In their ongoing webinar and report series, B2B industry experts Ian Heller and Jonathan Bein of Distribution Strategy Group have presented a comprehensive and compelling look at the market disruptors facing the wholesale distribution industry. Much of their focus has been on converging technologies, but in their latest installment they shifted their attention to distributor services. Why? Because, as Heller points out, technology enables distributors to offer their customers new value-added services – services that can create a formidable advantage against emerging competition.
Heller and Bein surveyed over 90 senior executives at wholesale distribution companies and conducted interviews with nine respondents to learn what value-added services (VAS) they offer their customers, if they charge for their services, and how they market them. The results revealed some distinct paradoxes and major gaps that could keep distributors from providing real benefits for their customers.
The following are highlights from their survey findings and interviews, as well as ways to build a strong VAS strategy that turns distributor services into profit generators. We invite you to watch the entire webinar, Value Added Services as a Survival Strategy: Real Value Isn’t Free, and read the accompanying research report for more insight and perspectives.
Distribution’s advantage over marketplaces
Third-party marketplaces like Amazon Business, Google Shopping, and TruPar have penetrated the distribution industry to take a share of the traditional distributor’s business. These online players may offer wider product assortments, easier other methods, and better pricing, but their entirely digital business model prohibits them from offering one key differentiator: people-dependent services for their customers.
“These companies are working hard to scale their revenues off of a fixed cost base,” explains Heller. “Adding services delivered by people screws up the economics of a marketplace model because it introduces variable costs into the equation. This leaves a lot of “white space” where traditional distributors can differentiate.”
Many of the distributors they surveyed said they already offer some sort of value-added services. The most common service they provide is order notifications, followed by customer training and logistics/delivery services. However, more advanced digital services (e.g., e-procurement, online account management, and customer microsites), are offered the least by these respondents. With COVID-19 further fueling the need for digital commerce, advanced digital capabilities should be fundamental service offerings by B2B organizations.
Yet, while many companies offer VAS like the ones mentioned above, some tend to incorporate these services into the prices of their products. Heller warns that bundling services and products into one price is a recipe for disaster. He and Bein believe it is time for businesses to begin separating the costs, and revenues, of products and services.
Challenges with bundling services and products
Distributors tend to believe bundling services into product prices gives the impression their services are free. In actuality, their products only look more expensive to buyers when they are comparison shopping. “The problem with bundling products and services is that when people are shopping online, there’s no context to those SKUs because it doesn’t say anywhere that it comes with technical support, assembly, etc. You just look overpriced,” maintains Heller.
Bundling also affects sales because when businesses don’t charge for services, they don’t earn revenue for that service and their salespeople don’t receive a commission. This, Heller explains, is why two-thirds of the survey respondents said they do not pay their sales team commissions for services.
Marketing value-added services
Survey respondent Jim Markisohn, VP of Corporate Marketing at Tessco Technologies, agrees that services should be separated from products. He suggests productizing services, which includes standardizing service processes, determining the costs for each service, attributing pricing, and then marketing them as separate SKUs which customers can add to their cart.
In addition to building out services as commodity items, Distribution Strategy Group also recommends promoting services on a dedicated web page. Heller says companies with Services pages are more focused on adding value beyond product sales and tend to do a better job describing and marketing their services. Yet, only 11% of their survey respondents described their online services information as “in-depth” with “compelling explanations.” Another 21% said what information they do have is scattered around their website, and 35% admitted they display little to no service information online.
“So, there’s work to do here to market services more effectively,” says Heller. “It’s really important to have differentiation of your services. Distributors need to be better at taking credit for the services they offer today and explaining them in a compelling fashion.”
Quality Mill Supply, an industrial distributor and Unilog customer, has a dedicated Services landing page on their eCommerce site that showcases six general types of services they offer. From there, site visitors can click on links to individual pages with more detailed information about their offerings, including a list of the specific products and services they provide.
Quality Mill Supply’s Safety Compliance Support page includes more details about their services, a list of their specific products and services related to safety compliance, and a call-to-action link to speak to a representative
Tracking services performance
Distribution Strategy Group found that only 22% of respondents use analytics to measure their performance in delivering VAS, and 47% said they either don’t measure them at all or only measure basic customer service. “That’s one of the challenges when you ask a business about their value-added services. In general, people don’t know their value,” remarks Bein.
When asked how distributors decide when to add or sunset services, 61% let them evolve organically over time and 22% didn’t know, which means 83% of the respondents don’t employ any kind of process to manage their VAS.
Despite not formally managing their services or tracking their performance, 70% of respondents still feel their VAS are essential to their strategy. Heller and Bein call this claimed importance and the reality of their efforts a “strategic dissonance” for many distributors.
Distributors realize other companies offer many of the same services, but may think their services are better than other specialists. If that’s the case, Heller says, then they must find a way to communicate that to buyers. “How well your company wields those services in the marketplace determines their strength in differentiating you from the competition.”
Set your services apart from the pack
Digital marketplaces may have the upper hand when it comes to offering endless assortments and convenience for customers. But while they provide first-rate digital services, they offer almost no non-digital services. That is why Distribution Strategy Group stresses recognizing the power of value-added service offerings.
If you’re looking to add new or evolve existing service offerings, Heller and Bein have built a comprehensive list of value-added services to consider, including these customer-centric solutions that some of our Unilog customers offer:
Advanced digital capabilities: Create a customer portal for easy access to account information and offer different transaction options – from credit card and mobile payments to e-procurement. Unilog offers a self-configurable punchout module with its eCommerce platform to set up whatever procurement system is required by your customers.
Inventory and sourcing services: Provide supply room setup and stocking, product sourcing assistance, and, with Unilog’s vendor-managed inventory (VMI) tool, automated inventory replenishment that auto-calculates how many items a customer needs to order to adequately restock their supply.
Order notifications and delivery options: Send digital alerts to customers to confirm order receipt, shipment, and delivery, and consider premium delivery services for those in need of product fast.
Assembly, kitting, and labeling: Pre-build your customers’ product systems, create kits for their job application needs, and provide custom product branding like Mallory Safety & Supply does for their safety supply customers.
Customer training: Teach customers how to use a product or provide certification training. Unilog’s Events Management module, designed specifically for use with our eCommerce platform, enables distributors to easily build, manage, and track registration for classes in one place.
Repairs and rentals: Offer quick-turnaround tool repairs, calibrate instruments, and rent out equipment for field work. These services provide customers efficiency, convenience, and cost savings they can’t get from an all-digital marketplace.
Create value-added services for your customers now
Many distinct paradoxes resulted from Distribution Strategy Group’s survey. Distributor claims did not match up with reality for many distributors. Heller and Bein attribute this to an industry in transition. Digital disruptors (marketplaces) offer endless assortments and convenience that are unmatched by any traditional distributor. But, while they offer best-in-world digital services, almost none of them provide non-digital customer solutions. That’s why, Heller says, it’s so important to recognize the power of value-added service offerings.
If you’re looking to add or evolve your service offerings, check out Distribution Strategy Group’s latest webinar, Value Added Services as a Survival Strategy: Real Value Isn’t Free, and research report for valuable insight and ideas. Then, reach out to Unilog to get started. Our all-in-one eCommerce solution gives small to midmarket distributors an affordable way to provide a superior B2B digital experience with unique, value-added services for their customers. Contact us to learn more and to see how our platform works.