In the coming years, major disruptive forces are aligning that will potentially restructure the wholesale distribution industry, McKinsey analysts recently predicted. However, the report notes, “while the overall picture may look bleak, we see opportunities across sectors. A handful of industry leaders are growing share and margin.” In other words, distributors can win the next decade by turning disruption into a positive and using tools like AI to rise above the competition.
A basic outline of the McKinsey report is as follows: The past decade challenged distributors by narrowing margins and introducing new forms of competition. As the industry fragmented, new entrants gave customers unprecedented “insights into pricing and therefore more negotiating power.” As the 2020s play out, slow-moving distributors will struggle to keep “sophisticated customers who are armed with new data,” and who demand “deeper discounts and better promotions on more commoditized products.”
However, there is an upside for distributors. McKinsey’s research shows that calculating distributors can turn disruption into opportunity with the following five strategies:
- operate at scale;
- serve a favorable mix of customers;
- provide a broad product assortment for convenience;
- offer more value-added services;
- and invest in digital technology that improves customer experiences.
In the coming decade, distributors will need to use AI to execute each of these strategies. Here’s why:
1) Operating at Scale with AI
Large companies benefit from economies of scale because they pay proportionately less for the same fixed costs. Moreover, big distributors enjoy better supply chain partnerships, increased back-end efficiency and superior terms from manufacturers. However, scale can be dangerous; as organizations grow, countless processes and moving parts become dependent on one another, and even the slightest hiccups can cause disastrous downstream effects.
Thus, good technology enables distributors to get the most out of scale. AI-powered ERPs and CRMs will help distributors calculate the most efficient practices and execute a comprehensive, coordinated plan. As distributors scale-up throughout the decade, AI will make sure that their growth is profitable and efficient.
2) Finding Favorable Customers with AI
Distributors do best when they serve a mix of high-growth and high-margin accounts. Traditional sales approaches might force reps to prioritize larger accounts or call on small accounts with regular frequency.
With AI, however, distributors can create data-driven practices for account management. AI-enhanced CRMs analyze which accounts should be called and when, giving distributors a workflow that prioritizes profits, instead of volume or effort.
3) Optimizing Product Assortment with AI
Customers appreciate distributors who offer one-stop shopping experiences. However, a large catalog means nothing if customers aren’t pitched on the right products. Many distributors already have more combinations of products and customers than there are stars in the universe. This makes it all but impossible for unassisted reps or websites to suggest the right items to customers.
AI recommendation engines solve this problem by analyzing customer data and predicting the exact product that each customer is most likely to buy, reorder, or add to their cart. With AI, distributors won’t just be creating larger product selections, but leveraging those larger product selections into more sales.
4) Offering More Value-Added Services with AI
McKinsey notes that, “while product selection and convenience are crucial, many customers are looking for more.” Distributors can create value by offering special services or training, demonstrating specific knowledge about projects and forging relationships with customers. Just as with larger product assortments, AI recommendation engines enhance value-added services by ensuring that customers are paired with the right services, and that customer information is not lost across channels.
The Harvard Business Review reports that customers hate dealing with companies that have uncoordinated, multi-channel structures. With comprehensive systems, information from customer service, sales, marketing and e-commerce gets pulled into the same database, where AI-powered analysis is used to create a singular and accurate view of each customer. When distributors truly know their customers, their value-added services become much more valuable.
5) AI is the Digital Capability That Improves Customer Experiences
The final point in the McKinsey report is that distributors must use digital technology to improve customer experiences at and beyond the point of sale. To me, this is more of a summary of earlier points, than a separate strategy. AI alone is not a strategy, but it is the key ingredient in all future winning strategies.
AI is the foundational component behind any move to invest in larger sales networks, broader customer bases, deeper catalogs and value-added services. The technology tracks, analyzes and predicts buyer behaviors, enabling cohesive strategies that win customers and increase profits.
As distributors go forward, it is important not just to know the winning strategies, but to employ the necessary AI tools, and start dominating the new decade.