The 2020 Mid-Year Economic Update_long

Fighting the Digital Disruption War: Protect the Last Mile

If you build a strategy and leaner model from your core strengths, you can out-compete any type of competitor.

Remember the turbulent old days, back in the late 1990s, when Y2K was going to bring down your business overnight? And if you dodged that bullet, you were going to be disintermediated by a dot-com online storefront? Life is much simpler now, right? Ha! 

From the nature of mergers-and-acquisitions activity to the way manufacturer-distributor-customer relationships are defined today, digital disruption has fundamentally changed the competitive dynamics of wholesale distribution. But after 30 years of observing this $6 trillion industry, I think there’s a critical perspective to keep top of mind.

None of the current distribution model disruptors, largely driven by digital, effectively attack the core value localized distribution has always brought to the market: the ability to meet the time-sensitive needs of customers in the selection and application of process-specific supplies. This is a highly customized value that ranges from low-tech, highly qualitative personal relationships to high-tech, just-in-time, location-specific supply systems that require deep knowledge of complex product, process and customer variables. Relationship and customer knowledge are tough to digitize or commoditize.

The real threat is that the traditional outside sales model — the foundation of every distribution sector — has not changed and has been disrupted by the shift in customer expectations and more price-competitive selling models. Distributors have historically been response-driven, and thus focused on buying more effectively to generate profit. But, multiyear, slow-growth economic conditions call for much stronger demand-creation skills. 

Does your company have a more proactive, lower-cost selling model to target new customers and markets, along with a changing mindset that no longer expects the old model to be the stable revenue stream of yesteryear? Competitive advantage in the future will be defined more by how distributors sell rather than how effectively they buy. That’s a leap for many companies to make; it is creating EBITDA and defining success in 2019. 

Regardless of your position in the channel, profitability is a more elusive target today and requires a more agile and lean omnichannel selling model, one that fully leverages customer relationships and an efficient approach to the new ways they want to interact. You can’t apply a cookie-cutter approach to these new hybrid B2B distribution channels and cling to what used to work in B2B. Exhibit A is the thorny and often dysfunctional structure of rebate programs. That ship is springing leaks as all markets become increasingly more commoditized. 

There’s also the risk of getting too carried away with technology or competitors. Stray too far from the underlying business model and leaner cost structures necessary to compete in this digitally disruptive environment, and you can lose sight of the evolving needs of your customers. That’s when you get to the point of winning certain battles but ultimately losing the deeper relationship war.

There’s a meme bouncing around the internet that’s attributed to a Walmart banner that hung at its headquarters many years ago. It read something like this: “You can’t out-Amazon Amazon.” Great advice! But if you build a strategy and leaner model from your core strengths, you can out-compete any type of competitor. 

Learn more ways to fight the digital disruption war at MDM's Digital Distributor Summit, June 18-20 in Denver, CO.

This blog is a sample of our Premium content. Read the latest issue of MDM Premium here.

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