Deep Dive: Facing new possibilities for the future of B2B

Can manufacturers, distributors, and other channel partners work together to move the innovation conversation forward?

I’ve launched research for my next book, The Heart, Soul, and Future of Distribution (working title), and will soon reach out to manufacturers to gather their perspectives. This newsletter edition is an introduction to those conversations. As a guiding principle, I offer this: In business, there are products; everything else needed to reach and serve customers is distribution. In a previous newsletter edition, I shared traditional frameworks and assumptions that have guided channel strategy for decades and offered new tools to bring channel strategy into the digital age. But that is not enough. The power and potential of implementing digital technologies go beyond upgrading past processes and policies. As companies gain digital confidence, leaders realize that genuine opportunity lies not in strengthening business models but in reinventing them. In my latest NAW book, Innovate to Dominate: The 12th Edition in the Facing the Forces of Change® Series, I found that while there is a massive body of knowledge around product (and technology) innovation, there is very little around innovating distribution. I hope to bridge that gap. Gathering manufacturers' ideas, experiences, and requirements is essential.

Emerging possibilities for the future of distribution

Manufacturers are implementing digital technologies and becoming digitally confident. As they do so, some are moving toward disintermediating distributor partners (that is, selling around them) or rationalizing their distributor base (prunning partners and working with fewer that remain.) For many manufacturers, these are productive strategies and may lead to financial gains, at least in the short run. But disintermediation and rationalization are about undoing past precedents, not about embracing the emerging future of distribution. Manufacturers might achieve more powerful and longer-lasting gains by adopting the new realities and possibilities of distribution in the digital age. This work is more nuanced and may take longer, but it is less of a knee-jerk reaction.

To help manufacturers get started, I offer seven perspectives from my ongoing investigations into the future of work, learning, society, commerce, and technology, as shared in previous newsletter editions. Everything below is based on facts and experiences, but the future is still uncertain, and I would offer my ideas as hypotheses for discussion:

As a term of business, “distribution” is increasingly untethered from “distributor.” In the past, when speaking of a value chain for physical products, the terms distributor and distribution were used interchangeably. They meant the same thing. Today, the emergence of online marketplace platforms and other new players, including asset-sharing platforms for trucking and warehouse space, as well as data aggregators, robots-as-a-service, and more means that there are a growing number of new players offering complete or partial distribution capabilities and services. Distribution’s possibilities have expanded beyond what distributors traditionally provide. This new language, understood by all, creates opportunities for manufacturers and distributors. Manufacturers may assemble new channels to reach and serve customers. Distributors can expand their business into an expanded understanding of distribution. Words have power, and all market actors should use the terms distribution and distributor with precision. 

Proximity is more important than coverage. Before the dawn of the digital age, achieving optimal coverage of customer purchases through a combination of direct and indirect channels was perhaps the most critical method for achieving share and growth objectives. Insufficient coverage meant too little horsepower. Too much coverage created destructive channel conflict, evidenced by a lack of commitment and cooperation. Excellence in coverage could be a competitive advantage. As every company’s channels increasingly run on data and artificial intelligence, the use of technology to drive the production and provision of products and services ever closer to the moment of demand (termed proximity by Robert Wolcott) is becoming a dominant means for differentiated customer experiences. Online marketplaces control all aspects of serving customers and optimizing proximity. In traditional value chains, suppliers and distributors can strive for proximity independently, but the most potent proximity gains may be achieved through collaboration. Either way, online ordering has expanded customer ordering possibilities and made coverage easier to achieve. At least for now, proximity is a more robust measure of channel performance and competitive advantage. (See this edition for a more thorough discussion of proximity.)

Platforms are too powerful to be left to digital startups. Applico provides actionable knowledge by offering definitions and examples for nine types of platforms. Going further, Applico’s Alex Moazed reports on the leading B2B marketplaces in his MDM  article, Applico’s Top 50 B2B Marketplace Ranking, and another exploring ways to transform an e-commerce site into a marketplace. In my experience, when many digital startups conceive platforms like marketplaces, they design a customer experience aligned with what was once termed convenience buys and fulfilled through catalogs. Savvy B2B leaders may recognize many other customer buying situations (aka, personas), including price shopping, spot buying, replenishment, integrated supply, solutions, customization, projects, and emergencies. If designed from scratch to meet a need other than convenience, a platform’s customer experience would likely be very different than a buy box. Established B2B companies, distributors, and manufacturers may find a competitive advantage against insiders and outsiders by building powerful platforms that capture share for a range of customer needs.

Physical buildings may be essential in the digital age. As reported recently, Amazon is opening retail stores in the real world. From a traditional channel strategy perspective, this move acknowledges that multichannel strategies are required to reach the maximum possible market share. Multiple channels are mandatory to serve more and more customers because no one channel can meet every customer’s needs. In this edition, I explore how B2B companies may apply adjusted retail principles to reinvigorate physical stores. In a nutshell, the path for doing the same for B2B stores is about recognizing that B2B is about enabling work and redesigning physical stores as a place where customers can do their work. As I explored here, innovating physical stores for business customers is about answering several questions:

Can you attract owners, engineers, facility managers, data analysts, social media and marketing pros, finance managers, operations managers, and more? What about new employees, customer teams or working groups, or leadership teams? What about people from organizations that serve your customers or train their employees? Can you include members of your local government, business development organizations, educational institutions, or social organizations as representatives of communities important to your customers

Distributors are becoming front-end businesses. When I started working as a channel strategist more than 30 years ago, distributors played a vital role in understanding local market demand and stocking products to serve local customer needs. Today, distributors are leveraging digital technologies to drive innovation around e-commerce, omnichannel sales models, artificial intelligence (AI), sensors, and advanced analytics to better serve customers and improve sales and margins. This is a fundamental shift from a back-end focus that drove profits by selecting a mix of products and brands, managing earns and turns, and achieving efficient warehouse operations. More and more, distributors create demand (as opposed to serving it) with new go-to-market capabilities that set best-in-class standards for their industry.

Acting for the betterment of trade workers is an emerging opportunity. Traditionally, trade workers and other blue-collar jobs, like truckers, are considered users of products. But today’s twin crises—the COVID-19 pandemic and the disrupted global supply chain—have aggravated the already noticed shortages of these non-office workers and made it more difficult for them to earn a living. B2B companies, including manufacturers, distributors, platforms, and service providers, have noticed and are working toward bettering their lives and work. As I’ve started research for my next book, I’ve highlighted this trend and asked why future of work innovations largely ignore jobs in the trades:

Almost all conversations about a post-pandemic hybrid workforce are about office workers, not trade workers such as welders, electricians, plumbers, and truck drivers. Digital technology seems to be designed by people who work in offices for people who work in offices. Trade workers cannot do their jobs sitting behind a desk, looking at a computer. In the United States, a shortage of truckers is at the center of the current supply chain crisis. Media coverage of truckers and trucking is growing. Still, one wonders if more attention to innovations focused on the future of trade professions could have produced a ready, flexible, and productive driver force. Trade force issues are relevant for distribution because many manufacturers and distributors serve the trades and could be a natural source of innovation and public/private cooperation.

Customer and user experiences are distinctly different and uniquely powerful. When distributors say “customer experience,” they mean the value created for customers through the distributor’s actions and resources. “User experience” refers to the value created for customers as they use products manufactured by suppliers. Both experiences, customer and user, are delivered and optimized by distributors as they work on the front line of serving customers—virtually and in the real world. In my experience, distributors often do not consistently distinguish between their role in delivering customer versus user experiences. User experiences are obscured by the overall effort to optimize customer outcomes. This is unfortunate because by managing and innovating distinct user experiences, over and above customer experiences, distributors create value for suppliers that may lead to direct compensation for strengthening brands, launching new products, collecting insights and data, and more. Suppliers may benefit by demanding user experience plans, setting goals, and measuring performance around user experiences. 

Join our innovation community (by asking questions)

My list of emerging realities for the future of distribution (above) is a shortlist. I have several other possibilities under development, including the opportunity to replace field salespeople with branded algorithms at the customer location, the need to eliminate incentives that increase inventory stocking levels in favor of programs that build collaborative data and AI capabilities, working with next-generation solopreneur distribution businesses, and more. I will offer these and others for discussion and look forward to adding manufacturers’ ideas. To further help prime our conversations, I offer four questions:

• Does your business value distribution? Do you view distribution as a strategic capability or a responsibility assigned to tactical execution?

• Have you talked with digital startups building B2B platforms in your markets? Have you spoken with your distributors to compare notes?

• Do you see a distinction between distribution and distributors? What are your most innovative distributors doing to reinvent their business models? What should they be doing?

• Do your channel programs, policies, and compensation programs lock existing business models in place and hold back innovation? How do you know one way or the other?

If you are a distributor reading this edition, I suggest exploring my ideas and questions with your suppliers. If you are a manufacturer, please expect my call, and if you don’t hear from me, reach out. Above all, don’t be a stranger. Share your thoughts in the comments section below or find me at mark.dancer@n4bi.com.