A consultant once told me, “Distributors should manage their product data with the same rigor they manage their inventory.”
Since inventory is the working capital lifeblood of a distribution enterprise, the statement struck me as hyperbole. After all, competent inventory management is a survival skill in our industry. The vast majority of a distributor’s working capital is usually on-hand inventory. If you mismanage it, you either:
- Run out of stock, often frequently. Then you go out of business because your customers hate you.
- Invest in so much poor-performing inventory that you run out of cash. Then you go out of business for being dumb.
However, I’ve since realized that the consultant was right. But his advice wasn’t complete. You really need to manage both product and customer data well to survive in the future. The days are over when the old model of managing sales people well and picking, packing and shipping orders expertly would protect your market share.
“Omnichannel” Isn’t Just a Made-Up Word – It’s the Future
Customers expect their distributors to offer “omnichannel solutions.” (“Omnichannel” is the same thing as “multichannel” but consultants gotta eat, so they changed the name). When you had one channel (walk in the branch, look at products the counter person brings from the back, decide on what you want), you needed a product strategy — but not a product data strategy.
As soon as companies like Grainger started mailing catalogs, the need for both product and customer data emerged. You needed customer data so you could know who to mail catalogs to and who was buying from you and where to ship their orders. You needed product data so you wouldn’t have to rewrite those catalogs from scratch every time you updated them.
As database marketing became more sophisticated in the ’80’s and ’90’s — following the same principles as today’s online marketing, by the way — distributors began to implement large-scale and dedicated systems to manage their product and customer data. Expert practitioners began sending out “versioned” catalogs and flyers, altering the covers, the products and the offers based on customer data.
All of this required a sophisticated (for the era) use of databases and statistics: Joe Smith in Poughkeepsie tended to buy bearings in August, so we decided he was doing a “plant turnaround” and we sent him the heavy-duty maintenance and repair catalog in June. Samantha Joseph in Sacramento sourced her warehouse supplies each January, so we guessed that her company tended to put purchasing on hold until the fiscal year was complete. Thus, she always got her material handling catalog in December.
One of my marketing mentors, Jim Tenzillo, used these direct marketing techniques to grow the heck out of small customers when I was at Grainger, despite the fiery resistance of our VP of Sales, who called all of this “junk mail.” In reality, it was highly lucrative, high margin, high growth business and Jim spent his hard-earned budgets with ferocious focus and results by wielding product data, customer data, statistics and expertise our competitors couldn’t match.
Enter the Internet era and people like Jim were in professional heaven. He suddenly had instant feedback on offers, detailed data on who was buying what and — for the first time ever — he even knew what they looked at, even if they didn’t make a purchase. For a long time, distributors who brought these skills to the marketing game had a huge lead over the traditional players who relied entirely on sales reps and well-oiled branches.
How’s that Green Screen Doing for Ya?
One truth about technology is that it all “trickles down” from the bleeding-edge practitioners to the Luddites who push back on anything new — eventually. In those heady years of Internet naiveté, for example, if you wanted a shopping cart on your website, by gum, you’d program it yourself. Now, there are powerful, cloud-based tools available at such low cost that only the most-backward of distributors doesn’t have basic web technology running in some form or fashion.
And yet, the appreciation and utilization of product and customer data hasn’t caught up in the same way. And that’s a problem because you cannot do state-of-the-art eCommerce if this data is not robust and expertly-managed.
Distributors who are positioned to succeed in the future are investing aggressively in their product and customer data teams. This doesn’t just enable online sales — it’s also vital to get the most of your ERP, conduct strong business intelligence, negotiate well with suppliers, design and forecast promotions effectively, understand market potential, choose branch locations and optimize inventories.
If this technology hasn’t trickled down to your firm yet, you need to catch up. If you already do this well, congratulations. Keep going, because competition is heating up in distribution and the new entrants are very sophisticated.
Advanced use of customer and product data is foundational and required to match or beat competitors’ capabilities — which are driving your customers’ expectations. Lots of distributors claim to offer customers what they want, when they want it, where they want it. That promise used to be about managing inventory and operations effectively. But advanced uses of customer and product data breathe new life into the capabilities you can build to meet the promise even more effectively and efficiently.
Do it well and you can compete in the future. Do it poorly and you may not have one.