Disrupted Disintermediation
Introduction to SignalsFromTheOP
Transcript follows
Hi I'm Ed Marsh, welcome to this episode of Signals from the OP, where we talk about issues that I think are of strategic importance to industrial manufacturers and their revenue growth.
Today we're going to ask the question, what's the role of indirect B2B sales channel in this world that we're in, where buying behaviors have changed and the internet seems to control everything.
There was a time in the industrial space where sales channel was critical to getting deals done. It was the feet on the street, it was the local relationships, it was the forward warehouse that could supply material quickly. It was the option for technical support, it was local support. It was all those kinds of things, that started really as an adjunct to the manufacturer, in creating business and managing relationships and cultivating those relationships in ongoing business etc.
As the internet grew obviously it was something that began to be questioned, and there was a lot of discussion, there still is a lot of discussion about disintermediation, taking the middle man out of the deal. So the question becomes really, if logistics allows you to deal with the geographic operation and information on the internet allows you to deal with the information access, then what's the role of relationships in a world where buyers are 70% of the way through their buying journey before they want to talk to somebody. Therefore what's the role of B2B sales channel?
So all the talk about disintermediation - a concept which I fully subscribed to myself for some time. Travel agents are an example that people use. It used to be if I wanted to book a flight you'd call a travel agent. Now of course unless you want to do something like a honeymoon or a special kind of vacation, or unless it's a corporation that has very specific travel management and cost, and duty of care, sorts of considerations that they engage a travel agent to manage for them, we just go to a website. Often go to the airline website and book a flightor maybe we go through a middle man with a platform like Expedia, but clearly that's disrupted.
Another example is Tesla, very different kind of a situation, very different kind of a product. One where you think that relationship availability, support, etc is critically important. But of course what they've done is they've changed the nature of the support that's required. It's now kind of built into the product, its automatic updates and stuff like that. In fact Tesla has disrupted a very well established middle man, auto dealers. It's such a threat that Tesla subject to a lot of lawsuits right now by auto dealers and auto dealer associations. That are trying to say, "No, you can't sell directly." So it's kind of an odd situation that's going on - and certainly one that's built just on their selfish needs not necessarily buyer wants.
At the same time lets talk about platforms, Grainger is obviously a great place to access a wide range of stuff, and completely a middle man. They may have some private label product but for simple things like MRL and routine kind of maintenance supplies in the industrial world, that platform can work really well. A ton of options, find what you need, do it where you've got a consolidated account. They've got systems like Amazon B2B through which you can have supervisory approval. Somebody can submit their cart, what they want, somebody else has to sign off, and somebody has to create the purchase order. So there's a lot of business efficiency in that sort of a relationship, with that middle man if you will, with that B2B sales channel managed through an ecommerce platform that's creating a lot of the value.
In fact Grainger expects I think to sell 80% of their products, B2B by 2020, and they're growing. So it's 80% of a bigger piece of aggregate business. Clearly that model's working for them. So it doesn't work in some places, it does work in some places - what's going on? Where's the issue? Well in cases where there's full price transparency, and in cases where there's ubiquity of information, then the criteria becomes somewhat different than they used to be.
Expertise I would argue, or value, are no longer defined by the role the way they used to be. So the factory used to have certain roles and value, distribution used to have certain roles and value, reps used to have certain roles and value.
Today's reps in many cases are relationships that have been in place with some of the customers and the manufacturers, and the reps for years. In many cases the leaders of those three organizations are all peers, they may be 70 now, they may have started in business together, doing business for 35 or 40 years. So there's years and years of personal friendships, there's a lot of loyalty. But that's diminishing, a lot of those rep firms are kind of petering out, there isn't a second generation coming along behind you. There's not the same kind of environment that lets them to develop the relationships the way they had before.
So who's creating value and what's the value that buyers want? The key thing is that buyers are dictating it, it's not something that the manufacturer can dictate. It's not something that the distributor can dictate. Buyers are dictating it and one of the statistics that I've mentioned before is that 74% of the time buyers say that they ultimately select a vendor the first to provide a value. Now value is not a line card, value is the ability to kind of understand a business challenge, break it down, articulate it, define it, quantify it. Explore possible solutions, suggest some alternatives etc, that's value.
Value is not a line card!
If we were to kind of put into a two by two matrix, I think we end up with something like this, where we've got relationship on one axis, which can range from transactional or vendor, or kind of a simple sort of relationship to a trusted advisor.
We've got the nature of transaction on the other axis, which can range from routine to critical. That can be reflected in how quickly product or delivery is needed? What range of options people expect? How critical the best price is? There's a lot of different kinds of factors. But if you figure out where you want to be, a lot of traditional distribution and rep work happens here. If you're not creating produce, if you're not suggesting, if you're not making somebodies business better. If you're handing out line cards and waiting for somebody to call and say, "Oh by the way I need one of these, can you help me?" Then it's just a matter of kind of a transactional relationship and it's fairly routine. That's not a great place to be.
If you're selling routine product to somebody who says, "You've done a really good job for me in other stuff, this isn't so critical but because you've taken care of me I'm going to let you have this piece of business." Maybe you start to come over here, or maybe you're somewhere in the middle. Obviously there's more value, there's more importance with critical transactions. So in this sector you could have for instance companies that absolutely have to have something delivered very quickly, but it's transactional, so maybe that's just done by going on the web and finding somebody that can FedEx it to them, or overnight it to them.
This is obviously where the sweet spot it, and for many I think the assumption was that manufacturers were going to fill that role. Many manufacturers have failed to see is where they could have establish digital supremacy and they could have a product road map that was really looking for opportunities to create products. Even product as a service models (PaaS), and recruiting revenue streams and building on data, and other sorts of models that will speak to the way buyers are becoming increasingly accustomed to buying products as consumers. That really defines the way we start to think about how we make our business acquisitions or business purchasing decisions. We have a lifestyle and expectation and experiences that we expect to kind of translate over.
So what's happening, where manufacturers could have done that, in many cases they haven't. Now in many cases distributors haven't either, and reps haven't either. Grainger has built a platform obviously that's positioned them very well to do it. Tesla is building direct relationships with people, and they've built it based on technology and a lot around an ecosystem. But in many industries nobodies staked out this territory here yet.
So it's really kind of wide open, and it's wide open for whoever starts addressing the product questions from technical and business perspectives, as well as who establishes the thought leadership, the digital supremacy if you will that kind of owns that area, thinks about it and talks about it.
Manufacturers in many cases are putting IOT sensors on their machines, but then it's up to somebody else to figure out what to do with them. Distributors could well take those machines with the IOT sensors, understand what the value of the data is, begin to offer monitoring services and warnings, and triggers and remote management. All kinds of things with it, so delivering better value to the buyer, as well as aggregating data that then they can turn around and monetize in other ways for other revenue streams later on.
A rep agency could become the thought leader on something and actually control the way the market thinks about buying it. No, it's not going to happen overnight, it's going to take some work. It takes digital savvy, it takes content, it takes definitely a deliberate effort. But there's nothing that says that only a manufacturer can do it.
So again I believe that it's yet to shake out many industries, it's not a foregone conclusion that indirect B2B sales channel goes away, and it's not a foregone conclusion that the manufacturer wins out in this. Because I've seen in many cases, many companies, even well established traditional brands that are very highly thought of in their industries, that fail to really understand what they need to be doing. Or are unable to kind of move in that direction, because maybe they're so product focused, or so traditional, or so conservative.
The real battle will be won in the marketing automation space, that's where there's some really cool possibility that many people aren't thinking about. So if you're a traditional manufacturer and if you kind of have done a decent job building your digital presence and if you're generating leads, there's this whole question. This traditional friction, distrust or dissatisfaction that exists between manufacturers and sales channel. They don't send us enough leads, they don't follow up when we do, they don't create any new projects. We don't get the support we need, it takes too long to get quotes. The whole thing, you've heard it time and time again.
So what if marketing automation could be used, I mean I shouldn't say what if, it can be used, it rarely is, almost never. But using marketing automation to for instance discern, intuit from a prospects behaviors, interactions on website or with content. What their issues are, what they're concerned about, what their inclinations are, perhaps even what their buying timetable is. Who else from the company has looked at stuff. When you send a lead to a distributor or a rep, include that information. But go a step further, kind of coach them based on what we've seen, based on what we know we believe this is what's going on, and therefore we recommend you ask these questions and here's resources that we suggest, even templates for E-mails, or sales enablement content. Or videos or whatever, that we suggest that you include, or incorporate, or perhaps even here's a suggestion of some drip follow up that you would have.
Build a work flow that not only provides that information proactively, but provides reminders, asks for feedback, and even really importantly help out if that lead that you had sent to the distributor, you were to send a text message to the distributor sales rep when that lead came back to your website. Wouldn't that begin to foster some real collaboration in what's kind of a dysfunctional and distrustful relationship? So now you're using the tools that threatened to shatter the sales channel to actually strengthen it, and create very unique approaches that would establish a manufacturer in this case with a very great deal of value to the distributor, to the rep. Even you can incorporate the end user into it, in savvy ways with that kind of work flow.
So you've built this three legged stool of collaboration and value that would further distinguish you from all your competitors. Not only because you've got better products and better services, and less table stakes. But because you're supporting that buying journey and delivering more value and not expecting people to tell the same story and explain everything three times or so many new calls. The kind of stuff that just frustrates the heck out of people.
Another word of warning, I would say that if you still use the term line card, if you toss around line cards. If you leave them behind at meetings, if you have one on your website, I worry for you.
If that's your approach to selling you're really in trouble. If you want something, if you kind of feel this reflexive need to have something, if it's not a white paper or a guide or something that's really helpful, going to help somebody to understand how to do their job better. At least if you want a classic line card, make it a line card of the business problems that you solve. The kind of results that you've delivered. Don't make it a line card about products and services. The products mean nothing to somebody until they need it, and then it's only 3% of the time.
You could help the 97% of the time, if you gave them a line card of the kinds of business problems that you solve, and ideas on how they can improve their business. So that they could take proactive ideas into their staff meetings and be heroes in their organization.
So the answer to the question, "What's the role of indirect B2B sales channel in today's internet driven, buyer makes the rules kind of world?"
I think it's being written on a number of different cases by companies. I think it's wide open, I don't think it's a fait accompli as many assumed that it is. I think that the bright, creative, intelligent, and driven companies that are able to think forward and think creative ways of how to use tools, are going to own the channel regardless of whether they're in traditional manufacturing, distribution or reps sort of a role.
If you enjoy this kind of challenging, or maybe contrarian approach, or perspective on some of these large issues that many industrial manufacturers are wrestling with at a strategic level. I'd encourage you to subscribe to my Signals from the OP, periodic videos where I tackle these kinds of issues. You can subscribe at signalsfromtheop.com
So again, I'm Ed Marsh, and thanks very much for joining me. Hope you enjoyed it and hope to see you next time.
