Indian River Consulting Group https://www.ircg.com/ Indian River Consulting Group specializes in helping distributors and manufacturers accurately diagnose problems and identify risk-bound alternatives so they can take their next steps confidently. Call us to learn more at 321-956-8617 or contact us now. Wed, 16 Nov 2022 14:53:44 +0000 en-US hourly 1 https://wordpress.org/?v=6.1.1 https://www.ircg.com/wp-content/uploads/2021/04/favicon.ico Indian River Consulting Group https://www.ircg.com/ 32 32 Market Better: How to Segment Your B2B Customers Using Behavioral Analytics https://www.ircg.com/blog/b2b-marketing/market-better-how-to-segment-your-b2b-customers-using-behavioral-analytics/ https://www.ircg.com/blog/b2b-marketing/market-better-how-to-segment-your-b2b-customers-using-behavioral-analytics/#respond Wed, 16 Nov 2022 14:39:12 +0000 https://www.ircg.com/?p=12311 You want to improve your marketing strategy, but you’re staring down the abyss of options to take. For proven success, develop a laser focus on where you direct your marketing efforts. Pour energy into how you’re growing revenue, how you retain customers and how you can remain profitable in an uncertain and challenging environment.  The …

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You want to improve your marketing strategy, but you’re staring down the abyss of options to take. For proven success, develop a laser focus on where you direct your marketing efforts. Pour energy into how you’re growing revenue, how you retain customers and how you can remain profitable in an uncertain and challenging environment. 

The best way to do this is by investing in the technology needed to become an analytics-driven distributor.  

Looking at your real-time data, patterns will start to emerge. Customer behavior will make more sense. You’ll be able to sort customers based on what they care about, what they’re shopping for and how (and when) they shop. Armed with these insights, your sales teams can work smarter—not harder—to meet customer needs, remove tension from the relationship, close deals faster and pick up new customers along the way. 

The Problem with How We Segment Customers Now 

Back in the day, customer segmentation was all about Standard Industrial Classification (SIC) and North American Industry Classification System (NAICS) codes. Although this information is undoubtedly useful for- economists, it’s no longer useful for distributors by itself. 

The original concept of segmentation and marketing strategy used these codes and applied them to territory zones. It looked at the customer size, type and other basic firmographics.  

For example, when a small company usually has employees wearing more than one hat, you might have one or two on a field sales team. Looking only at territories, you were left operating in patch geography. It’s an inefficient way to do business.  

Given that same logic, the only way you could segment was to grow. Getting larger as a company, operating in more territories meant you could specialize. You could have inside sales, technical sales and other niche roles, which also meant you could target customers more efficiently.  

Despite this awareness and the availability of technology, some distributors are still scrambling to find high-profit clients and please their existing customers. They’re operating in the dark.  

-Then there are the innovators. These companies are focused and pick up share simply because they’re smart about the best way to make money. They’re using behavioral segmentation. The innovative distributors are looking at what their customers truly value—because there’s a difference between what you think you sell and what customers are actually buying.   

>> Six steps to improve your customer’s experience 

How to Segment B2B Customers with Analytics 

To unearth where your profitability lies, it’s necessary to clearly understand your customer segments. What kind of customer occupies each spot? What do they want, and what do they need? How can you fulfill those desires?  

Once you’ve analyzed all the data, you can home in on the segment in your sweet spot—that’s where the money is. 

  1. Sort customers based on what they care about.  
  1. Apply NAICS codes. 
  1. Incorporate industry demographics into the equation. 

It’s critical to have a scale for meaningful segmentation. The old criteria was geography. You base resource allocation on size; treat the big customers well, and earn a large profit margin off the small ones.  

But when you scale and grow, you begin to see patterns. You’re accumulating more information and, therefore, more data to analyze. Instead of self-directed sales teams going out into the great unknown of their region, all of a sudden, the data is revealing choices and opportunities.  

The original concepts of segmentation and market strategy are still important because they serve as a baseline. However, you need to build on that foundation. Most distributors know their top 10 customers well, but they don’t know the 10 largest users of products in their markets. Those analytics matter. 

Addressing buying habits, such as how much customers buy digitally or how often they interact online but finalize their order through sales reps is key.  

Strive for efficiency to remain competitive. Weigh in the elements of cost to serve. There are plenty of distributors that have lower prices and lower expenses.  

Another phase is the customer lifecycle management, where you analyze -retention strategies. Where do customers drop off in terms of their size and purchases? 

Real-time data analytics enables your organization to group people based on their behavior. Use your resources. Whether it’s an email, website pop-up or a discount shared through your field sales reps to your largest customers, use the data to be proactive. 

Consider this: according to a recent study published by Gartner in early 2022 only 17% of a buyer’s time is spent talking to salespeople, and all distributors in your industry are competing with each other for that precious time. How are you handling that remaining 83%?  

If you use the data right, you’ll never wake up too late to keep a customer who had all the red flags. There’s a reason they stopped their orders. Behavioral analytics can help you stay on top of these critical changes. Talk to the customer directly—and keep them as a customer.  

>> The biggest mistake in strategic planning is not focusing on customer insight 

Why Distributors Struggle with Behavioral Analytics

Many distributors have a hard time adopting behavioral analytics due to one (or more) of three things: 

  1. Their field salespeople don’t enjoy their autonomy and freedom -seemingly taken away. They don’t like to be held accountable. There will always be pushback to change. It’s human nature. Distributors fail when they don’t know how to handle the change management . 
  1. They begin the process thinking analytics can be managed via spreadsheet. It can’t. Applying data to customer segmentation, really diving into data analytics, is a project. It requires planning, infrastructure and design. Treat it like another big company initiative. When you don’t, you get stuck, and the project stops. 
  1. They don’t know where to start, so they chat with some friends, buy some random software and think that’ll be the solution. 

Every distributor can adapt and utilize behavioral analytics. The difference between the innovators and those who struggle lie somewhere in these three areas. If you’re willing, you must follow through and have a foundation to succeed.  

>> 3 Keys to Successful Sales Transformation 

How Can Distributors Facilitate Customer Segmentation Using Analytics? 

Map out the journey of your buyers.  

This somewhat simple exercise is always an eye-opening experience for distributors. Companies are usually shocked by what they thought their customer journey was versus what it actually is. In some cases, this exercise also reveals areas of friction for customers. And if a customer is used to an annoying process, 1) it’s no wonder you experience churn, but 2) using the data and changing how you interact will be all the more enjoyable for the customer.  

>> Learn how to map customer touchpoints and create a better customer experience 

Once the journey map is complete, you can start adjusting your sales process to align with that customer segment’s journey. When you can see that path from browsing to purchasing, you can begin to remove the friction from the relationship. 

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Managing Change in Digital Transformation: How to Build the Path of Least Resistance https://www.ircg.com/blog/digital-strategy/managing-change-in-digital-transformation-how-to-build-the-path-of-least-resistance/ https://www.ircg.com/blog/digital-strategy/managing-change-in-digital-transformation-how-to-build-the-path-of-least-resistance/#respond Mon, 14 Nov 2022 13:49:08 +0000 https://www.ircg.com/?p=12305 Let’s say you’ve greenlighted the adoption of technology in your business, whether that’s implementing automation for certain processes or adopting an ecommerce platform. That’s great – it’s important, in fact, especially if it’s the way your customers prefer to shop and buy. It’s also critical in an era of labor shortages – when productivity is …

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Let’s say you’ve greenlighted the adoption of technology in your business, whether that’s implementing automation for certain processes or adopting an ecommerce platform. That’s great – it’s important, in fact, especially if it’s the way your customers prefer to shop and buy. It’s also critical in an era of labor shortages – when productivity is top of mind. 

To ensure your digital initiatives stick, they must come from an area of real need to ensure that you’re not building bigger gaps between what your customers need and what you provide. It’s about the way your customers want to buy (and how your team can facilitate the smoothest process in doing so). 

A project that requires people to change won’t come without resistance. After all, the only people who like change are babies with dirty diapers.  

Executives must get everyone in the organization truly on board or the impact you’re looking for won’t be realized. And today, when employees are experiencing pandemic burnout and just trying to get their jobs done, you face even more hurdles.  

Before you even begin, what are the change requirements that are needed to bring your digital-transformation strategy to life (and sustain it)?  

Engage your team. 

The guiding light through your change management journey should be: Participation creates commitment. If a higher-up comes down from his office and shares a new plan with his employees, details how it’s going to work and then walks away … that plan isn’t getting adopted (or it’s not getting adopted to the level that the organization is hoping for). 

Get your team engaged from the get-go.  

  • Provide opportunities for your employees to participate in the idea stage because these are the people the change affects.  
  • Get feedback from your frontline workers and sales reps. Ask how the transformation will affect their daily interaction with customers. Get them excited about the possibilities by clearly demonstrating and why the changes are happening.  
  • What are the benefits? Make sure your team understands how it makes their life easier.  

Contrary to popular belief, digital change is not about replacing sales reps. Automation of mundane tasks or greater insight into customers enables reps to do their jobs more effectively and efficiently. Executive leadership needs to clearly define a desired state that leverages where their target customers will be in several years and pinpoint how their sales team can use the technology to achieve this.  

>> Read more on how to improve employee engagement 

Have plan clarity.  

Once you’ve spent the time getting your team to buy into the need for change and commit to a vision, the next step is to create a plan and communicate it clearly.  

Some common steps include: 

  1. Identify overall project objectives. 
  1. Define what products/services the digital transformation project will deliver, including client requirements. 
  1. Identify elements that are key to project success. 
  1. Map out and assign project team roles. 
  1. Map out and document the implementation process. 
  1. Document available resources. 
  1. Develop cost analysis. 
  1. Create a project schedule. 
  1. Create a risk management plan. 
  1. Define quality management plans as well as how and what you will monitor. 

Remember, everything depends on your people. A leader’s job is to get people to want to do  
what is in the organization’s best interests.  

>> Learn more about building an investment roadmap for digital transformation 

Change is complex. 

It’s like raising a plate of food. If you raise one side of the plate too high or too quickly, everything falls off. You want to apply some pressure to employees to adopt the change and implement the technology – a little pressure can create more output – but you don’t want to apply too much pressure, or everything will just break down. 

Understand that digital transformation at any scale will be revolutionary for your employees, but it might look incremental from an outside perspective. Focus on the internal. As Peter Drucker, a management guru, said: “Culture eats strategy for breakfast.” If you don’t deal with the culture, nothing will happen.  

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6 Steps to Improve Your Customers’ Experience with Your Company https://www.ircg.com/blog/business-strategy/6-steps-to-improve-your-customers-experience-with-your-company/ https://www.ircg.com/blog/business-strategy/6-steps-to-improve-your-customers-experience-with-your-company/#respond Tue, 23 Aug 2022 15:26:39 +0000 https://www.ircg.com/?p=12279 It’s probably safe to assume that we all understand what the customer experience refers to: how a business engages with its customers.  But the critical part of the definition is that customer experience, or CX, refers to engagement at every touch point in the buying journey, whether it’s an interaction with marketing, sales, drivers, or …

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It’s probably safe to assume that we all understand what the customer experience refers to: how a business engages with its customers. 

But the critical part of the definition is that customer experience, or CX, refers to engagement at every touch point in the buying journey, whether it’s an interaction with marketing, sales, drivers, or customer service.  

CX also includes personal relationships and trust. It’s the total of all interactions a customer has with your brand. 

In the past, it wasn’t uncommon for the customer to be taken for granted. Maybe you thought, “I have excellent products and customer service, and no one is calling to complain.” Makes sense: If no one is complaining, then there must not be a problem. However, that is probably not the case. 

Now more than ever, the customer experience can make or break a company. We live in a world filled with options, and customers can easily go online to compare products that meet their needs faster, easier and cheaper. Gartner found that companies who create complex, nonlinear paths for buyers create uncertainty during the buying process, resulting in a 30% decrease in purchasing. 

The companies that will succeed are the ones who are starting to take a closer look at the customer experience and buying journey to better understand how customers view and interact with them. 

It’s time to do something different to support your customers, and the first step to enhancing the customer experience is to map it out. Clearly define steps and actions to take to better the buying journey. 

Creating a good CX strategy requires a well-thought-out program, but there are a few things you can do right away for immediate results: 

  • Add more staff to do daily pre expedites  
  • Show customers how to order earlier to improve their fill rates 
  • Provide substitutions, including selling products sourced from competitors  
  • Allocate hard to get product to good – not big – customers  
  • And most importantly, create an ongoing program focused on the customer experience  

Remember, CX is also about building strong relationships and trust with customers. If you must market a competitors’ product to secure a customer’s regular order, it’s worth it. You’re now seen as reliable – a company they can trust and turn to, even when the supply chain threatens their order.  

How to Create a Program that Focuses on the Customer Experience 

Enhancing your customer experience requires you to go directly to the source: the customers. Don’t involve your sales team in this process. Although they’re great at their jobs, salespeople are trained to listen and respond rather than listening to understand.  

Set a Goal and Make a Plan 

What are you hoping to learn from conversations with customers? Define a goal. This is not about how you sell them more, rather it is understanding their life and their challenges. How do they spend a typical day, what are their responsibilities, what are the resources they have available to do their jobs, where do things go wrong,  what drives them up a wall, what brings them joy, and what are their goals and what would they like to change? 

Once you’ve determined your goal, identify the people to interview. The people you target should align with the goal of your program. For example, if you want to learn more about the perceptions of your company, talk to newer customers about how they found you and what they think thus far in the relationship. 

Create an Interview Guide 

Create an interview guide and design the interview questions around behavioral segmentation, which just means group customers by what they’re searching for and what they value. Keep the list of questions short; your customers are doing you a favor by being interviewed, and their time is valuable.  

Some questions to include could be: 

  • We’re trying to improve our customer experience. Can you describe the challenges and frustrations that exist in your role today? 
  • Without naming names, how does your preferred supplier hep you deal with those challenges?  
  •  What would help you the most in services or support that you can’t find in any of your suppliers today? 

Interview customers with non-sales staff, such as operations, human resources or finance folks, and don’t go in blind. Prepare for the interviews by building rapport with the customers willing to participate, pick the best time that works for their busy schedule, ensure you have a reliable way to record the conversation and practice the interview first. 

While in the interview, focus on self-reporting. The conversation should be all about the customer – not your company.  

The notes your team collects will help later on, and they’re critical in the ongoing evolution of the interview guide. The interview questions will likely go through multiple versions, and that’s okay. You want to optimize your guide: Delete questions if you already know the answer and add questions gained from new insight. 

The result of the adaptive interviews is that you have a better understanding of each customer segment, including how they interact with your company and what your value proposition is to them. 

Map the Key Customer Touch Points 

Build a list of pain points from the customer interview insights, focusing on the biggest areas of friction first. These could be things like order-to-cash process, the order fulfillment process for standard products versus custom products, demand forecasting or getting a quick answer without having to search through the company website. 

Add context from your customer-facing team to this map, then validate all the gathered information in a focus group of customers.  We recently completed a customer journey map for an industrial distributor and it was six feet long to provide readability.  The executive team has already made major reductions in the number of steps. 

In a McKinsey study about CX, almost two-thirds of their respondents cited “the ability to act on CX issues in near-real-time” was a top priority.”  

Armed with a detailed understanding of your customers’ pain, frustration and/or unmet needs, your next step becomes clear.  

Map the Steps for Each Process 

Design your own buyers’ journey map using a flow chart. (Gartner goes into detail about the new customer journey map, and this resource offers a step-by-step guide.)  Start with existing customers. The majority of a distributors’ revenue comes from flow business, or repurchases of product, so create different maps for flow and projects. Don’t forget to factor in the less-predictable human element (e.g. is there a bottleneck in the flow due to one person’s manual processes).  

Implement Solutions for Each Mapped Process 

Digitize everything possible, starting with your customers’ largest friction points. The ideal is to automate 20% of the events that create 80% of their friction. What tools can you implement to smooth those out? Understand that speed – and anything else that makes your customers’ lives easier – are weapons. Use them.  

And reduce the steps. Shift from a go/ no-go approval process that can delay service to a customer to post-action controls and conduct a LEAN analysis to eliminate waste and artifacts from the past.  

Recognize That This Is an Ongoing Process – Not a One-and-Done Project 

Much like the interview guide, the close attention to your customer experience shouldn’t be a one-and-done project. You want to ensure the buying journey is simple and the customer is happy, so build a data-driven performance feedback loop.  

  • Create a place to store and integrate data from multiple sources 
  • Use predictive analytics, such as machine learning and artificial intelligence, to anticipate customer needs earlier 
  • Conduct regular data reviews in scheduled meetings with defined actions 

By consistently setting aside time to identify pain points, you can ensure your customer experience is always improving. 

And don’t forget: If you want to succeed at this, you must get out of your echo chamber and separate the message from the messenger.  

Annette Franz, a customer experience thought leader, said: “You can’t transform something you don’t understand. If you don’t know and (don’t) understand what the current state of the customer experience is, how can you possibly design the desired future state?” 

Operating in your echo chamber gets you nowhere fast. Talk to your customers, get to know their struggles and learn how you can be a better partner for them, and your company’s profit margins and reputation will benefit. 

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6 Distributor Best Practices to Improve Employee Engagement https://www.ircg.com/blog/business-strategy/6-distributor-best-practices-to-improve-employee-engagement/ https://www.ircg.com/blog/business-strategy/6-distributor-best-practices-to-improve-employee-engagement/#respond Wed, 17 Aug 2022 17:24:44 +0000 https://www.ircg.com/?p=12265 Employees don’t want to be worker bees – they want to feel like they are part of something important. Great leadership and communication play key roles in employee engagement. Although many top executives love to talk about their “open-door” communication policies, how many follow through?   According to one Gartner survey, only 13% of employees are …

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Employees don’t want to be worker bees – they want to feel like they are part of something important. Great leadership and communication play key roles in employee engagement. Although many top executives love to talk about their “open-door” communication policies, how many follow through?  

According to one Gartner survey, only 13% of employees are completely satisfied with their workplace experience. In addition, McKinsey & Company also found that a third of employees who recently left a job quit because they didn’t have caring leaders. Another third left due to a lack of career development and advancement potential, and 35% more said they quit because they did not have sustainable work expectations.  

Monetary compensation is no longer enough to attract and retain great employees. To cultivate a thriving culture in the “Great Attrition,” leaders must go above and beyond to create an environment that values transparency, integrity and communication.  

Town Hall Meetings vs. the Grapevine 

Successful companies are made up of forward-facing employees who genuinely care about where the company is going and how they can play a part in its success. Unfortunately, getting people on board with a company’s vision can be challenging, especially if there is a lack of transparency.  

Most businesses have two types of communication: official communication and the “grapevine.”  

A grapevine occurs when employees talk amongst themselves about management, company policies and where the business is headed; it’s the perfect place for rumors to start. Without intervention, a grapevine can lead to unfounded fears about layoffs, poor management and budget cuts. Without clear communication, good employees may lose confidence and leave. 

Nature abhors a vacuum and if management is not forthcoming with what staff wants and needs to know, the grapevine will create the answers.  This then puts executives on the defensive trying to deny the rumors. 

Companies that focus on communicating with their employees with “town hall” meetings and one-on-one interactions generally don’t have a problem with grapevines because employees aren’t left to wonder about the company’s future. Instead, they are given information upfront and encouraged to be open and honest about their issues and concerns. 

When distributors value clear and transparent communication, employees feel more engaged, valued and purpose-driven, which will benefit your organization. So, how can you improve your company’s communication strategy?

6 Best Practices for Improving Communication & Employee Engagement 

With so many people working in remote and hybrid environments, companies must work harder than ever to keep up communications and encourage engagement. I’ve outlined several steps you can take to drive employee engagement and establish transparent communication in the workplace.  

1. Conduct employee engagement surveys 

Conducting an employee engagement survey every two to three years is a great way to get a pulse on your workplace culture. Ask employees if they know and understand the company’s values and vision and allow them to grade your management. Surveys can provide valuable insight into the effectiveness of your leadership, communication initiatives and employee satisfaction. Identify areas that need improvement, and make a plan to address them.  Sopmetimes it hurts, we recently had a distributor owner rated in the bottom decile of all CEOs by his employees. 

2. Allow employees to play a role in shaping goals 

Employees who have a role in defining their company’s goals will have a sense of ownership and be more engaged and committed. Remember, there is a difference between being compliant (following along with someone else’s objectives) and being fully committed. Employees who are actively engaged in their company’s future have higher labor productivity and make fewer mistakes. 

3. In volatile times, double down on transformation efforts 

When COVID-19 hit, many businesses focused on what was happening around them instead of looking inward. Supply chain constraints, customer relationship management and revenue losses demanded their attention. Unfortunately, this meant that distributors weren’t paying enough attention to their team; great employees left to find better opportunities, and mediocre ones stayed behind to collect a paycheck. 

In volatile times, distributors must intensify the focus on transparent communication and employee engagement. When customers are struggling, you need your best team members on the job to find solutions. Sit down with your employees and explain where you are going, what roadblocks the company faces and what they can do to improve things. You’ll be surprised by your employees’ resilience when they feel indispensable.  

4. Remove ambiguity by developing a clear plan with employee input 

Confidence comes from communication. Create a crystal clear vision for where your business is going, what that will look like and how employees can be involved. Then, communicate that vision to your team and give them the ability to provide feedback. Embrace employee-driven innovation – they’re the most familiar with day-to-day issues that need attention. 

The best way to remove ambiguity in your organization is to: 

  • Define your “North Star”  
  • Communicate goals with your team 
  • Give employees the tools to develop a plan 

5. Have “human” leaders in your organization 

According to Gartner, a “human” leader is authentic, empathetic and adaptive; they act purposefully, show genuine care and respect for their employees and support their team’s unique needs. Unfortunately, only 29% of Gartner survey respondents said that their leaders were “human” leaders.  

Outstanding leadership goes hand-in-hand with productivity and team performance. Great leaders will be open and transparent, create growth opportunities for their team and be open to feedback. Human leadership is only possible in an organization that has embraced transparent communication.  

6. Create a scoreboard to give employees something to strive for 

People are naturally competitive. One McKinsey study found that more than half of employees are driven by non-financial recognition. This means engagement often comes down to factors other than money, such as the chance to be seen and recognized by management and peers. Encourage engagement by creating a scorecard to reward motivated employees.  

The Need for Transformational Change in Distribution 

Widespread labor shortages have wreaked havoc on the global economy. Employees don’t just want bonuses and pool tables – they want flexibility, ownership and open communication. If you don’t make changes, you may wake up one day to find that your best employees are gone.  

Distributors who want to stay in the game must do something different; go the extra mile and create a roadmap towards establishing clear and transparent communication at every level of your organization. 

Think about all the studies cited about poor leadership and frustrated employees.  What is the commercial impact if a firm had strong human leadership?  What would that cost compared to other investments? 

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An Investment Roadmap for Digital Transformation for Distributors https://www.ircg.com/blog/blog/an-investment-roadmap-for-digital-transformation-for-distributors/ https://www.ircg.com/blog/blog/an-investment-roadmap-for-digital-transformation-for-distributors/#respond Tue, 05 Apr 2022 18:01:37 +0000 https://www.ircg.com/?p=12135 Digital transformation isn’t as simple as just selecting software and then hitting go.   To be successful, you need to do the research and build a technology investment roadmap. This roadmap should align with your customer base’s needs and go-to-market strategies.   It’s all about customer experience. What are the forces that customers are dealing with? How …

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Digital transformation isn’t as simple as just selecting software and then hitting go.  

To be successful, you need to do the research and build a technology investment roadmap. This roadmap should align with your customer base’s needs and go-to-market strategies.  

It’s all about customer experience. What are the forces that customers are dealing with? How are things changing, and how will they change over the next three to five years? 

With those answers, you can create a value proposition and customer experience that, even years from now, makes you the blindingly obvious choice.  

You need to build a roadmap to create growth and shareholder value by becoming your customers’ North Star. 

Where to Start  

Start with building a high-level digital transformation ROI model. 

Step 1: Executive Research 

Leadership should start with research on your digital technology options. Talk to experts, hire consultants, and discuss the ins and outs with peers who are ahead of you. Don’t consult your friends. Talk to people who will tell you about their wins and losses – not only the things you want to hear. Trade associations are a great place to make these connections. 

Step 2: Identify Your North Star 

Remember: Digital transformation is all about the customer – their experience and their buying journey. Start with gaining new customer insights. These insights should come from talking directly to the customer, not your sales reps. Conduct interviews and launch a trusting conversation between your marketing team and the customers. Ask customers what their pain points are, what the experience is like buying from you and what that journey looks like. Provide them with the space to answer rather than trying to guess what’s important to them. 

Step 3: Build and Launch the Minimum Viable Product (MVP) 

Build out a multi-year investment roadmap, and fund the first year aggressively. Monitor the results of this launch carefully to learn how to react and respond next year.  

Understand digital transformation is not one-and-done. Your feedback loop should be ongoing … never-ending. By continually evaluating your progress, you’ll stay ahead of the game. 

How to Calculate the ROI of a Digital Innovation Investment 

You know how to calculate ROI: the benefit (or return) of an investment is divided by the cost of the investment. 

However, the return on innovation investment is calculated differently. You need to compare the profits of the new product or service to the research, development and other direct expenditures generated by creating these new products/services.  

This new ROI calculation takes into consideration four investment stages that require executive time and capital: 

Research  

Executives must spend money to get smarter. Identify the impact of external forces that affect your specific market to the technology and tools required to create your North Star. Executives should be discovering how to create growth and shareholder value at this stage – often with the help of consultants.   

Although distributors can spend money on this research, they usually don’t understand enough about the technology and how the costs break down. There’s a reluctance to invest because of the perceived risks and their worry about investing in the wrong technology. This is where consultants can help separate the wheat from the chaff. 

Capital investment and non-recurring start-up costs 

These expenses bring the new model online at MVP performance. This version should have just enough features to be usable by early customers.  

The organizational change management process  

How do you make existing employees more effective and increase productivity? Answer this question and update your organizational structure accordingly. Embrace and utilize the new tech as clearly defined in a project plan. To do this, you need buy-in from the entire organization.  

Recurring costs to operate the model 

These costs are the technology upgrades so you can continue to use the most up-to-date software. 

Many distributors today are actually viewing ROI on innovation investments as more of an ROP, or return on productivity. By making their employees more efficient, distributors can unleash this newfound productivity in other areas of their business. 

Managing the Risk of an Innovation Investment 

The probability of success plus the probability of failure always equals one. Without taking that first step toward change, the cost of not doing so is a slow death. 

Here are some proven risk-reduction strategies when investing in technology: 

Ensure leadership knows and understands the North Star and Go-To-Market pivot project plans. Leading from the front helps get everyone else onboard. 

Invest with enough scale to warrant the necessary executive attention. In other words, ensure that the C-suite has skin in the game. 

Start on a smaller scale. Investing in a point solution has limited risk because it’s small and only addresses a single pain point. This is a manageable way to begin.   

Seek regular direct customer insight but not from your sales team. Sales reps are trained to listen to make the sale. They’re not trained to listen to understand. Although they’re very good at reacting to threats and opportunities, they’re not trained to truly understand life from the customers’ perspective. Have another department conduct these continuous interviews and feedback loops.  

Choose best-of-breed software rather than single software provider. Choose the best tools to solve particular problems, not a solution that provides everything from a single source. This strategy also provides breathing room and time to get familiar with the investments and changes. Incremental, short-term returns also help fund the next investment.  

Be a fast follower with a strong sensing mechanism. Know where the leaders are in your industry and gauge what they’re doing.  

Create Your Organization’s North Star 

In two to five years, you want your customers to look around at all their options and see your organization as the one they want. You have your act together. You might be more expensive, but the cost of working together is worth it because you know how to win. 

To create your company’s North Star, start by having discussions about your customers with key stakeholders and leadership. Sort your customers into categories: winners, losers and uncertain. How are you determining these criteria? List the selection details as well.  

Consider those change scenarios you created during the executive research stage. Think about your winners in these scenarios and how they’ll respond. Will they compete differently? Source differently? How do you respond to their actions and increase purchase concentration? 

Next, define any new capabilities those winning customers will need to succeed. With that information, you can create a value proposition that makes you the best, most obvious – and only – choice. 

Lastly, build plans to realign your resources to the emerging growth opportunities. 

Track Your Progress, Carefully, with Discipline  

According to the experts at McKinsey, prioritizing digital initiatives is essential to digital transformation. It’s the first step and falls directly on the CEO’s shoulders. They should monitor the five key performance indicators below to assess the company’s digital progress: 

  • Return on digital investments  
  • Percentage of annual technology budget spend on digital initiatives 
  • Time to market of digital apps 
  • Percentage of leaders’ initiatives linked to digital  
  • Top talent attracted, retained and promoted  

The Foundation of Your Innovation Investment 

At the end of the day, the CEO should be able to clearly identify a roadmap of digital priorities, rather than “a basket of digital projects.” Include these updates in formal quarterly reviews as well as monthly meetings. 

Invest time and effort before you invest financially. Create a plan, build executive buy-in into the process and don’t set unrealistic goals or deadlines. Given what a digital investment requires, you want to do it right. 

The details matter. Engage people who will benefit from the technology and get their input, then apply that to your plan. 

Talk to other companies who have implemented the technology and been successful. What did they do? More importantly, when you hit a roadblock, ask them how they overcame it.  

Lastly, don’t get upset when you start to see the differences between what you’ve always done and what the customer thinks. This moment of realization isn’t just an opportunity to see what you’re doing wrong. It’s an opportunity to be aware of your customers’ pain points and fix them. Become their North Star. 

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3 Strategies for Distributors to Weather the Supply Chain Crunch  https://www.ircg.com/blog/business-strategy/3-strategies-for-distributors-to-weather-the-supply-chain-crunch/ https://www.ircg.com/blog/business-strategy/3-strategies-for-distributors-to-weather-the-supply-chain-crunch/#respond Tue, 22 Feb 2022 16:00:36 +0000 https://www.ircg.com/?p=12115 The supply chain is now the equivalent of a wild pendulum with sporadic oscillations.

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As we’re all aware: The supply chain is no longer as dependable as it used to be. It’s now the equivalent of a wild pendulum with sporadic oscillations.  

Demand is also fuzzy and seems to be ever-changing. Think about the start of the pandemic, when there was a massive shortage of masks and gloves. People were doing some really interesting things to find and stockpile these supplies. Now companies give away masks and gloves because they have so much backstock. It’s the same scenario that’s going to play out in the automotive industry. Right now, there’s a shortage of chips. Manufacturers are still making cars while they wait, so once they have the chips, there’s going to be overstock of vehicles and companies offering major deals and incentives to buy a new car.  

The current challenge is inflation. There are steep increases across the board. Because of inflation and an uncertain supply chain, manufacturers are hearing the same refrain from their distributors: “You have to stop passing the price increases because I can’t pass them on to my customers” or “When are you going to deliver product to me?” 

It’s obvious that the exaggerated pendulum of a supply chain will be with us throughout this year and potentially into 2023. So how do distributors deal with the consequences and resulting inflation? 

In an inflationary environment, you have to watch closely for changes and, when you recognize a change, react quickly. You must be ready and able to make changes within the day or hours – not weeks. Being agile determines whether you succeed (and survive) an inflationary period. 

How Distributors Can Respond 

Distributors need to be closer to their supply chain partners. Share more data and look for the best price. The companies that are more aligned with their suppliers are the most successful during unpredictable times. 

Get customers to behave differently. You have to figure out what the customer really needs and provide that, which might go against what they “want.” For example, although the cleaning industry is a recession-proof industry, it’s still supply-chain-dependent. Distributors can tell their customers not to schedule orders for rush delivery. You could say, “I’ll deliver 80% of your A items monthly and cover the cost of the freight, and you can add to that order any time you want, but you can’t change the order without a 30-day notice.” 

Here’s another example from the healthcare industry: A hospital called their distributor and requested 80 respirators, but the distributor could only provide 20. Although the hospital was insistent, the distributor remained strong and said, “I can only provide 20, but I’ll give you 20 every month, and you can start to backfill the rest.” 

Use the features and parameter settings in your ERP system. Most distributors have dynamic scheduling and safety stock; however, many of them don’t actually use these features. If a distributor is using their inventory management system to its fullest potential, over 75% of the line items they order from suppliers should be computer generated. That means no human touches on those orders; they’re automatically being sent.  

Most distributors have about 30% of their orders being computer-generated because it’s hard for some employees to let go and let the technology run that part of the show.  

Surprisingly, you don’t have to buy more or new software to be successful: You just need to utilize what you paid for more effectively. If you don’t know how to use your systems, make sure your staff gets the proper training.  

If distributors follow these steps, roughly half of the supply chain crunch and resulting problems would disappear. You can weather wild swings in the supply chain pendulum. You just have to be agile and ready with the right tools and strategy to respond. 

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5 Best Practices to Guide Your Sales Compensation Redesign https://www.ircg.com/blog/sales-compensation/5-best-practices-to-guide-your-sales-compensation-redesign/ https://www.ircg.com/blog/sales-compensation/5-best-practices-to-guide-your-sales-compensation-redesign/#respond Thu, 17 Jun 2021 19:42:00 +0000 https://www.ircg.com/?p=11569 For salespeople, the top predictor of income should be performance, not tenure. But all too often, it’s the other way around. The truth is traditional sales compensation plans that are tied to territory and tenure no longer work. If you haven’t already updated your sales compensation plan to meet pandemic-induced changes in how sales teams …

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For salespeople, the top predictor of income should be performance, not tenure. But all too often, it’s the other way around.

The truth is traditional sales compensation plans that are tied to territory and tenure no longer work. If you haven’t already updated your sales compensation plan to meet pandemic-induced changes in how sales teams interact with customers, it’s time to act. The key is to make sure your updated sales compensation plan is the right one.

Companies restructuring their sales compensation plans to meet the moment should take note of these five best practices:

  • Use the pay plan to incentivize sales teams.
  • Design for sustainable health.
  • Determine the best performance program for you.
  • Pay people according to their work.
  • Increase risk and reward.

Read the full article on naw.org: 5 Best Practices to Guide Your Sales Compensation Redesign – Value Creation Strategy #18 – NAW

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Case Study: Manufacturer Shifts Approach to 2 Distinct Segments to Reduce Conflict, Solidify Market Position https://www.ircg.com/blog/case-study/case-study-manufacturer-shifts-approach-to-2-distinct-segments-to-reduce-conflict-solidify-market-position/ https://www.ircg.com/blog/case-study/case-study-manufacturer-shifts-approach-to-2-distinct-segments-to-reduce-conflict-solidify-market-position/#respond Mon, 03 May 2021 19:35:00 +0000 https://www.ircg.com/?p=11563 *Disclaimer: The following case study is based on a real client. The company name has been changed to protect the company’s identity Allison-Fuchs is a leader in the power transmission industry with a large installed base in mechanical equipment and other specialty hardware necessary for factory operation. Allison-Fuchs built its installed base by offering innovative …

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*Disclaimer: The following case study is based on a real client. The company name has been changed to protect the company’s identity

Allison-Fuchs is a leader in the power transmission industry with a large installed base in mechanical equipment and other specialty hardware necessary for factory operation. Allison-Fuchs built its installed base by offering innovative and reliable products.

In the beginning, a channel dedicated to technical knowledge evolved to sell Allison-Fuchs products. By using a limited-distribution model, the company had a degree of control of the channel and its offerings.

Over time, Allison-Fuchs products matured and became commodities (commodities exist when the application knowledge rests with the end-user). Because of this maturity, their products became the incumbent or default choice. This meant selling was no longer as necessary as products “sold themselves” through customers reading the brand on the work out part and simply reordering.

This caused channel conflict and two distinct channel-partner segments emerged. One segment of the channel is technical and “sells” the products while the other segment is logistic and cost-savings focused. These two segments are at odds both in terms of business model and ability to effectively serve or make a market.

The technical segment sells mostly to end-user engineering departments. Their approach is high touch and high engagement, often performing initial design work. This segment requires higher margins to operate and most are inefficient at managing flow business. They were actively pushing back against Allison-Fuchs because of share shift, or other distributors using pricing discounts to take business from them.

The logistic-focused segment sells mostly to procurement departments. Their approach is low touch and low engagement. They are efficient at managing flow business and able to support low margins (but always wanting more). They actively try to swap out Allison-Fuchs products for their own private-label offerings. They often use Total Cost of Ownership (TCO) as a reason to replace the company’s components and drive cost savings.

Allison-Fuchs was treating both segments the same and the result was lower-than-expected growth. While they were growing sales, they were not meeting their parent company’s expectations. The industrial market was growing 3% and while Allison-Fuchs was growing above market, year-over-year growth of 8% was “required” by their parent company.

The parent company, which acquired them as a strategic acquisition, had open distributions and believed the issue could be resolved by simply opening Allison-Fuchs’s limited distribution model.

To Allison-Fuchs, this meant the channel that helped create their market was not the one to take them into the future – a distinct break with closely held beliefs. Additionally, distributors were questioning their commitment to the limited distribution model that built their strong market position from the beginning.

To solve this dilemma, they needed to know two things:

1. How important is technical selling to Allison-Fuchs products?

2. What ability do logistical distributors have to swap out Allison-Fuchs products?

This is fundamentally an economic issue driven by degree of risk. Allison-Fuchs had attempted fixes but continued to hit internal constraints and were unable to improve growth. Progress had stalled and frustration was prevalent throughout the company. Indian River Consulting Group was brought in to provide clarity to the issue and external insight into the possible solutions.

Process

To answer these two questions, IRCG needed to understand two core traits:

  • Is Allison-Fuchs brand-led or channel-led?
  • What service outputs are end-users demanding and who in the channel is providing them?

Brand-led versus channel-led tells us where the channel power lies. Brand-led means the power lies with the brand and how that power is used matters most. A customer in this situation chooses the brand first and then finds the best channel partner that sells it. Channel-led means power is with the channel and the only thing the manufacturer can do is focus on being easy to do business with. In this situation, the customer chooses the distributor first and purchases the brand the channel partner recommends. Private label is a viable alternative for channel-led products.

Service Outputs Demanded (SODs) are the services that end-users require from the channel. Service Outputs Supplied (SOSs) are the services supplied by the channel. To understand the effect on the channel, it is necessary to know what services are demanded (or valued), who in the channel provides them and if they are being adequately fulfilled. Service outputs ultimately tell how fairly the channel is being compensated for the services it provides.

Methodology

Following a kick-off meeting to align expectations of the process and deliverable, IRCG undertook a series of interviews to answer the questions above including:

  • One-on-one interviews with internal stakeholders
  • Adaptive interviews with channel partners
  • Adaptive interviews with end-users

The channel partner and end-user interview set included large and small, geographically dispersed, OEMs, and a wide range of end users. Interviews were completed using a proprietary adaptive interview technique, creating a trusting conversation between peers.

Findings

IRCG found that Allison-Fuchs is brand-led and, more importantly, their channel power was being underutilized. Additionally, both Allison-Fuchs and their distributors had a heightened view of the value each provided in the overall value chain. End-users choose the brand first and the source of supply second.

This meant distributors have a low ability to swap Allison-Fuchs for other products (although that did not stop them from trying, adding to the channel noise). While the company’s products represented a very small share of end-users’ factory operating costs, their impact on the full system was outsized. Said another way, failure of an Allison-Fuchs product came with potentially high total costs to the system. Because of this, most orders were flow business and read and reorder was the standard.

A misalignment of service outputs supplied was also found. Technical selling was important and needed to be invested in and nurtured. End-user OEMs relied on Allison-Fuchs and the channel to provide the needed technical expertise. Allison-Fuchs relied on small specialty distributors that supported the specification and selection process in addition to the actual transaction.

Because of this misalignment, Allison-Fuchs was overcompensating the logistic-focused, market-serving distributors with both margin and allocation of resources. Their discounting and support were driven more by channel-partner-perceived takeaway power than the economic value of services actually provided to their customers.

IRCG recommended that leadership take two core actions to regain market power and sales growth:

  • Focus on OEM specification. The importance of read and reorder in the buying process highlighted the need to focus more resources on OEM specification and the “OEM Waterfall.” By getting the company specified with more OEMs, all vendors who sell to and support the OEM eventually will default to specifying Allison-Fuchs. The risk of swapping for lower cost or lower quality (with limited cost savings), ensured that specification work was the key to regaining market power.
  • Own total cost of ownership. Allison-Fuchs needed to own the total cost of ownership conversation with end-users. By directing the conversation with end-users, they could demonstrate the true cost of ownership and highlight the potentially exponential costs of product failure. Increasing direct contact with end-users while still serving them through distribution allows Allison-Fuchs to control the conversation about total cost of ownership without substantially increasing their cost to serve. It additionally lowered the ability of logistic distributors to attempt to swap out their products.

The recommendations meant Allison-Fuchs needed to treat the two channel segments differently, pulling back resources from market-serving channel partners and redirecting them to market-making efforts and partners. This did not mean cutting off market-serving channel partners but instead making a strategic investment in the partners and activities best positioned to grow business.

Finally, Allison-Fuchs was advised to ignore the channel noise. This was especially true for the logistic distributors. While the logistic-focused distributors might have the ability to make a lot of noise, their ability to retaliate was low.

Results

The open-distribution strategy of their parent was rejected as a result of the recommendations, and Allison-Fuchs was able to regain market power, better align resources to results and reduce the channel conflict to a healthy level. A valuable side benefit was bringing market data into the growth-expectation conversations with their new owner. The net result was a more realistic set of owner expectations; the channel changes also improved their ability to grow.

Allison-Fuchs met their owner’s growth expectation in the first year following the project.

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Pandemic Revenue Index: A Look Back at 2020, an Unstable Year for Distributors https://www.ircg.com/blog/pandemic-revenue-index/pandemic-revenue-index-a-look-back-at-2020-an-unstable-year-for-distributors/ https://www.ircg.com/blog/pandemic-revenue-index/pandemic-revenue-index-a-look-back-at-2020-an-unstable-year-for-distributors/#respond Tue, 30 Mar 2021 19:29:00 +0000 https://www.ircg.com/?p=11559 About one year into the pandemic, we wrapped on our weekly Pandemic Revenue Index after 50 straight weeks, with the final index published for the week of March 1-5, 2021. We started the Pandemic Revenue Index to give distributors a weekly, quantified view into how other distributors in the industry were faring with respect to …

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About one year into the pandemic, we wrapped on our weekly Pandemic Revenue Index after 50 straight weeks, with the final index published for the week of March 1-5, 2021.

We started the Pandemic Revenue Index to give distributors a weekly, quantified view into how other distributors in the industry were faring with respect to revenue declines in an unusual and uncertain time. We knew there was going to be instability; so, if distributors could access what markets were doing weekly, it would give them the perspective they needed to keep moving forward.

We saw both extremes over the past year – from a low the week of April 6, 2020, with an average decline of a little over 30%. And we saw a high (21.3% increase) in the index the week of Dec. 28, 2020, thanks to a favorable comparison due to how the holidays fell.

More recently, we’ve seen consistent increases that are likely to prevail moving forward.

Over the 50 weeks of the Pandemic Revenue Index, sales averaged out to be relatively flat (-0.1%), with the latter part of 2020 and the start of 2021 offsetting the deep declines we saw at the start of the pandemic.

Our index was started with eight distributors and grew to 14 from various industry segments. They are professionally-run businesses that showed an distinct ability to adapt well to the shifts we saw in 2020. Within the group, those that showed the strongest sales performance had some characteristics in common:

  • Sold into essential markets
  • Recognized early on that they’d need to leverage their balance sheets and increase safety stock for when demand returned
  • Capitalized on product opportunities outside of their core, including safety and cleaning supplies

Those who struggled the most either served markets that slowed or shut down entirely for a short period. But despite these challenges, distributors were resilient. They weren’t held back by demand constraints in most cases; it was more an inventory constraint.

They didn’t have inventory to meet the demand that was there. In fact, backorders are still a struggle for many distributors, with some products facing up to a year’s lead time. Think about how many suppliers contribute to one supply chain, with production across different countries for different parts. As production shut down with little to no warning due to COVID outbreaks or other restrictions, distributors were sometimes left shorthanded. Some still are. You can’t sell what you don’t have.

Based on the lessons of 2020, well-run distributors are adapting to better navigate future uncertainty with:

Greater supply chain resilience and inventory visibility. Distributors are using their technology to help them better see and manage demand and inventory levels, with min/max functionality that integrates lead times. Distributors are also expanding safety stock of their fastest-moving items and finding alternative sources of supply.

Transparency. Employees, customers and suppliers should all know what you’re doing and why you’re doing it, especially in times of instability and uncertainty. That’s how you ensure you’re building and not destroying trust.

Stress testing. A stress test measures a business’s resilience when subjected to unexpected shocks and subsequent operational changes. Analyzing different scenarios, a stress test determines where you stand with cash flow and identifies how much you would need to reduce costs. This information better prepares distributors when an unexpected event occurs.

Sales channel strategy to resist future shocks. Distributors are evaluating sales force structures and proactively integrating digital while building on remote selling skills brought on by the pandemic. They are evaluating selling costs and whether their current system reflects how customers actually want to buy.

Embracing data: Detail-oriented leadership actively fights for clean data to make sure it’s usable for guiding transformation processes to drive decisions and cut sales costs. For instance, segmenting customer data can help reveal customers who do not need the economic investment of a field sales rep, leading to a more productive territory design.

Thank you to the distributors that provided data each week for our Pandemic Revenue Index. Let’s hope we never have to do this again.

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Distributor Weekly Pandemic Revenue Index (PRI): March 1-March 5, 2021 https://www.ircg.com/blog/pandemic-revenue-index/distributor-weekly-pandemic-revenue-index-pri-march-1-march-5-2021/ https://www.ircg.com/blog/pandemic-revenue-index/distributor-weekly-pandemic-revenue-index-pri-march-1-march-5-2021/#respond Tue, 09 Mar 2021 20:26:00 +0000 https://www.ircg.com/?p=11556 This week’s index will be the final one published by IRCG. We started the Pandemic Revenue Index (PRI) in March of 2020 and we’ve published it for 50 straight weeks. Our goal was to provide a contemporaneous view on prevailing business conditions as the coronavirus began disrupting business.  Publishing the index has been testimony to …

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This week’s index will be the final one published by IRCG. We started the Pandemic Revenue Index (PRI) in March of 2020 and we’ve published it for 50 straight weeks. Our goal was to provide a contemporaneous view on prevailing business conditions as the coronavirus began disrupting business. 

IRCG Pandemic Revenue Index Mar 01 05 2021

Publishing the index has been testimony to the wholesale distribution industry’s incredible resiliency.  The index bottomed out the week of April 6 with an average sales decline of just over 30%. During the spring of 2020, the index saw nine straight weeks of double-digit declines. Since that nine-week period, the index has seen a grand total of two weeks where average declines were double-digits, the most recent being the week of September 7 (which was influenced by Labor Day). 

The index finishes on a high note with a weekly sales increase of 9.1%. Seven companies reported increases and six reported declines. 

Most of the 13 distributors that participated in this week’s index have been submitting data religiously from day one. A few have joined along the way. To all that have contributed, thank you! It has been a pleasure putting this together and here’s hoping we never have to do it again!

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