The 2020 Mid-Year Economic Update_long

“What Percentage of Your Sales are Online?” is the Wrong Question to Ask

Meeting customer needs is the most important metric for distributors.

I recently spoke with the CEO of a ~$150 million distributor who reluctantly confessed, “We only get about 5% of our sales from our website.” I think he was expecting me to react with disapproval or shock. Instead, I asked him about his customers, value proposition, product mix, website stats, competitors and more.

I told him, “I think you’re making a mistake by focusing on what percentage of your sales accrue online. You have a lot of customers using your online tools frequently and your business is growing. It sounds like your customers are using your website for shopping, not buying, but you’re meeting their needs. That’s what matters.”

How Much of Your Business Should Originate Online? 

Humans have an odd tendency to boil down performance to single measurements, even when that’s not useful. In football, wide receivers are evaluated in large part on how quickly they run the 40-yard dash. However, the all-time leading receiver is Jerry Rice. His 4.71 second time was nearly a full half-second slower than the record sprint. That’s a slow time by any measure, yet Rice holds the all-time receiving record. In fact, his 22,895-yard career total is nearly 6,600 yards greater than the player in second place.

Similarly, some distributors compare their online results with Grainger’s. Grainger operates in the MRO space, with simple transactions, few services and a large number of small orders delivered via common carrier. That model lends itself to online sales. This market is under attack from Amazon Business and the higher percentage of online sales demonstrates that. To some degree, it’s a measure of vulnerability to digital disruptors.  

Does that mean you shouldn’t sell online? No, not at all. It means that achieving a specific percentage of online sales should never be a goal because it’s misleading and it’s not a customer-focused measurement. 

Do I Need to Invest in Digital Technology? 

If your takeaway from this column so far is, “Hey, this is great. The writer is saying I don’t have to invest in digital technology!” you are badly missing the point. Every distributor needs a robust digital strategy, excellent technology tools and a team that understands how to use them to provide customer benefits. But your company’s strategy and measurements must be customer-driven and unique to you. 

Let’s consider an example: Suppose you sell residential building materials. The bulk of these sales originate through a lengthy specification and bidding process. Once the construction project is underway, the building materials for that project are already in stock at a local distribution branch and customers will order them for jobsite delivery as needed. 

The superintendent on the site may want to call and release a PO, may want to send an email, may want to use a specialized app or may just tell the account manager who happens to be on-site that day. 

Should you have all of these tools available to the customer? Absolutely, yes. 

Should you care which method the superintendent uses to place the order? Absolutely not! 

Depending on the superintendent’s preferences, the time of day, the specific products on the order, etc., that customer may chose various methods in any given situation. If you obsess over which channel the customer uses, you’re likely to build in incentives (bigger commissions for online orders, for example) that are not driven by what’s best for the customer. Instead, you’re reacting to a perceived need to make the customer comply with your internal goals. 

Just as you open branches, hire sales people and lease trucks to serve customers, you need to build digital capabilities that meet customer needs. But the goal with all of these investments is to satisfy customers better than your competitors — not to drive customers into any specific ordering behavior. 

\"Ian

My Website Failed! 

Many distributors decide their website investments are a waste of money. When I ask questions about why they have concluded this, I usually get an answer like, “We spent $X on our website and only achieved $Y in sales. The incremental sales didn’t pay for the technology and some of that was ‘channel shift’ anyway.”

When I get underneath this, what I usually discover is that the distributor often just took a bunch of their products and put them on a website with no chance of success. For example, is your website pricing higher than what customers can get from calling account managers and inside sales people? Are a large number of your products marked, “Call for Price” or otherwise unavailable for online ordering? This is often the case, meaning your website is the most expensive, least-convenient way to buy from your company. Why are you surprised it failed when you doomed it yourself? 

Sometimes, it’s a measurement problem. The value of good digital capabilities is that they grow all sales to a customer — not just website sales. If you’re only taking your online transactions and using those gross margin dollars to measure ROI, you’ll never conclude your digital investment was profitable. 

What’s the Right Digital Model for Your Business?

I wish that I could give you a simple goal and measurement to drive your digital strategy — not unlike, “If you run a really fast 40-yard dash, you are a great wide receiver!” But we have seen how well that correlates to the real world and yet we continue to build plain and hard-to-use websites and then evaluate them with a meaningless measurement. 

Your goal with digital technology should be to meet customer needs better than your competitors do. That means you should offer information, products and services online that your customers value. You must develop a deep understanding of how your customers operate, figure out how you solve problems for them, add value, remove friction, etc., and then meet those needs. Your online sales percentage will emerge naturally when you offer the best solutions. 

Get the Digital Strategy Answer and Measurement Tailored to Your Business

For a big jump-start in developing your own effective strategy, you should attend MDM’s upcoming Digital Distributor Summit, June 18-20 in Denver, CO. 

Unlike other conferences, this one is just for distributors. “B2B” conferences are too broad and often focused primarily on manufacturers’ needs. Retail conferences don’t take into account the highly-variable and specialized needs of business customers. MDM’s conferences are “by distributors / for distributors.” That means we focus exclusively on the unique and challenging needs of companies like yours. 

Click here to see the agenda. I’ll see you in Denver!

As always, if you have questions or comments, you can comment below or email me at ian@mdm.com.  

 

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