There’s been a spate of recent studies regarding the “value” the distributor brings to the distributor/manufacturer relationship. Often, studies of this type are brought forth not so much as critical research on the changing of the value proposition in the end customer’s eyes but more as a declaration from wholesalers to their vendors. The intent is to remind vendors what wholesalers do for them and there is often scant research on the end customer.
I seem to find the timing on these surveys follows some unpopular or new move by large vendors that challenges the traditional channel served by wholesalers. My suspicion is that vendors are plenty nervous about the challenges to the traditional channel by e-commerce superstars such as Amazon Supply, Grainger, MSC Industrial and others. They’ve made changes in their distribution policy to accommodate or further compensate those good in e-commerce while leaving firms less accomplished in the e-space to fret and draw up studies about how much value they bring to the channel — with value being defined by “what we did for you yesterday and the day before. . .”
Our research in the digitization of distribution channels finds that manufacturers have plenty to be worried about. Furthermore, the changes in channel policy are mild compared to what’s around the corner based on our forthcoming report in e-commerce in wholesale distribution.[i] Here’s why:
- 20% of wholesalers do 80% of the online wholesale volume in e-commerce
- The MRO market, a surrogate for many product/vertical markets, is expected to be 30% or more of online purchases by 2020.
- Non-traditional wholesalers including Amazon Supply and Home Depot, along with Grainger and MSC Industrial are eating into the traditional wholesale space and there is little to stop them.
- For the 80% of wholesalers who do little online, 74% do less than 5% of their annual volume online. They often have first generation systems that are antiquated and don’t offer modern software and functionality including procurement punchout and PIM systems.
- The capital spend for a modern day e-commerce effort is in the millions and many wholesale firms balk and don’t see the return on investment.
- Wholesalers sell 7% of their volume online but end customers purchase 16% of their volume online. (MRO Markets)
Our research interviewed both wholesalers and their customers
If we had surveyed a wholesaler only audience, we would have gotten a 75% probability of respondents who felt that online sales of 5% or less was normal. However, many vendors know different. They can see the growing influence of online purchases from the likes of Amazon Supply, Grainger, etc. They’ve begun to structure their product, pricing, and service offerings to secure their place in the online market. Too, they’re plenty concerned about the looming channel conflict with 80% of the distribution base that can’t seem to crack the e-space.
The preceding is anything but good news but the end customer research bears out the facts and the moves by manufacturer vendors to recognize the e-channel is, for the most part, a rational move to preserve their share of market.
An Example of the Salesmanship of JPEG
My wife and I are empty nesters in a 40-year-old house in Chicago. After the kids trashed the abode and moved out, we are in the mode of sprucing up a few things and this includes the bathrooms and kitchen. I worked in PCHP markets for 20 years before consulting and went online to find a two-handle tub and shower valve with porcelain insert lever handles. This is a traditional look and a few hours on the Internet, looking through a half-dozen sites, found a few “ok” sourcesbut nothing that stood out.
Undaunted, I called a few leading wholesalers and talked to their showroom folks. To my chagrin, I knew more from a few hours on the Internet than they did. Too, after letting these fine folks research what I needed, they came back with the information I previously found on the Internet. In one exchange, I mentioned to the showroom seller that the brand in question, normally of good quality, got one- and two-star ratings as the escutcheons were plastic and either cracked after use or the chrome plating peeled away—Yipes!
The point of the entire exercise is that with a few diligent searches on the Internet, I found out as much or more than experienced salespeople could tell me. I was resident expert and customer in CP two-handle tub and shower valves with lever handles and porcelain inserts. Hence, the salesperson of most value to me was JPEG and some reasonable search terms on Google Chrome. The upshot of the exercise is that I am perfectly confident to find most of what I want online, order it, and have my contractor pick it up and install it—all things we are doing with other fixtures, tile, and vanities. I also get to shop price without leaving my office or talking to a salesperson.
Traditional wholesalers who grew up in a world of value added via personal selling have trouble with the preceding experience and yet, I believe the search just described is quite typical and where many buyers will increasingly end up. Those wholesalers with the most robust product content, parametric search logic, and large database of SKUs are winning in the online world and they will continue to win —
especially on less technical and commodity products that are ordered every day. There’s little reason or need to pay for costly sales assistance for these products — unless you need sales assistance which, with better online information and technology to secure it, is less and less often.
Wholesalers and online sales
Wholesalers who do a minority of their sales online are in the majority — for wholesalers. Surveying them just winds up with the assessment that not much is sold online. If the researchers would survey customers, however, they would likely find what we recently found-only a few wholesalers really do any online volume. But they are succeeding in a big way and have no compunction to share their secrets to success at an association meeting or participate in research that they know will be skewed to those that don’t know they don’t know. A growing number, but not all, of the major vendors are acutely aware of the growth of the e-channel and they know the few wholesalers currently succeeding in the space. They will continue to change their marketing mix and policies to favor growth channels and are not swayed by “value” research on what wholesalers did for them in years past.