Making money is – and should be – the goal of any distribution company, but it’s important to remember that customers don’t come to you because you’re profitable. They come to you because you provide something they can’t get elsewhere.
To keep your bottom line healthy, distributors must remember their purpose. It doesn’t come down to price; if you create value for the customer, they’ll keep coming back.
Years ago, I had the opportunity to take classes from Peter Drucker, one of the foremost thinkers of modern business management, and that principle was a fundamental element of the lessons I learned.
What is the purpose of a distributor?
Drucker’s first principle is that the purpose of a business in society is to create a customer. That’s how you add value. But what does that mean in today’s world?
It doesn’t start by looking at profitability. If you see a company that’s not making money, chances are they haven’t done right by their customers.
Don’t let your finance guys define the value you bring. Southwest Airlines is an example of how that tactic can go horribly wrong quickly. The company was so focused on streamlining costs to improve profits that it failed to implement a plan to address disruptions, such as what we saw over the 2022 holiday travel season. And that angered their normally loyal customer base. Sure, the financials might look good in the short term, but once you lose sight of the customer, you’ve lost your value-add.
Your customers define your value. Be future-focused and ask yourself what you provide that others can’t. Why do your customers look to you to resolve their issues?
Profit is important; it’s what keeps your doors open. But don’t let it get in the way of creating and maintaining your customers. A properly managed company will result in a self-regulated cost stream.
How distributors can add value: marketing and innovation
According to Drucker, a company only has two functions: marketing and innovation. Everything else stems from those two roles.
Putting marketing above sales may seem odd to many distributors – after all, it’s the sales team that brings in the dollars – but effective marketing means you have understood the needs of your customers so well that selling becomes unnecessary. Marketing makes customers aware of the solution you can provide and places the onus on them to take advantage of it.
Would you need field salespeople if your fill rates were significantly higher than your competitors at competitive pricing and you had a digitally enabled almost frictionless customer experience? Eric Hoffer, an American philosopher, said that when we are free to do as we please, we usually imitate each other. Most distributors have a customer intimacy business model and say that they win by providing quality service with excellent people. If the money shifted from field sales to building a friction free world class supply chain, what would happen?
The flip side is innovation. Innovation is finding new and different ways to deploy your resources to create value for your customers. It’s what helps to differentiate you in a changing competitive landscape. If you don’t have a differentiated value proposition, you’re no better than any other alternative.
Focus on reaching today’s customers. Hint: It doesn’t look the same as the strategies of yesterday.
- Customer segmentation. Marketing today must be focused on identifying what the customer wants rather than the company’s SIC code or size. Look at how customers want to buy and set up a system that makes it easy to do. Take friction out of their process.
- Ask questions. You don’t know what you don’t know, so it’s critical to ask thoughtful questions that will help you uncover the answers you need. But don’t rely on your salespeople to fulfill this task; they have their own agendas, which might not align with your value creation goal.
- Don’t get caught in the moment. It’s easy to get caught up in what’s happening today and just duplicate what’s already been done. But that’s not innovation, and that won’t help you build your unique value proposition to stay ahead of the competition. Keep the focus on creating value for the long-term.
Today’s competitive landscape is marked by constant change, and that means that distributors need to find ways to redefine their place in a crowded market. But the lessons that Drucker taught me years ago can serve as an effective starting point for creating value for your customers.
Take a step back. We are going through a sea change in terms of how the economy works, how the supply chain works and how people work. Make time to learn how those changes affect your customers and what you can do to facilitate their growth.
There’s always opportunity in chaos for somebody that can move fast. It’s a great time to be in distribution, but you need the courage to innovate and do a few well thought out bold things.