerce offering without having to put additional assets on their balance sheet, you will really have their attention!

For large B2B distributors whose products have consumer appeal, these retailers present a perfect partnership opportunity. The retailers aren’t able to launch a marketplace business on their own — they’ve missed that window of opportunity. Instead, they must rely on partnerships to gain more supply, ideally in a consignment or drop-ship model. B2B distributors that have strong enough e-commerce infrastructure can easily plug their inventory into a retailer’s website and ship directly to the retailer’s customer or integrate inventory at the DC level — depending on the type of partnership.

Furthermore, this partnership model helps a B2B distributor prevent channel conflict by selling through a retailer. Instead of the distributor trying to sell B2C directly, they can preserve their existing channel relationships and business customers — while also opening up a new channel: the retail consumer.

Business Customers Need Better Procurement Tools

B2B customers today bring many of the same demands that customers have long had in B2C, such as an expectation of total product choice, more transparent and competitive pricing, and faster delivery.

However, business customers are also looking for more from their partners. For example, they need digital tools to run their business and procure goods efficiently, especially in a post-COVID-19 environment. Dental practices, for example, tend to prefer an all-in-one software solution to run both their operations and procurement needs. Multiple startups are building software to do exactly this: provide good SaaS software to help the clinic run its business better and monetize the procurement transactions.

Large distributors can invest or buy the startups providing these SaaS tools and give them away for free to their business customers. By creating a stickier relationship with business customers, the distributor will realize increased participation and demand flowing into their existing e-commerce portal, not to mention, another barrier to entry against other tech and traditional competitors.

Many distributors already provide these tools to their large customers. Instead, this strategy focuses on the smaller- and mid-sized business customers. The customers who are more easily satisfied by a self-service tool. This market is more fragmented and that’s where startups’ SaaS solutions have focused: solving the smaller customers’ problems first.

Multiple Paths to E-Commerce Success

These three strategies are not mutually exclusive. Which ones may make sense will depend on your positioning in the market and the competitive and customer dynamics in your industry.

For distributors who have already stood up more robust digital operations, building from scratch may make sense. Or for those who don’t have a significant digital budget, simply licensing a ready-made solution may be the best route.

However, large distributors can also use partnerships, strategic investments or outright acquisitions of startups to help accelerate their digital initiatives. The partnership or M&A targets will differ within each vertical of B2B, as each industry has its own set of highly specialized software startups. For an overview of the landscape of SaaS and e-commerce startups in B2B, we’ve compiled a list of all of our B2B vertical specific startup landscapes here.

Co-author of the best-selling Modern Monopolies and regular speaker on platform innovation, Moazed founded Applico in 2009 as the first platform innovation company providing advisory services globally to build, execute and scale platform businesses. He works directly with Fortune 500 C-suites and boards to help them build or buy their own platform businesses. He often speaks on the ways distributors could beat Amazon and other emerging industry disruptors by developing their own platform strategies.

 

 

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