Unpacking Distribution’s Digital Transformation Inflection Point

• Going digital isn’t as easy as building an e-commerce site and watching the online sales roll in.
•  Distributors are faced with new considerations around their digital capabilities.
•  These include the traditional sales role, the advent of marketplaces and the complexity of pricing.

The term “digital transformation” has been bandied about, but what exactly does it mean for distributors? What specific challenges do they need to overcome? And where should a company’s leadership team look to transform their business while cutting out the noise surrounding all things digital?

Andy Hoar, CEO, Paradigm B2B, and Brian Beck, CEO and adviser, BECK Ecommerce, began to answer those questions at MDM’s recent Digital Distributor Summit. They spoke with MDM CEO Tom Gale about some of the hard truths that distributors need to know as the economy slowly emerges from COVID-19.

The bottom line is that the old way of doing things will no longer work. But should distributors fully pivot to e-commerce and marketplaces and other digital tools that customers expect in their B2C lives and now expect as a B2B buyer?

Hoar and Beck outlined the challenges distributors face with certain elements of digital transformation and where they should be directing their efforts.

Intro to digital transformation

Hoar and Beck regularly invite distributors onto a webinar program to discuss various hot topics happening across the space today. And in the events to date, audience members and panelists have resoundingly agreed that technology has been radically transforming the industry since COVID-19 began ravaging the economy.

“That’s code for what happened during the pandemic was not just a minor change; it was a major change, and I think people are still digesting the change,” Hoar said. “There are a lot of companies that still think the old way of doing things is acceptable because they’ve always done it that way.

“What we’ve learned in the last 18 months is your customers think differently about that.”

Don’t expect that trend of denial to change, Hoar and Beck argue. But the companies that don’t hop on board the transformation train are bound to be left far behind.

“People are taking advantage of the opportunity for this digital transformation and waking up to the fact that it is the time to act,” Beck said. “If a pandemic doesn’t wake folks up, I don’t know what will.”

The changing role of sales

If the pandemic has taught distributors anything, it’s that “loyalty has been challenged,” Beck said. And that shifting loyalty has again raised the question of the importance of a distributor’s field sales operation.

“During the pandemic, 50% of buyers were buying from companies they had never bought from before the world changed,” Beck said. “There’s still a role for the physical sales team, but the role has changed. Ultimately, I think the sales team is alive and well and will, in fact, in some ways be a competitive differentiator.”

Hoar, who once wrote a paper on the “death of the B2B salesman,” now believes that his assessment was wrong — but “on the conservative side.” In other words, he wasn’t being alarmist enough about the changing role of B2B sales.

“There’s been more displacement of B2B sales and the function of the B2B salesperson in the last five years than anybody anticipated, and the pandemic accelerated it,” he said.

According to a McKinsey report, “two-thirds of B2B buyers said they want remote interactions or digital self-service. That number increased dramatically in the last year.

“Despite the term ‘death,’ we’re not going to see the death of B2B salespeople. It’s the death of the traditional role of the salesperson and I think too many salespeople, even today, are order takers. I know they don’t like to hear that. But if you’re just punching an order in the system or taking something over the phone and putting it into a computer program, you’re not adding value.

“The people who are adding value are those who are more consultative. Sadly, that requires a more qualified, more well-trained sales rep. And for those people, they’re doing exceedingly well.”

Beck, however, argued that the pandemic has heightened the need for salespeople because of one key, painful reality that everyone faced during the social distancing and quarantining measures of the past year and a half.

“As we’re coming out of a pandemic, people crave human contact,” he said. “I believe there’s a very significant role for the sales team going forward, particularly in more complex cases. Sales roles that are physical sales can be a differentiator now, more so than it was in the past because people are craving that human contact.

“At the end of the day, this is a significant role, but it’s evolving. While I do agree that the consultative sales role is going to become more elevated, there’s still going to be a role for that human being in the sales process enabled by digital tools.”

Primer on marketplaces

One of the most intriguing yet confusing digital tools out there for distributors is the marketplace — either selling on a third-party platform or selling and allowing other businesses to sell on a company-owned platform. And the industry remains fairly split on this idea, Hoar and Beck said.

The idea of creating a marketplace where others can sell their products to your customers (e.g., Amazon Business) is one that Beck said has some merit in the distribution space.

“I think there’s a real opportunity for distributors to pursue this model,” Beck said. “However, it’s something that takes time, because there’s a lot of complexity to the marketplace model, which is very different even from traditional e-commerce. You have to manage fulfillment. You have to manage sellers. It’s a different level of expertise required. In my opinion, even though it requires a crawl-walk-run into the marketplace model, I think it can be a game-changer for specific types of businesses and distributors, in particular.”

Hoar disputed Beck’s claim, stating that it’s first important to look at what’s causing the demand for marketplaces among distributors.

“There’s a fundamental reason why people like marketplaces — and by people, I mean buyers — and it’s selection and transparency,” Hoar said.

“If you’re not going to participate in a marketplace or have a marketplace, you need to acknowledge that selection and transparency aren’t going away. This is like gravity; you can’t just wish it doesn’t exist, and it doesn’t exist,” Hoar added. “If you’re a company evaluating a marketplace, don’t stick your head in the ground. Look at your own market and decide whether there’s a need and a demand for that. At the end of the day, what matters is not what the seller thinks, but what the buyer thinks.”

Pricing considerations

Pricing is at the heart of anything that a distributor does for its customers, whether that’s transforming its sales rep model or launching a marketplace.

But how do you optimize pricing in a changing environment where customers can click onto Amazon Business, another marketplace or a competitor and not just more easily find the price but also see a lower price for whatever SKU they’re seeking? Does that mean adding pricing software or continuing to have actual people on your team handle it?

“I think we’re seeing a revolution in pricing,” Hoar said. “It’s not as though people aren’t using technology to enhance their ability to do pricing. If you’re using a spreadsheet, you’re using technology.

“The question is, is a spreadsheet good enough? Or do you need to be using something a lot more sophisticated, like maybe artificial intelligence or behavioral patterns or dynamic pricing? I believe that the dynamic pricing component here is being underdone.”

Specifically, he added, that means using a pricing software, which can bring more data into the equation and perform pricing functions more quickly. “And in distribution, in particular, the margins are thin,” Hoar added. “Basis points make the difference between surviving and thriving.”

Beck countered with the fact that humans bring subtlety into a pricing conversation.

“Machines can’t pick up on subtleties,” Beck said. “There’s no situational awareness. I’ll concede that the machine can be better based on a series of parameters, like in airlines and other things. And sure, there’s some pricing optimization available there. But ultimately, I think the salesperson sitting with the customer or over the phone, or digitally enabled through Zoom, is going to do a better job picking up on those subtleties and making changes and accommodating the customer to get them to close.

“That’s what this is about. It’s about driving business and meeting the customer’s needs.”