Editor’s Note: In this article, survey results are frequently presented showing Market Leader response vs. other distributors. MDM’s Market Leaders lists are available at mdm.com/marketleaders. The lists show the largest distributors in eight sectors.
There is a wide variety of marketing practices within the wholesale distribution industry. Real Results Marketing in partnership with Modern Distribution Management conducted an online survey to better understand these practices. In general, distributor respondents that appear on MDM’s Market Leaders lists more broadly embrace marketing as evidenced by the amount of resources they apply. Not surprisingly, they obtain better marketing results than other distributors. This article, the first in a two-part series, explores approaches to sales channels. The second article, to be published May 25, examines how marketing vehicles are used in independent distribution channels.
Over the past 20 years, there has been a broad movement by distributors to make various operational improvements through the use of warehouse automation, RFID, transportation management systems, 3PL outsourcing, process standardization and more.
For many distributors, these practices have created tangible efficiencies that manifest at the bottom line. While the pursuit of operational excellence can never end, many companies have already reaped the greatest possible gains from these activities and will see more incremental improvements from such activities going forward.
Thus, we believe that the next major frontier for distributors is to develop more significant marketing capabilities. The companies who embrace this challenge will outperform the market and their peers, even – or perhaps especially – during recessions.
As noted by Sean Fanning, a senior vice president of marketing at electronics distributor Avnet, Phoenix, AZ: “True B2B marketing is fairly young in distribution, only 20 to 25 years. In fact, distribution is still learning a great deal from other B2B – and B2C – companies regarding pushing the boundaries of best-in-class marketing.” Based on the analysis from our recent survey with MDM, interviews with distributor marketing executives, and our own experience providing marketing consulting to distributors, we agree.
A simple characterization of the distributor marketing imperative is as follows: Most distributors, whether they sell MRO products or to OEMs, have solid capabilities with outside sales and inbound telephone sales. However, capabilities for in-store marketing, outbound telephone sales and e-commerce vary widely.
The imperative for distributors of all sizes is to create and continually refine multi-channel capabilities.
In general, smaller distributors with less than $50 million in revenue have limited capability in channels besides outside sales and inbound telephone sales. By contrast, large national distributors with more than $500 million in revenue have built robust capabilities in almost all of these areas. Global distributors have achieved high levels of integration across channels along with more sophisticated marketing effectiveness measurements.
In our own consulting experience we have seen some notable exceptions to this trend. At the high end, we have worked with national distributors with $500 million to $1 billion in revenue with no outbound telephone sales and no e-commerce capability. By contrast, we have a client with less than $100 million in revenue with a superb e-commerce site and growing outbound telephone sales supported by good customer data.
Figure 1 shows the percentage of distributors in the survey who use the various sales channels. MDM Market Leaders – defined as the largest distributors in their sectors – are more likely to use any given channel than the other distributors. While the gap is narrow for “Outside Sales,” as this the staple channel distributors rely on, there is an enormous difference between MDM Market Leaders and other distributors when it comes to the use of outbound-only telephone sales.
Figure 2 shows a more stark contrast about how the distributor respondents viewed the effectiveness of the five different channels. Even in the channels used by nearly everyone – outside sales and inbound telephone sales – the MDM Market Leaders that responded to the survey have a much higher perception of effectiveness of the individual channels.
Figure 3 shows the distributor perception of importance for overall revenue. The MDM Market Leaders perceive higher importance of in-store and outbound telephone sales than other distributors. More than half of the MDM Market Leaders consider the Web channel important whereas just 37 percent of the other distributors do.
In the remainder of this article, we drill-down into the usage, effectiveness and perceived importance of channels for MDM Market Leaders against distributors of different sizes.
As shown in Figure 1, nearly all distributors have an outside sales channel. The level of resource scales with the size of the distributor. Small distributors have up to 20 outside sales personnel, whereas large distributors have hundreds or even thousands.
Furthermore, this channel is considered very important to total revenue, although larger distributors with integrated multi-channel operations considered this channel less important than medium-sized distributors. For smaller distributors with only two or three channels, outside sales is paramount.
The main difference in this sales channel between sizes of distributors is in levels of perceived effectiveness. As shown in Figure 2, the MDM Market Leaders are significantly more likely to consider this channel effective. From our interviews and experience, the market leaders have better data on customers, are further along in CRM utilization, and have better approaches for centralized management of a sales force.
Inbound Telephone Sales
Eighty-one percent of MDM Market Leaders participate in the inbound telephone sales channel versus 72 percent of other distributors. For many of the smaller distributors, the inbound telephone-sales channel is branch-based whereas for the medium and larger distributors it is call-center based. Almost no companies under $50 million consider this channel to be very effective.
However, even with larger companies such as building materials distributor L&W Supply, there is opportunity for refinement and segregation of roles, says Jake Gress, senior director of marketing. “Inside sales are critical for some of our products. However, we need to clearly articulate the roles of the inside salespeople because some of them are wearing too many hats,” he says.
As with outside sales, the most compelling contrast between market leaders and other distributors is the level of effectiveness: 71 percent of MDM Market Leaders think that this channel is very effective whereas none of the other distributors thought it was very effective.
The next three channels are where market leaders really differentiate from other distributors. Companies that are sophisticated in the use of these channels have transcended the “just sell harder” mentality of many smaller, branch-based distributors. They have recruited and groomed professional marketing staff, and they make judicious use of external resources to complement in-house capabilities.
MDM Market Leaders with more than $500 million in revenue are more likely to have in-store visual merchandising programs, and they are much more likely to apply greater resources if they do. For these companies, 90 percent consider in-store to be very important or important.
Few distributors smaller than $500 million in revenue consider their in-store programs to be very effective. As with inbound telephone sales, the in-store channels are more centralized and coordinated for larger distributors. For smaller distributors, the in-store channel management is more ad hoc.
Outbound Telephone Sales
The data from the online survey firmly supported our hypothesis that outbound telephone sales is highly underutilized and poorly understood by many distributors.
Sixty-one percent of MDM Market Leaders and 41 percent of other distributors have an outbound telephone sales channel. Often, the outbound telephone sales function is combined with the inbound telephone sales. The combined channel results are frequently lackluster due to differences in skills and personality types necessary to succeed in outbound versus inbound. Only 21 percent of MDM Market Leaders versus 13 percent of other distributors said this channel was very effective. The channel is considered effective only by distributors with more than $50 million in revenue.
A number of companies with whom we spoke are in the midst of conducting a trial with outbound telephone sales, or they are upgrading their outbound telephone sales channel.
However, almost no small distributors participate in this channel. Often this is because they lack guidance on where to start. A CEO of a small regional distributor said: “We are just not very good at finding people to make outbound calls.” In fact, there are a number of ways to start small, test, refine and expand these operations.
Very few distributors under $50 million in revenue offer a true e-commerce capability. We found that a little more than half of mid-market distributors offer a basic e-commerce capability consisting of accurate product data, search, a shopping cart, and account login.
More advanced capabilities for one-to-one marketing, integration with other channels, and richer personalization are available only from the very largest distributors. One of the biggest challenges for small and medium-size distributors is justifying the capital expense to deploy a website. Some have turned to multi-tenant or industry websites such as Vanguard National Alliance. Others have informational websites with an aspiration to provide a transactional website in the future.
About 36 percent of MDM Market Leaders believe their website is very effective and 62 percent consider it to be very important to overall revenue. In contrast, none of the other distributors perceive their websites to be very effective or very important. Clearly, making the website more effective and considering it to be more important should be a key element of the distributor marketing imperative.
We believe the stark difference in usage, effectiveness and importance of sales channels by MDM Market Leaders relative to smaller distributors is testament to the criticality of multi-channel marketing for distributors. Simply put, the MDM Market Leaders apply more resource and better management to multi-channel sales and get better results.
This dynamic is reinforced by research done at Bain Consulting, covered in “Profit from the Core” by Chris Zook. Zook studied “sustained value creators,” companies who grew market share and profit over multiple years. They found that the sustained value creators reinvested at 15.3 percent, nearly twice that of their rivals, at 8.7 percent. The reinvestment included marketing expenditures.
By analogy, we believe that a significant part of MDM Market Leaders’ success is derived from their marketing capabilities. For other distributors, the marketing imperative has two implications:
- In less competitive sectors, investing in multi-channel marketing can mean the difference between thriving and leading versus following.
- In competitive markets, e.g. electronics, where the leaders already have well-honed multi-channel offerings, aggressive and skilled use of multi-channel marketing is, quite possibly, necessary for survival.
As part of our research, Real Results Marketing is continuing to benchmark distributor marketing practices. In Part 2 of the Distributor Marketing Imperative we will take a close look at the different marketing vehicles employed by distributors.
Jonathan Bein, Ph.D. is a senior partner at Real Results Marketing. Rob Kelley, CFA, is a partner at Real Results Marketing. Contact them at email@example.com or visit www.realresultsmarketing.com.
About This Marketing Study
This research was conducted by Real Results Marketing in conjunction with Modern Distribution Management. The research performed included interviews with nearly 20 distributor senior executives and an online survey taken by 175 participants across a variety of distribution sectors.
There was heavier participation from industrial, electrical/electronics, building, safety, HVACR and plumbing sectors. Other participating sectors include chemicals and plastics, pulp and paper, janitorial, hardware, oil and gas, grocery, and pharmaceutical.
Nearly half of the participants have fewer than 10 stores. Nine percent are not branch-based, 27 percent had 10 to 100 stores, and 12 percent have more than 100 stores. Forty-four percent are small distributors, less than $50M revenue, 38 percent mid-market with $50 million to $500 million revenue, and 18 percent large with more than $500 million revenue.