Jonathan Bein and Ian Heller of Distribution Strategy Group see an unsettling trend in the B2B marketplace: manufacturers are moving away from distributor partnerships and finding new opportunities to sell their products at a lower cost-to-serve. With COVID exposing the shortcomings of traditional distributor channels, and marketplaces providing a new sales outlet for their products, some manufacturers question whether distributors still hold the value they once had.
In Bein and Heller’s second report in their series titled “How Technology Will Transform Wholesale Distribution,” they relayed distributors’ opinions on new technologies and the future of the B2B marketplace. Now, in their fourth report and webinar, they reveal manufacturers’ point of view on these topics. As a sponsor of the series, we offer the following summary of their latest findings and predictions.
Manufacturers question the importance of their distributors
Bein and Heller surveyed 86 manufacturers to get their thoughts on the future of their distribution channels. One major revelation is that manufacturers no longer rely solely on distributors to sell their products. Many of these wholesale suppliers say COVID opened their eyes to the shortcomings of traditional sales channels and the benefits of digital channels. When distributors were unable to service buyers face-to-face during the lockdown, manufacturers saw the distributor-customer relationship suffer.
But the pandemic isn’t the only trigger to dissuade manufacturers from their traditional sales channels. They claim some distributor partners are unwilling to evolve their business and offer better customer solutions like an eCommerce site and mobile app to give buyers a wider product assortment, self-service options, and the added convenience to shop when and where they want.
More than half of manufacturers surveyed say they are already doing some selling direct to the end customer, and Bein and Heller expect that number to grow. “Distributors are asking manufacturers to sell direct to their customers, so they’ve already been teaching manufacturers how to get into fulfilment,” concedes Heller.
With their dissatisfaction in distributor sales channels, their experience with end-customer selling, and their ability to gain a higher margin for selling direct, manufacturers predict their proportion of revenue coming from traditional distributors will drop 15% within the next five years.
Marketplaces help suppliers cut out the middle man
Less confidence in distributors means manufacturers are turning to marketplaces to sell their products. These purely digital retailers (think Amazon, Alibaba, TruPar) are gaining popularity with B2B customers because they provide an enormous product assortment, fast delivery, and don’t require a minimum order. As a result, marketplaces are gaining huge amounts of market share. Forrester research finds that one-third of all U.S. business flows through eCommerce and 63% of that is via marketplaces.
The manufacturers surveyed by Distribution Strategy Group see marketplaces as a viable, low-cost way to sell their brands to the end customer. Almost three-quarters of them believe marketplaces will become more important to their industry over the next five years. Heller explains, “Manufacturers are treating marketplaces as distributors and literally disintermediating traditional distributors by selling around them.”
To gauge marketplace usage by manufacturers, Heller and Bein performed a search of 40 brands on Amazon and Amazon Business. A shocking 75% of the brands were sold by manufacturers on those marketplaces. For distributors who think their results are an anomaly, Heller suggests they check marketplaces for some of the products their suppliers provide them; their bet is that they’ll find similar results.
Manufacturers predict two emerging technologies will be business-critical
Of the many technologies coming on the horizon, manufacturers predict item recognition and Internet of Things (IoT) will be among the most important to end customers. Item recognition, also known as image search, uses visual identification to find products via the Internet. A buyer takes a picture of a product with their mobile device’s camera and then cloud-based software recognizes the product from the image and directs the buyer to a web page where they can purchase the item.
IoT is the connection of devices that collect and communicate information across networks without human interaction. This ability to gather and transfer data enables businesses to automatically alert customers when they need to replenish their stock, predict when their equipment needs maintenance, and even monitor their customers’ products for safety issues and recalls.
While item recognition and IoT both bring added levels of support and convenience to B2B buyers, manufacturers feel customers will soon be demanding item recognition as a standard service offering.
Heller says these technologies need to be a part of every distributor’s strategic plans. “Distributors tend to plan around inventory and facility investments, upgrading their ERP, and buying a great eCommerce solution,” he explains. “All these things are necessary to be a great digital distributor, but they also provide a foundation that enables you to plug in all these new technologies that are coming down the pipeline.”
Distribution Strategy Group admits the threats to the B2B industry are dire but that doesn’t mean distributors can’t fight back. “This is a call to arms for the industry,” says Heller. “We believe a collective industry understanding and response will win supplier and customer loyalty.”
If you need help building a strong digital foundation, consider partnering with Unilog. Our all-in-one eCommerce solution provides an award-winning digital commerce platform with built-in PIM, tools to integrate all your business systems including your ERP, powerful site search capabilities, insightful analytics, and an optional mobile app that includes an item recognition tool. Contact Unilog today to schedule a complimentary demo.
Check out Distribution Strategy Group’s fourth webinar and research report titled “Distributor Suppliers Speak Out on Disruption, New Channels and Who Will Win” for even more manufacturer insight and expert advice to help your organization build a strategic plan.