You can’t throw a rock or open a browser window these days without hitting more Amazon Business hype. It’s enough to make many in the electrical distribution trade want to throw a rock through their browser window.
Last year, Amazon Business hit $10 billion in sales, about $600 million of which came from electrical products. The B2B trades continue to report that it's only growing in power and will be bigger than retail or cloud in a few short years.
Good for them. But if you’re a traditional distributor of electrical products, your future is bright as well, given you take advantage of the critical inflection points that are upon us today. The biggest opportunity for growth lies in a reimagined pricing approach.
Why? Well, look at the threats: There are Amazon, Alibaba and myriad other marketplaces to compete against; trade wars and tariffs to navigate; global and regional markets to monitor; raw materials costs that rise and fall, but mostly rise. Price is impacted by each of these triggers, and when managed dynamically, it can become your competitive differentiator – the most powerful lever available for driving more margin and winning more sales.
With a new decade quickly approaching during market uncertainty and panicked headlines, margin growth and market share are rightly top of mind.
Modern Distribution Management (MDM) recently revised its 2019 and 2020 outlook for the wholesale distribution industry at large. While this chart looks rough, it actually projects some good news overall in 2020.
Figure 1: Modern Distribution Management Forecast, Revised Aug 2019
The distribution sector is projecting just under 1 percent growth in 2019, a worrisome 6 percent dip from last year. However, MDM is now forecasting a 4.1 percent rebound in 2020. For electrical, a rise of 2.4 percent next year is called for after a -10.8 percent projection in 2019. Of course, this could all change – up or down – in a month. The key to remember, as Mike Marks noted in MDM’s latest webinar:
“One of the things that I find is when everybody’s sitting around talking about the market softening, a lot of people want to just crawl back in their shell and be a turtle. But that just makes you a target.”
For electrical products distributors that are in a daily fight for wallet share with online marketplaces like Amazon and Alibaba, there is certainly no time to be a turtle.
Rather than passively reacting to forces like eCommerce and the always unpredictable market, the smart move is to innovate and execute today, while locking in a plan for the future. As mentioned above, price transformation carries unmatched margin opportunity, but modern pricing is complex. It takes processes, technology and strategy to get the right price to the right customer at the right time and on the right channel.
Here are three strategies that leaders of electrical products distribution companies should consider implementing in 2020:
Strategy No. 1: Reimagine Pricing
You don’t need us to tell you the distribution world has changed. Amazon Business is pulling in over $10 billion in 2019 without carrying a single field sales rep. Success in the modern B2B market requires a rethinking of time-worn practices, such as cost-plus pricing or the Wild West-style of spot negotiating that has gone unchecked for years. Use the wealth of transactional data – and it doesn’t have to be in perfect condition – which is a treasure trove of information to fuel a reimagined approach to:
- Price setting and management. Take a closer look at how pricing software can produce market-relevant system prices, intelligently assign customers and products to the right levels, and “smooth out pricing” within product groups.
- Customer price management. Provide visibility and a simple way to mass update customer-specific pricing, or prompt sales reps to update their customer’s pricing outside of the ERP system.
- Cost changes. Respond quickly and accurately when suppliers change your costs, with price management tools. Strategically pass-through cost changes, understand the impact to your business, and seamlessly publish prices back to your ERP, eCommerce or quoting system.
- Online customer experience. Feed real-time market pricing and cross-sell recommendations into your eCommerce platform so that every customer sees relevant prices based on their price profile or previously agreed upon customer price, as well as tailored recommendations based on what’s in their cart.
Strategy No. 2: Be a Technology Innovator
You’re not going to out-Amazon Amazon. Nor should you try. Many electrical distributors have been at this a long time; they’ve weathered threats from Home Depot and Lowe’s years ago and came out the other side with head held high. Those that did survive the big box retail boom and continue to thrive to this day did so largely by innovating within their means and as customers demanded. In 2019, the tech has changed, but the customer-centric principles haven’t.
B2B buyers expect faster service, hassle-free and fairly priced. The opportunity is ripe to meet these needs and become a technology leader in the traditional electrical distribution space. You can bolster your own value-added services by adopting best-of-breed pricing technology.
What does this mean? The best pricing optimization and management solutions blend data science with software tools and are designed to solve specific problems that exist in your business. By applying technology to relevant in-house or other data sources and fine-tuning with the guidance of internal pricing and costing experts, the issues of scale and speed in responding to external forces are mitigated. The technology to achieve this and to take control of margin leakage exists today. Choose a partner that knows the electrical industry. One that can bring the right mix of insights to your customer price profiles and tools to manage system prices and streamline customer price management.
Strategy No. 3: Relentlessly Add Value
Value-added services are the lifeblood of a traditional electrical distributor. If customers’ sole motivation was getting the lowest price, a lot of us would be in trouble. Buyers want to source through companies that understand their pain points and the unique dynamics of their business. A builder who needs wiring and circuit breakers for an entire master-planned community needs more than a pallet of the stuff delivered to the job site. They’ve got enough to worry about. A distributor that can price the materials right, deliver on time and then perform tasks like cable-cutting, installation, on-site training and a host of other in-demand services is one worth paying a premium to.
While Amazon can offer speedy delivery or personalized recommendations, they can’t do most of the things you’ve built your reputation on. Double down on your moats (hard-to-copy services) and when it comes to selling those services, be sure to apply the same pricing rigor that you would to your products.