The Distributor Marketing Imperative

Transcription

1 $44.95 MDM Special Report: The Distributor Marketing Imperative with Jonathan Bein, Ph.D. & Rob Kelley of Real Results Marketing Copyright by Gale Media, Inc. All rights reserved. Modern Distribution Management and mdm are registered trademarks of Gale Media, Inc. Material may not be reproduced in whole or in part in any form whatsoever without permission from the publisher. To request permission to copy, republish, or quote material, please call

2 2 MDM Special Report: The Distributor Marketing Imperative Dear Reader: The next major frontier for distributors is to develop more signifi cant marketing capabilities. The companies who embrace this challenge will outperform the market and their peers even during recessions. The Distributor Marketing Imperative is based on a survey of and interviews with distributors across sectors. This research was conducted by MDM and Real Results Marketing in Boulder, CO. The two articles in this special report present the results of that research and explore ways distributors can refi ne their approach. The fi rst article analyzes distributors approaches to sales channels, including outside sales, inbound sales, telesales and in-store programs. The second article explores how distributors use different marketing vehicles, including , the Web, catalogs and more. In this report, survey results are frequently presented showing Market Leader response vs. other distributors. MDM s Market Leader lists are available at mdm.com/marketleaders. The MDM Market Leaders are the largest by revenue distributors in eight different distribution sectors. These articles were originally published in May Enjoy, Lindsay Konzak Editor MODERN DISTRIBUTION MANAGEMENT Founded in 1967 by J. Van Ness Philip Publisher Thomas P. Gale [email protected] Editor Lindsay Konzak [email protected] Associate Publisher Craig Riley [email protected] Associate Editor Jenel Stelton-Holtmeier [email protected] Editorial Advisory Board John Allenbach SVP, Professional Sales, Apex Tool Group Kevin Boyle President of Industrial Distribution Consulting LLC Ted Cowie Safety distribution industry Larry Davis President, ORS Nasco Larry Goode President of Goode Advisors Inc. Julia Klein President and CEO, C.H. Briggs Company Stuart Mechlin SVP, Industrial Supply Division, Affiliated Distributors Doug Savage President and CEO, Bearing Service Inc. Burt Schraga CEO, Bell Electrical Supply Contact Information Questions, comments, article proposals, address changes or subscription service to: Gale Media, Inc Arapahoe Avenue, Ste 500A, Boulder, CO Tel: Fax: Website: Subscription Rates To subscribe to Modern Distribution Management, please call , [email protected] or subscribe. Subscriptions are available by online delivery and/or fi rst-class mail. Nine years of archives of MDM are available online to subscribers. Published twice monthly; $345/yr., $365 U.S. funds other countries; $169 each additional subscription to a company ($189 other countries). Six-month and two-year terms are now available. For group subscription rates and site licenses, please contact Hadley Fable at Copyright 2011 by Gale Media, Inc. All rights reserved. Modern Distribution Management and mdm are registered trademarks of Gale Media, Inc. Material may not be reproduced in whole or in part in any form whatsoever without permission from the publisher. To request permission to copy, republish, or quote material, please call ISSN

3 MDM Special Report: The Distributor Marketing Imperative 3 Part 1: Distributors Sales Channels Survey: Multi-sales channel capabilities necessary to gain advantage There is a wide variety of marketing practices within the wholesale distribution industry. In general, distributor respondents that appear on MDM s Market Leaders lists more broadly embrace marketing as evidenced by the amount of resources they apply. Not surprisingly, they obtain better marketing results than other distributors. This article explores approaches to sales channels. By Jonathan Bein and Rob Kelley Over the past 20 years, there has been a broad movement by distributors to make various operational improvements through the use of warehouse automation, RFID, transportation management systems, 3PL outsourcing, process standardization and more. For many distributors, these practices have created tangible efficiencies that manifest at the bottom line. While the pursuit of operational excellence can never end, many companies have already reaped the greatest possible gains from these activities and will see more incremental improvements from such activities going forward. Thus, we believe that the next major frontier for distributors is to develop more significant marketing capabilities. The companies who embrace this challenge will outperform the market and their peers, even or perhaps especially during recessions. As noted by Sean Fanning, a senior vice president of marketing at electronics distributor Avnet, Phoenix, AZ: True B2B marketing is fairly young in distribution, only 20 to 25 years. In fact, distribution is still learning a great deal from other B2B and B2C companies regarding pushing the boundaries of best-in-class marketing. Based on the analysis from our recent survey with MDM, interviews with distributor marketing executives, and our own experience providing marketing consulting to distributors, we agree. Summary A simple characterization of the distributor marketing imperative is as follows: Most distributors, whether they sell MRO products or to OEMs, have solid capabilities with outside sales and inbound telephone sales. However, capabilities for in-store marketing, outbound telephone sales and e-commerce vary widely. The imperative for distributors of all sizes is to create and continually refine multi-channel capabilities. In general, smaller distributors with less than $50 million in revenue have limited capability in channels besides outside sales and inbound telephone sales. By contrast, large national distributors with more than $500 million in revenue have built robust capabilities in almost all of these areas. Global distributors have achieved high levels of integration across channels along with more sophisticated marketing effectiveness measurements. In our own consulting experience we have seen some notable exceptions to this trend. At the high end, we have worked with national distributors with $500 million to $1 billion in revenue with no outbound telephone sales and Figure 1 - Sales Channel Usage: Market Leaders vs. Other Distributors The numbers below indicate the percentage of survey respondents who use that particular sales channel. Find a complete list of MDM Market Leaders at mdm.com/marketleaders. MDM Market Leaders Other Distributors 81% 72% 79% 71% 76% 65% 61% 41% 100% 96% Outside Sales Inbound Only Telephone Sales Inbound & Outbound Telephone Sales In-Store Programs Outbound Only Telephone Sales

4 4 MDM Special Report: The Distributor Marketing Imperative no e-commerce capability. By contrast, we have a client with less than $100 million in revenue with a superb e-commerce site and growing outbound telephone sales supported by good customer data. Figure 1 shows the percentage of distributors in the survey who use the various sales channels. MDM Market Leaders defined as the largest distributors in their sectors are more likely to use any given channel than the other distributors. While the gap is narrow for Outside Sales, as this the staple channel distributors rely on, there is an enormous difference between MDM Market Leaders and other distributors when it comes to the use of outbound-only telephone sales. Figure 2 shows a more stark contrast about how the distributor respondents viewed the effectiveness of the five different channels. Even in the channels used by nearly everyone outside sales and inbound telephone sales the MDM Market Leaders that responded to the survey have a much higher perception of effectiveness of the individual channels. Figure 3 shows the distributor perception of importance for overall revenue. The MDM Market Leaders perceive higher importance of instore and outbound telephone sales than other distributors. More than half of the MDM Market Leaders consider the Web channel important whereas just 37 percent of the other distributors do. In the remainder of this article, we drilldown into the usage, effectiveness and perceived importance of channels for MDM Market Leaders against distributors of different sizes. Outside Sales As shown in Figure 1, nearly all distributors have an outside sales channel. The level of resource scales with the size of the distributor. Small distributors have up to 20 outside sales personnel, whereas large distributors have hundreds or even thousands. Furthermore, this channel is considered very important to total revenue, although larger distributors with integrated multi-channel operations considered this channel less important than medium-sized distributors. For smaller distributors with only two or three channels, outside sales is paramount. The main difference in this sales channel between sizes of distributors is in levels of perceived effectiveness. As shown in Figure 2, the MDM Market Leaders are significantly more likely to consider this channel effective. From our interviews and experience, the market leaders have better data on customers, are further along in CRM utilization, and have better approaches for centralized management of a sales force. Inbound Telephone Sales Eighty-one percent of MDM Market Leaders participate in the inbound telephone sales channel versus 72 percent of other distributors. For many of the smaller distributors, the inbound telephone-sales channel is branch-based whereas for the medium and larger distributors it is call-center based. Almost no companies under

5 MDM Special Report: The Distributor Marketing Imperative 5 $50 million consider this channel to be very effective. However, even with larger companies such as building materials distributor L&W Supply, there is opportunity for refinement and segregation of roles, says Jake Gress, senior director of marketing. Inside sales are critical for some of our products. However, we need to clearly articulate the roles of the inside salespeople because some of them are wearing too many hats, he says. As with outside sales, the most compelling contrast between market leaders and other distributors is the level of effectiveness: 71 percent of MDM Market Leaders think that this channel is very effective whereas none of the other distributors thought it was very effective. The next three channels are where market leaders really differentiate from other distributors. Companies that are sophisticated in the use of these channels have transcended the just sell harder mentality of many smaller, branch-based distributors. They have recruited and groomed professional marketing staff, and they make judicious use of external resources to complement in-house capabilities. In-Store Programs MDM Market Leaders with more than $500 million in revenue are more likely to have in-store visual merchandising programs, and they are much more likely to apply greater resources if they do. For these companies, 90 percent consider in-store to be very important or important. Few distributors smaller than $500 million in revenue consider their in-store programs to be very effective. As with inbound telephone sales, the in-store channels are more centralized and coordinated for larger distributors. For smaller distributors, the in-store channel management is more ad hoc. Outbound Telephone Sales The data from the online survey firmly supported our hypothesis that outbound telephone sales is highly underutilized and poorly understood by many distributors. Sixty-one percent of MDM Market Leaders and 41 percent of other distributors have an outbound telephone sales channel. Often, the outbound telephone sales function is combined with the inbound telephone sales. The combined channel results are frequently lackluster due to differences in skills and personality types necessary to succeed in outbound versus inbound. Only 21 percent of MDM Market Leaders versus 13 percent of other distributors said this channel was very effective. The channel is considered effective only by distributors with more than $50 million in revenue. A number of companies with whom we spoke are in the midst of conducting a trial with outbound telephone sales, or they are upgrading their outbound telephone sales channel. However, almost no small distributors participate in this channel. Often this is because they lack guidance on where to start. A CEO of a small regional distributor said: We are just not very good at finding people to make outbound calls. In fact, there are a number of ways to start

6 6 MDM Special Report: The Distributor Marketing Imperative small, test, refine and expand these operations. Web Very few distributors under $50 million in revenue offer a true e-commerce capability. We found that a little more than half of mid-market distributors offer a basic e-commerce capability consisting of accurate product data, search, a shopping cart, and account login. More advanced capabilities for one-to-one marketing, integration with other channels, and richer personalization are available only from the very largest distributors. One of the biggest challenges for small and medium-size distributors is justifying the capital expense to deploy a website. Some have turned to multi-tenant or industry websites such as Vanguard National Alliance. Others have informational websites with an aspiration to provide a transactional website in the future. About 36 percent of MDM Market Leaders believe their website is very effective and 62 percent consider it to be very important to overall revenue. In contrast, none of the other distributors perceive their websites to be very effective or very important. Clearly, making the website more effective and considering it to be more important should be a key element of the distributor marketing imperative. Conclusion We believe the stark difference in usage, effectiveness and importance of sales channels by MDM Market Leaders relative to smaller distributors is testament to the criticality of multichannel marketing for distributors. Simply put, the MDM Market Leaders apply more resource and better management to multi-channel sales and get better results. This dynamic is reinforced by research done at Bain Consulting, covered in Profit from the Core by Chris Zook. Zook studied sustained About This Marketing Study This research was conducted by Real Results Marketing in conjunction with Modern Distribution Management. The research performed included interviews with nearly 20 distributor senior executives and an online survey taken by 175 participants across a variety of distribution sectors. There was heavier participation from industrial, electrical/electronics, building, safety, HVACR and plumbing sectors. Other participating sectors include chemicals and plastics, pulp and paper, janitorial, hardware, oil and gas, grocery, and pharmaceutical. Nearly half of the participants have fewer than 10 stores. Nine percent are not branch-based, 27 percent had 10 to 100 stores, and 12 percent have more than 100 stores. Forty-four percent are small distributors, less than $50M revenue, 38 percent mid-market with $50 million to $500 million revenue, and 18 percent large with more than $500 million revenue. value creators, companies who grew market share and profit over multiple years. They found that the sustained value creators reinvested at 15.3 percent, nearly twice that of their rivals, at 8.7 percent. The reinvestment included marketing expenditures. By analogy, we believe that a significant part of MDM Market Leaders success is derived from their marketing capabilities. For other distributors, the marketing imperative has two implications: In less competitive sectors, investing in multichannel marketing can mean the difference between thriving and leading versus following. In competitive markets, e.g. electronics, where the leaders already have well-honed multichannel offerings, aggressive and skilled use of multi-channel marketing is, quite possibly, necessary for survival.

7 MDM Special Report: The Distributor Marketing Imperative 7 Part 2: Distributors Marketing Vehicles Research: Room to grow in catalog, in-store & search engine marketing This article explores how distributors use different marketing vehicles such as , the Web, catalogs and more. By Jonathan Bein and Rob Kelley Historically, distributors were limited to in-store marketing vehicles such as print flyers, catalogs, some telemarketing and tradeshows. Marketing vehicles that have become prevalent in the past five years include , search engine marketing, increased telemarketing and social media. Of course, the marketing vehicles are linked significantly to the marketing channels chosen by a company. As noted in Part 1 of this report, published in the May 10, 2011, issue of MDM, many companies have outside sales and inbound telephone sales channels. Fewer companies have a transactional website. Companies without e-commerce will make only token efforts in search engine marketing. In fact, some may avoid it altogether because they feel that the aesthetics or content on their websites are inadequate and so it may be counterproductive to draw attention to them. In this article, we look at how MDM Market Leaders (defined as the largest distributors in their sectors) and other distributors use direct response and in-store marketing vehicles as well as mass media and social media marketing vehicles. The main differences between the leaders and other distributors lie in the use of print catalogs, search engine marketing and in-store events. The market leaders are more likely to use these marketing vehicles and to consider them important in their overall marketing efforts. Direct Response Marketing Vehicles As shown in Figures 1 and 2 on page 3 of this issue, the MDM-Real Results Marketing survey covered five direct response marketing vehicles including print catalog, print flyer, , search engine marketing and telemarketing. With the exception of search engine marketing, MDM Market Leaders and other distributors have similar likelihoods of using a specific direct response marketing vehicle. Catalog Marketing. Slightly over half of all respondents have catalog marketing programs. The main differences among respondents are size of catalog, frequency of distribution, and circulation. The MDM Market Leaders create larger annual catalogs but they also are effective with monthly mini-catalogs often customized to specific market segments. Distributors who are less focused on MRO sales are less apt to perform catalog marketing. Some vendors who either never had a catalog or ceased printing a catalog years ago are now moving directly to electronic catalogs. Yet, many distributors realize that their customers will first look in a print catalog and only then purchase online or over the phone. These distributors have not bought into the idea that print is dead. Instead, they are growing circulation of their print catalogs and show no sign of slowing down. and Print Flyers. Almost 90 percent of survey respondents use print flyers and just over 75 percent use marketing to reach customers. Larger distributors have daily or weekly operations focused on creating and delivering print-flyers or whereas smaller distributors may do monthly or quarterly versions. One of the virtues of print-flyers and even more so with is that it is easy to measure results because there is usually a specific offer associated with each of these vehicles. In contrast to other direct marketing vehicles, print flyers and are primary vehicles for smaller companies who typically have less mature capabilities in search marketing, catalog marketing or telemarketing. marketing is easy to do, but hard to do well. Burt Schraga, CEO of Bell Electrical Supply, Santa Clara, CA, said: We do not believe in marketing because it is highly commoditized. Everybody has got Constant Contact. I think the way to reach out is to send print material. Large companies employ marketing specialists who can create more targeted offerings, which addresses these concerns. These specialists can also leverage software tools such as Eloqua, Net Results Marketing or Silverpop that automate responses based on what a customer viewed or how many times they visited a website, for example. Search Engine Marketing. The use of search engine marketing is a clear point of differentiation between the practices of MDM Market

8 8 MDM Special Report: The Distributor Marketing Imperative Leaders and other distributors. Search engine marketing is a strategy focused on using free and paid tools online to optimize company visibility on Web search engines. More than 70 percent of the leaders use search engine marketing versus 54 percent of the other distributors. The increased usage by leaders is also reflective of their increased emphasis on the Web as a channel. Smaller distributors are less likely to have any e-commerce capability. As a result, 40 percent of the market leaders view this channel as important where only 19 percent of the other distributors do. Slightly more than half of the MDM Market Leaders do search engine marketing on a daily basis, often through dedicated in-house SEO/SEM experts. By contrast, smaller companies typically rely on third-party expertise. Telemarketing. The presence of telemarketing was slightly higher for leaders at 54 percent versus 46 percent for other distributors. The main difference is the frequency with which the MDM Market Leaders do telemarketing: Half have daily, ongoing operations versus 31 percent for the other distributors. As noted in the first part of series, the outbound telephone sales channel is well utilized by about 20 percent of all distributors. Similarly, best practices for telemarketing such as target list hygiene and selection of agents with proper skills are not well disseminated or applied by most distributors. In-Store/In-Person Marketing Vehicles As shown in Figures 3 and 4, the survey covered three in-store/in-person marketing vehicles including branch/store events, display merchandising and trade shows. Although each of these vehicles is commonly used by distributors, the MDM Market Leaders attach less importance to these vehicles than to catalog marketing and search engine marketing. They also attach more importance to these than to marketing and telemarketing. Trade shows. For many, a trade show is considered a necessary evil. On one hand, it is critical to have presence at certain trade shows. On the other hand, there are often minimal measurable results from the trade show. Larger distributors with professional marketing departments participate quarterly or even monthly whereas smaller companies only do annual trade shows. Branch events. Over 80 percent of the market leaders use branch events versus 66 percent for the other distributors. The branch events can include training, sharing of best practices, and introduction of new suppliers. For distributors with more than $100 million revenue, branch events are usually held monthly and coordinated with the corporate marketing department. For very small distributors the events are held quarterly or even annually. Display merchandising. This marketing vehicle is used less by the MDM Market Leaders than it is by the other distributors. This could be driven by distributors who do not operate branches and rely on catalogs and websites or distributors who focus on selling to OEMs. Figure 1 - Direct Response Marketing Vehicle Use The numbers below indicate the percentage of survey respondents who use that particular marketing vehicle. Find a complete list of MDM Market Leaders at mdm.com/marketleaders. MDM Market Leaders Other Distributors 56% 53% 89% 90% 75% 77% 71% 54% 54% 46% Print Catalog Print fl yer Search engine marketing Telemarketing

9 MDM Special Report: The Distributor Marketing Imperative 9 Many small distributors utilize display merchandizing with daily or weekly adjustments to increase sales. The market leaders who do utilize display merchandising rate it as more important than do smaller distributors. Mass Media Vehicles In general, mass media is a less common and less effective means for reaching the prosumer audience of B2B distributors. Among the survey respondents 7 percent use TV ads, 11 percent use radio commercials, and 8 percent use outdoor advertising, such as a billboard. Within the seven respondents who use TV as a marketing vehicle, one distributor sells consumer products and three of those seven only employ TV ads quarterly or annually. Use of radio by distributors is similar to TV: Only 4 of the 12 respondents who use radio do it weekly or daily. Grainger is a visible notable exception in its use of mass media, particularly television. The message of the MRO distributor s ads is that Grainger has a wide selection of products. We wonder whether this is really the best message for them to convey through this expensive campaign given the incredibly high levels of existing awareness the company already enjoys about its brand and its huge assortment of products. This campaign is in conjunction with the distributor s strategy to grow the number of product categories, suppliers and products beginning in Still, as large as Grainger is, their TV media must be applied carefully to reach a responsive target audience. Social Media Vehicles Most distributors efforts with social media are experimental and involve straightforward uses of LinkedIn, Facebook and Twitter. Of the 36 percent who currently have a social media initiative, nearly a quarter of them are involved on a daily or weekly basis. Less than half of those with a social media initiative consider it important. However, a number of distributors understand that its importance as a marketing vehicle will grow as younger people are hired into the workforce. Nevertheless, the workforce is aging at only 2 percent to 2.5 percent per year, so it will be several years before those who have grown up with social media form a significant portion of the workforce. We believe that mobile applications that support ordering in the field will evolve much more rapidly than social media which is primarily awareness-oriented. Conclusion The choice of marketing vehicles depends heavily on distributors choice of marketing channels. In the previous article, we said that most distributors, whether they sell MRO products or to OEMs, have solid capabilities with outside sales and inbound telephone sales. However, capabilities for in-store marketing, outbound telephone sales and e-commerce vary widely. From the standpoint of marketing vehicles, the imperative for many distributors is Figure 2 - Direct Response Marketing Vehicle Importance The numbers below indicate the percentage of survey respondents who perceive that particular marketing vehicle as important to overall revenue growth. Find a complete list of MDM Market Leaders at mdm.com/marketleaders. MDM Market Leaders Other Distributors 41% 29% 27% 30% 12% 22% 40% 19% 13% 16% Print Catalog Print fl yer Search engine marketing Telemarketing

10 10 MDM Special Report: The Distributor Marketing Imperative to improve three marketing vehicles: Catalog marketing For some companies, this may mean initiating a new effort or resuscitating prior work to begin catalog marketing. The efforts with the catalog will spill over to the e-commerce site because once the product content is created, it can be used in print or electronically. For those companies who publish a catalog annually or every other year, there is a great opportunity to do smaller form editions that are monthly or quarterly. Search engine marketing Marketing returns on good search engine marketing can vastly exceed older methods of marketing or personal selling. A good e-commerce site is important but not a pre-requisite for SEO/SEM. Sites with good content and clear calls to action are also worthy of search engine marketing. In-store events We spoke to a number of companies who believe that there is limited return on in-store marketing because decisionmakers rarely visit our store anyhow. To break this self-fulfilling prophecy, distributors should improve all aspects of planning, targeting, execution, and follow-up for in-store events. Jonathan Bein, Ph.D. is a senior partner at Real Results Marketing and can be reached at jonathan@ realresultsmarketing.com. Rob Kelley, CFA, is a partner at Real Results Marketing and can be reached at [email protected]. Figure 3 - In-Store/In-Person Marketing Vehicle Usage The numbers below indicate the percentage of survey respondents who use that particular marketing vehicle for in-person or in-store campaigns. Find a complete list of MDM Market Leaders at mdm.com/marketleaders. MDM Market Leaders Other Distributors 82% 82% 66% 66% 64% 75% 75% 86% 79% 86% Branch/store-based events Display merchandising Trade shows Figure 4 - In-Store/In-Person Marketing Vehicle Importance The numbers below indicate the percentage of survey respondents who perceive that particular in-store/inperson marketing vehicle as important to overall revenue growth. MDM Market Leaders Other Distributors 21% 23% 29% 24% 21% 13% Branch/store-based events Display merchandising Trade shows