Deep Dive: Manufacturer channel strategies for the digital age
What role will manufacturers play in shaping the future of distribution? Can channel strategies transform to encourage, support, and invest in cutting edge innovations by distributors?
As the new year has kicked into gear, I’ve been working on manufacturer channel strategies from several perspectives. I’ve just launched an initiative with a distributor trade association to explore the future of supplier go-to-market options for the digital age. I brainstormed channel incentives with a manufacturer, taking a thoughtful look at agent roles and incentives. I listened to a presentation on high-powered uses of customer journey mapping given revolutionary shifting B2B customer preferences with a mastermind group of manufacturers. I’ve worked with two manufacturers to revisit values and processes as a precursor to technology-enabled customer experiences. I’ve explored opportunities for distributors to deploy their people to work side-by-side with customers, on the job, every day—and then worked backward to think about how manufacturers should adjust their channel strategies. All of this is important because manufacturers are part of the future of distribution. Manufacturers perform distribution activities on their own and through distributors, platforms, fintech startups, logistics firms, and more. Manufacturers have new choices, and as they make decisions, they will open new possibilities for distributors, reinventing the manufacturer/distributor partnership and reshaping how markets work. In this edition, I step back, consider several trends I’ve explored in previous newsletters, and offer three perspectives on manufacturer channel strategies. My ideas are not conclusive, but I hope to open a conversation and add a new thread for future newsletters about the intersection of channel strategy, B2B innovation, and the future of distribution.
Demand centers put customers in charge of channels
Last week’s Quick Take examined demand centers as a revolutionary approach for integrating artificial and human intelligence to deploy marketing messages and direct sales activities. Demand centers optimize customer touchpoints, making every interaction memorable. They create value for customers by integrating a distributor or manufacturer’s human and digital resources to “be there” when helpful for customers. Demand centers respond to customer behaviors and sometimes predict them. They are a smart method for serving customers. Customers need not ask for help, so demand centers are not “on demand,” but are instead “when helpful.” In this way, demand centers collaborate with customers and integrate with their customer journey.
From a channel strategy perspective, demand centers are revolutionary because they fundamentally change marketing and sales execution. As I explored in Distribution Leans In, the age of the self-directed sales force is ending. So is the era of preplanned marketing programs. Demand centers are an essential capability for this new reality. Traditional channel strategies identify a problem to be solved or a goal to be achieved, select the right type and number of channel resources to cover targeted customers, and add channel programs and incentives to direct channel activities. In this way, traditional channel strategies are all about control. They start with the need for a manufacturer to drive growth and put control mechanisms in place to ensure success. Demand centers put customers in control.
Intentional communications unlock channel change
Achieving market coverage is a fundamental design element at the heart of most channel strategies. So are compensation systems to direct and reward activities, and both are essential for coordinating with partners. But as new methods for achieving coverage emerge, channel compensation programs must shift to reward new channel roles. Long-standing practices that once coordinated channel activities with partners become barriers to change, but not all at once. The best channel strategies ensure return on partnering in the present as they nudge partners toward doing business differently in the future.
In channel strategy, change starts with communication. Channel leaders may foster conversations about old and new methods by offering ideas and working definitions, asking for input long before fundamental shifts are made. With this in mind, my recent article for Market Edge offered two examples for the future of channel coverage and compensation to help kickstart conversations:
Coverage and proximity. Channel coverage is about achieving the correct number and type of channels to intercept customer opportunities and create sales. Coverage is about salespeople and inventory. Proximity is the use of technology to drive the production and provision of services and products closer to the moment of demand. Proximity is about systems and predictive analytics. When combined, coverage and proximity can build extreme levels of effectiveness and efficiency.
Compensation and collaboration. Channel strategies leverage discounts, rebates, marketing funds, and payment terms as compensation to drive behaviors. In an environment where producers and intermediaries are evolving their business models, collaboration creates partnerships for the future. Existing channel compensation plans often do more to lock in past practices than to find new opportunities for mutual success. Both are needed moving forward, but collaboration is more critical for navigating a well-planned transition.
Invest in distributor leadership
Manufacturer channel strategies assume that a “primacy of products” determines how value chains operate to create customer value. Manufacturers invent and produce products, and distribution activities add value to products and deliver them to customers. Direct distribution—meaning distribution performed by manufacturers—adds value around deep product knowledge and, when demanded by customers, provides products customized for unique applications. As performed by distributors, indirect distribution creates value by offering a portfolio of complementary products for a total customer solution. Manufacturers offer incremental incentives for distributors in the form of discounts and rebates designed to encourage distributors to stock up on product inventory, market products, and follow-through by selling products to customers. In every way imaginable, manufacturers view products as distribution’s raison d'etre—products are the reason that distribution exists.
Channel mindsets are shifting. Attitudes that assume the primacy of products are an immense problem for manufacturer channel strategies. New channels emerge by creating new solutions for old problems and giving power to customers. Business customers force change by embracing new methods when they find them beneficial. Distributors know this. It’s why they are reinventing themselves not to represent a line card of manufacturer products, but instead to offer a portfolio of customer experiences. Customers love this shift because it gives them power. Customers can demand better products from manufacturers and better experiences from distributors. Distributors are charging ahead, leading, and becoming radical intermediaries.
Manufacturers cannot prevent distribution’s evolution toward customer experiences and away from the primacy of products. A better strategy is to find distributors with the best and boldest B2B innovations and embrace them as top-tier partners. More than that, manufacturers may repurpose market development funds to co-invest in breakthrough customer experiences, undoing functional compensation programs designed to push products. Sometimes, channel strategies based on the adage that “if you can’t beat them, join them” are not a resignation but a reinvention.
To put distributor leadership in context, consider my discussion of demand centers (above) as a state-of-the-art methodology, then pay attention to one leading distributor’s innovations as told in Distribution Leans In:
The age of the self-directed sales force is coming to an end. … The need to take conversations virtual has blown up the belief system that face-to-face calls are necessary. One of our suppliers wants us to put more feet on the street, but that’s a 1970s model. We connect through newsletters, targeted email campaigns, white papers, content on our website, and more. Customers want information at their fingertips when they decide to solve a problem. Our digital embrace creates leads that lead to quotes. Every step is an opportunity to start a live conversation, and we task our salespeople with qualifying leads, following up on quotes, and more. It’s not self-directed.
This innovative distributor did not use the term demand center but embraced demand center goals and methods and changed its business model to create new customer experiences. Manufacturers are masters of product invention but must partner with distributors as inventors of customer experiences. Manufacturers must update their channel strategies to embrace new and emerging distributor roles, shift channel compensation to invest in change, and reinvent how value chains create value for customers.
Join our community by asking questions
Again, my goal for this newsletter is to speak directly to manufacturers about reinventing their channel strategies. This newsletter is a place for conversations about change. In the past, many of my examples have focused on distributors because they are distribution, but through their distribution activities, manufacturers are distributors too. The future of distribution will sometimes place manufacturers in competition with distributors. But neither party—manufacturer or distributor—can defeat or eliminate the other. The future of distribution is a new partnership based on new collaborations and integrations to create unique and game-changing value for customers.
I offer two questions for manufacturers with references to my most consequential newsletter editions. I encourage manufacturers to embrace these questions, answer them, and if you need help, ask your most innovative distributor to join your deliberations:
How can distributors create network effects to benefit shared customers? As explored in this edition and this one, network efforts are about customers creating value for other customers on technology platforms. Distributors serve communities of customers, defined not just by geographic location but by shared business opportunities, interests, and challenges. Still, network effects are considered the province of technology-based platforms, and distributors struggle to translate the concept to their customer base. The proof is in the pudding. One test of network effects is the ability of a customer to leave one platform and get the same benefits at another. Distributors fight this challenge by offering product support and brand exclusivity. Going forward, distributors must find network effects based on experiences, not products.
What do you want from “local” distribution in the digital age? Manufacturers needed distributors for local knowledge, inventory, and customer relationships in decades past. Distributors remain local businesses, operating as local branches even as they develop state-of-the-art e-commerce platforms enabled by artificial intelligence. Manufacturers are also investing in digital technologies, often in the pursuit of disintermediating distributors and assuming direct responsibility for serving customers. This is a mistake because, in the end, business is about doing business as humans for humans. Just as the pandemic has forced employers to consider the balance of work done by employees in physical locations and online through virtual platforms, so must manufacturers and distributors achieve a balance of work done for customers in the virtual world and the real world. I’ve written about reinventing “what it means to be local in the digital age” in the context of localness and innovating B2B’s physical stores here, here, here, here, and here.
Doubtless, many other newsletter editions can help turbocharge manufacturer channel strategies and create a new dialogue between manufacturers and distributors. I will ask more questions and offer them in future editions. I encourage all readers to do the same. As always, please share your comments, ideas, experiences, and direction below. Don’t be a stranger. Click here to schedule a call or send me a note at firstname.lastname@example.org