The 2020 Mid-Year Economic Update_long

Are Distributors Still the Future of Distribution?

Not if they don’t adapt to the changing marketplace dynamics.
Cardboard boxes on conveyor belts and rollers in distribution warehouse, Delivery and packaging service concept background. 3d illustration

• A new business cycle emerged due to COVID-19 in which business buyers look a lot like consumers. 

• Distributors who don’t meet the changing demands of these B2B buyers risk obsoletion.  

• There are paths a company can take to stay relevant, but they involve a radical rethinking of the business model. 

The new business cycle that’s emerged in the last 18 months is a particularly disruptive one for the wholesale channel amid changing customer demands and rapid digital acceleration.  The companies that don’t pivot and embrace such new realities as digital natives, subscription models and direct-to-customer businesses are poised to become obsolete. That was the assessment of Jay McBain, principal analyst – channels, partnerships and ecosystems for Forrester Research Inc., during MDM’s recent Digital Distributor Summit. 

In researching what buyers in both a B2B and B2C environment will look like in the coming years, McBain and his team came to one overarching conclusion: “The future business buyer looks a lot like a consumer,” he said.  

The way customers shop for and purchase B2C items has changed dramatically, especially in the last 18 months. Soon, the B2B selling environment could see a similar shift. “The way you buy a product in a B2B transaction [in the future] will look like the way you now buy a car as a consumer,” McBain said. “So, DTC models, based on consumption, are starting to infiltrate the business space. Your printer calls home when it’s out of toner and orders new toner. Your paper that goes into the printer sits on an Internet of Things scale; when it gets down to five pounds, it orders new paper. You set it and forget it for life. You’ll never again run out of toner, or paper, or peanut butter.” 

And the same could be said for many of the millions of B2B transactions across the $13 trillion market. That means a wholesale change is coming for wholesale distribution. 

McBain outlined eight predictions and trends that will influence whether or not distributors are indeed a part of their industry’s future. 

1. The buyer is changing; so is their psychology, behavior and journey 

According to McBain, the place to start is understanding how the new B2B buyer resembles the consumer. “For the first time in decades, we’re going through a major demographic shift, where the major buyer will be a millennial in four to five years across every industry,” he said. “You’ve got a shift in terms of behavior and psychology and the journey itself. You think a lot about these digital and digital-only journeys that customers are on — in consumer and in business, to get them where they want to be.” 

2. Partner leaders contemplate a trifurcating channel model 

The industry has been focused for so long on a linear supply chain, but a customer’s journey is now being supported by different kinds of channels that no longer have value added by distributors, such as subscription models. The ecosystem surrounding the customer journey is celestial, and “distributors have to step up and become more of a platform for distribution serving this trifurcated model than just showing up at the point of transaction.” 

3. Multiplier becomes main differentiation; marketplaces start taxing services 

Companies like HubSpot, Salesforce, Google, Microsoft and others are making an exponential impact on the business world with their vast data system, raking in multipliers upward of $5 or more for every dollar they sell. The distributor is left out of the equation. “This multiplier doesn’t apply today to distribution,” McBain said. “It’s not money flowing through a supply chain, but it is money the customer is spending on additional hardware, software and services.”  

4. 76% of CEOs think their current business model will be unrecognizable 

This multiplier effect is changing many things, McBain said, and now “76% of CEOs in every industry are rethinking how they go to market.” Manufacturers and distributors are going through transformations. Some are building websites that resemble a Google or Amazon Web Service platform more than an order-taking page, like a typical distributor site.  

5. The world shifts to subscription and consumption models

Think about everything as a service, McBain advised. “We move into subscription and consumption models for everything. Our toothbrush, our shaver, all the way to our business life. It’s starting to have a real effect. If every company’s becoming a tech company, and if 76% of them are thinking about subscription and consumption models, it changes the game.” 

6. The embedded/white-labeled future replaces the SKU 

“When looking at all these emerging technologies, there’s one thing that jumps out at you — none of them are products,” McBain said. Shifting from a product-driven marketplace to a services-driven marketplace is an important lesson. Compare Salesforce to IBM, for example. The former has a market cap of $242 billion while IBM — a company that views technology as a service rather than product — has a market cap of $129 billion. 

7. Marketplaces accelerate declining resell 

Marketplaces grew more during a three-month span of 2020 than the last 10 years combined, McBain said. One-third of the U.S. economy is going the marketplace route. “When I said the future buyer looks like a consumer, this is going to have huge marketplace elements,” he said. “For every company now, it’s an issue that’s moving from the back burner to the front burner. This is moving money away from resale. And this is threatening distribution.” 

8. The channel benefits from the changing future of work 

With so many people not returning to an office, the future of work is shifting. “This creates opportunities and permutations that distribution — and every industry — can start to look at the future of work,” he said. “They can start to think about the future of buying and start to see this as an opportunity to, No. 1, become a platform for distribution, and No. 2, come out of hiding. The customer doesn’t buy hidden value. They want to understand the value-added distribution elements. Instead of hiding behind whatever agent, dealer, broker, reseller, franchisee, retailer, the future of distribution relies on coming out into the open and showing that value to the market — and ensuring the customer understands that value and will pay for that value.” 

McBain wrote an article earlier this year with the same title as his presentation, “Are distributors the future of distribution?” It earned him a few cease-and-desist letters, he said. In that article, his closing statement sums up the situation that distributors must now embrace. 

“The move from transactional technology sales to nonlinear ecosystems is measurable value creation for the customer, leveraging network effects, incubation, and co-innovation,” McBain wrote, and echoed during the summit. “This is a new celestial approach in which millions of partners, products and customers are moving through the universe, and smart distributors must be able to predict (and monetize) when the stars are going to align.”

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