In this episode, Alexander Group’s Davis Giedt and Andrew Horvath discuss how distributors’ go-to-customer models are being affected by recent trends, and what the industry leaders are doing to react to them. Learn more about the study findings with a Distributor Growth Study Briefing.
Davis Giedt: Welcome everyone, my name is Davis Giedt, and I’m a member of the Benchmarking and Analytics team here at the Alexander Group. Joining me today is Andrew Horvath, a veteran consultant and leader of our Distribution practice here at Alexander Group. He’s running our Distribution Trends Study this year, which is a global survey of 50 leading distribution companies. The survey focuses on the most pressing go-to-customer trends that distributors are facing today and what companies are doing to organize themselves for growth. So we’ve taken a look at some recent industry data that suggests to us that distributors are shifting more of the balance of sales towards new customers. Distributors across segments are also seeing a higher level of sales rep turnover. These trends are probably related, and they seem to reflect a larger shift in distributor sales models as wholesalers feel increased pressure from both sides, suppliers and customers. So in today’s podcast, Andrew and I will talk about how distributors’ go-to-customer models are being affected by some of these recent trends and what the industry leaders are doing to react to them.
Andrew Horvath: Thanks, Davis. We’re very excited about this survey. The distribution industry is at an interesting point as companies try to defend their value and place in the supply change. The change is taking place in distribution are similar to those that have occurred in manufacturing and other relationship-driven industries. You know, for years, distributors relied heavily on the quality and number of relationships with customers. Familiarity, bread, comfort and sellers could farm a large territory for many years and earn a good living doing so. That model is changing. Sellers have to move from relationships to partnerships that produce outcomes. Organizations are also looking for ways to motivate sellers to grow large and sometimes stagnant territories. As you can see, distributors and their salesforces are facing increased pressure for more sophisticated customers and demanding suppliers. Additionally, talent is a hot topic for most distributors. Companies need to make sure that they have the right type and number of people in sales roles which are evolving to become more service-focused and less product-focused. Most organizations are beginning to understand the impact on the business as seasoned sellers move up or out of the organization. Companies that are ahead of the game are able to find and train sellers that can pair relationship skills with broader technical expertise and selling acumen.
Davis Giedt: So Andrew, what have you seen in your research and discussions with your clients? It’s pretty interesting to look at what distributors are doing to address this issue, but it’s arguably more insightful to talk about what manufacturers the suppliers are doing to react to this transition.
Andrew Horvath: That’s right, Davis. One thing that helps us work with distributors is our experience with the manufacturer sales models. And one trend that we see recently is that project selling – so think long, complex, technically intensive spec sales – is becoming a key growth lever for manufacturers that are looking to escape the commodity trap. These sales require coordination with end-users, engineering firms, architects and other influencers. Manufacturers can sometimes be hesitant to partner with distributors if they feel the distributor does not have the knowledge or the ability to articulate the value of a particular product or solution. If they can’t articulate this value, the distributor risks losing a key point of differentiation and influence over the sale. One of our industrial clients recently decided to cut distributors out of the technical sales process by hiring their own project sales reps to work with influencers. The manufacturer still required a distributor for fulfillment and delivery, but the payment to the distributor for moving boxes was far less than if the distributor was involved in the technical sale. We refer to this phenomenon as getting thrown in fulfillment jail.
Davis Giedt: So, Andrew, in your view, what do you think distributors can be doing to avoid this and other similar risks?
Andrew Horvath: Well, Davis, job design and sales compensation are two key levers. By constructing the right sales job, in this example, think a key account technical sales rep and creating an aligned compensation plan, distributors can set themselves up for success. For large and complex deals, we see compensation plans that go beyond the gross profit dollar measure that’s so common in most plans. Stage gate or key sales objective compensation plans are gaining quite a bit of traction. In these plans, sellers can earn incentive dollars by moving large deals through pre-established sales milestones. Sales leaders can identify the steps that lead to a successful project sale and pairing this with data on win rate and deal size plans could actually payout before a deal is finalized without presenting a huge risk to the budget. On the talent side, distributors are trying to attract sales talent by making the sales organization part of leadership development rotation programs. These programs, once restricted to supply chain, operations, finance or other functional areas, now give new talent a look into what a career in sales might be.
Davis Giedt: Yeah, those are great insights. So just to sum it up today, as we’ve heard, this is a transformative time for distributors. Many have been very successful for decades, where their primary focus appropriately was on inventory management, logistics and consistent delivery. Managing relationships were king, and now the industry is confronting what we’re calling a tidal wave of change similar to other industries, and it will be exciting to see how other leading companies adapt. We aren’t necessarily seeing that relationships are going by the wayside today, but rather that the shift means that distributors have to turn relationships into true partnerships that add value.
Andrew Horvath: That’s right, Davis. We will explore these trends and others in our distribution survey. Please visit the distribution page at www.alexandergroup.com to sign up and to learn more about what other distribution companies are doing to optimize their go-to-customer strategies.