Understanding the Threat of Commoditization in Distribution

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Commoditization in Distribution

Distribution is a tough industry. Always competitive, always evolving, it’s no longer simply building relationships with customers and suppliers and reaping the rewards. Today’s distribution landscape is less relationship-driven and more results-driven than ever. Driven in part by the entrance of Amazon Business, in part by technological innovation, and in part by ever-increasing customer expectations, it’s harder than ever to keep a customer around.

Referred to as commoditization, this has become a major trend in the distribution space. That said, while it may feel like a threat to your business, those who know how to handle it can turn a highly commoditized distribution space into an opportunity for more sales. However, the path to succeed in this kind of environment will require a new skillset, mentality, and plan.

What is a Commoditized Distribution Environment?

A phrase coined by MDM and considered one of the greatest threats to the master distributor model, commoditization is, in short, a customer shift from relationships to products—if you have the product at the right price, they buy, if not, they find someone else.

MDM authors continue, noting that e-commerce marketplaces and homogenization have begun to strip away the uniqueness of the master distributor, reducing the value of customer service, brand value, and differentiation.

As discussed in the article Inside Every Threat is an Opportunity, “With continued homogenization, investments made in developing one’s brand start to erode and price becomes the primary differentiator,” and that “[…] the greatest challenge for a master distributor is not being adaptable to change and the willingness to invest in innovation.”

Adapting to the Threat

All this adds up to one of two paths for distributors—find ways to add value or find ways to cut down on costs. Either way that you look at it, this will require you to rethink the way you work and embrace new technology to facilitate your path to greatness.

The Path to Adding Value

The first option to weathering the commoditization storm is to uncover new ways to add value, helping customers to run their business with more efficiency and less stress.

Your customers will still turn to you if you offer something that they can’t get anywhere else. In this, your goal is to become a partner that customers turn to for expert advice, additional services, and application expertise. Especially in a world where companies are going head-to-head with one another—and with the likes of e-tailers like Amazon Business—on price, this option will require a very specific approach to mitigate the additional costs while still increasing business.

According to The Electrical Distributor Magazine, doing this will require you to up your communication game and be able to spell out the benefits of working with you. Understandably, in a world where customers might never see who’s providing the products due to ecommerce or portal-based purchasing this is a challenge.

Success in a value-add distribution landscape will require you to adapt your bidding strategy, often providing potential buyers with more than one quote—a bare bones option that spells out the cost of add-ons or a comprehensive version that removes the DIY portion from the equation.

But how will you get there? It all starts with knowing yourself. For many companies, it’s hard enough to build one accurate quote, much less two. Add to this the challenge of going the extra mile, and many distributors will be left struggling to keep everything together.

However, with an integrated business management solution, you can easily keep everyone in the know, allowing data to flow between ERP and CRM, CRM and field service, and between field service and inventory.

Focusing on Efficiency and Cost

Alternatively, you can fight to keep costs low, inventory levels perfect, and shipping processes on point. Especially in a commoditized landscape controlled by Amazon Business, you’re going to need to make fast decisions, rely on accurate information, and act on these decisions with no hiccups.

Again, this is possible for many ready to take on the challenge. Something discussed in a recent Kissinger guest post on the Acumatica website, your ability to succeed in this landscape relies on your ability to make your people more decisive.

In order to succeed in this landscape, you will need to understand how things work and how to adapt to the changes, being able to have a clear picture of your business and a clear course of action. Decisions need to be made with purpose, and in this, you will need to connect data, understand how and why something is happening, and do so while focusing on increased flexibility.

Decisiveness in Times of Disruption: Set Yourself up for Success

Getting from business as usual to resilience will require a solid course of action and the decisiveness to get where you need to be. Built in the cloud and ready to connect your business, Acumatica gives you the information you need—when and where you need it.

As a company who has been in the business of delivering ERP solutions for three decades, the Kissinger Associates team brings considerable experience and expertise configuring, implementing, and supporting a product-based firm’s move to the cloud with Acumatica. Learn more about steps you can take to become more competitive (even during a pandemic)what else goes into the ERP selection process, and get to know some of the most important reasons cloud ERP delivers for distribution firms.

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