Focus on Technology: Understanding new market realities
Today, dramatic changes are underway in terms of how business-to-business products go to market. The key challenge for wholesalers is to understand the forces creating these new dynamics and include them in plans that will drive business results.
Finding opportunity in times of change and uncertainty is a realistic and attainable goal. The wholesaler can achieve this goal if he understands the new realities in the market, examines the changes in market models that these new realities are causing, and then analyzes business models and manufacturer relationships within this context.
New realitiesTraditional market models are, no doubt, changing. Customer tyranny is driving market change. Customers are not only expecting, they are demanding those features and benefits they value. Today's customers place a high value on innovation, choice and information. Customers are more educated and expect great service and convenience.
In the new market model, customers are demanding choice, value and seamlessness. And channels are competing on efficiencies such as specialization, scale and critical mass. New roles, partners and economics are in store for manufacturers and distributors.
Just as product breakthroughs are brought on by the convergence of multiple new technologies, market transformation is made possible by enabling trends and technologies. Enabling trends today include e-commerce, information technology solutions, new logistics alternatives, supply chain management and consolidation. Recent market developments illustrating these trends include:
These new market realities are challenging every aspect of the wholesaler's business. New competitors are challenging traditional roles. New fulfillment options are challenging the value of local inventory and the role of the local branch. And potential new revenue streams are forcing the wholesaler to re-examine its business model.
New wholesaler business modelsChannel restructuring will lead to the optimization of new roles, new partners and new economics. Distributors will go through a process of "reintermediation." This will occur through migration of the business model, the logical step for any wholesaler losing clarity of role and market share. The primary migration options available to the wholesaler are logistics-oriented or service-oriented.
The voice of the customer is the most compelling point in validating a business model migration path. Different customer segments prefer different value propositions. An attractive business model is one that is aligned with current and target customers. Logistics-oriented business models offer customers a more attractive cost proposition, along with efficiency, convenience and order fulfillment. Services-oriented models, on the other hand, give customers the benefit of a more attractive support package, with the features of effectiveness, support and order creation.
In logistics-oriented models, capital is the key resource, representing a financial challenge for many smaller wholesalers. Larger distributors may grow this function through acquisition or expansion, thereby attaining scale requirements. A logistics specialist must be able to execute quickly, effectively and efficiently. Logistics requires state- of-the-art warehousing and distribution through a high investment in technology and seamless links with partners.
In service-business models, expertise is the key resource. Success requires differentiation in customer relationships delivered by committed, long-term employees. The services-oriented distributor is unlikely to compete on price. A service strategy begins close to home, targeting existing customers, suppliers or both. Identify services the customer will value and be willing to pay for. Robust offerings assemble data, demonstrate cost reductions and cement relationships.
Two potential business model migrations have been introduced above. But finding a path forward requires wholesalers to know what businesses they are in today and stretch to consider the business they might be in tomorrow. Armed with crucial information, the future of your branch will come into clearer focus. But before you choose a migration path, you must develop some critical understandings of your business - your cost structure and your competencies.
No wholesaler can migrate its business model for the new economy without a true understanding of its cost structure. Understanding cost structures means analyzing your P & L and balance sheet costs; large accounts vs. smaller accounts; post-sale activities; product-line breakdown; and sales support vs. product support.
By understanding the current competencies of your business - including manufacturer relationships and product offerings - you will begin to identify a migration path that your business can support. But also key is your ability to build the desired business model. This will hinge on customer support of the new model, as well as your resource capabilities and your manufacturer relationships.
New partnershipsWholesale distributors should place a premium on manufacturer partnerships. Selecting the right partners will be critical to business survival. Manufacturers and distributors will be forced to place big bets, aligning with partners who share goals and capabilities in the new market structure. These manufacturers and distributors should focus on more integrated planning, a clearer definition of goals and responsibilities and making mutual investments. Successful distributors will align themselves with manufacturers who can support the reality of the wholesaler's business model transformation and be prepared for inevitable change and opportunity.
The first steps for wholesale distributors considering a shift in business roles is to understand new market realities, market models and new competencies required for success.
You no longer have the option of ignoring business model migration. In fact, today, experimentation is giving way to planning and discovery, often yielding real business gains. We call the fundamental shift we are seeing in relationships, business models and results "market model transformation." In our next column, we'll discuss how you can apply this new thinking to your business.