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How To Secure Your Distribution Business By Overcoming The Threat Of Disintermediation?

By Tracey Heinz

A decade ago distribution was a cumbersome process that involved a lot of personnel and long delivery times. But with the Internet taking our lives by storm everything has changed about the way businesses are carried out. It has also impacted the way distribution is run now as compared to traditional ways just a few years down the lane.

While the Internet has opened immense opportunities for distributors that can be utilized by them to increase their sales and streamline their processes, it has also brought forward some threats that the modern distributors are faced with. Among them disintermediation lies on the forefront.

Look back at the way distribution process was conducted a few years ago and you will see that middleman was a significant player in the supply chain. But with Internet taking hold of the reins of distribution business, the role of middlemen is confined or altogether removed.

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In simple terms the removal of middleman from distribution process is known as disintermediation.

Technically it means removing all those elements that work with the producers in delivering their products to the end consumers. Travel agents, stockbrokers, retailers and even distributors are eliminated by the manufacturers. With the help of technological advancements, producers and manufacturers are at a liberty to reach the customers by depending upon minimum or no intermediaries.

Though the use of Internet in the distribution process has limited the scope of middlemen, believing the business can flourish without their role is not correct. The basis on which middlemen are faced with disintermediation is that the customers can now directly approach the producers or manufacturers. While this enables the customers to get products at low prices without having to bear the additional costs, they are limited to the products offered by a single manufacture. This limitation again opens doors of opportunity for the intermediary.

Intermediaries can still reap great benefits despite the customer being able to explore his purchasing options. All they need to do is to provide the customers with customized products or service solution. Middlemen can offer the end-user with customized products based on their preferences and needs. This can be conveniently done by getting products from multiple manufacturers.

The Need Of Reintermediation

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Regardless of how many intermediaries your business entity has, the real need of the hour is to have new middlemen who would add value. A way existing middlemen can provide much needed value to their customers is to take into consideration customer insights. This would equip the intermediaries with the tool to predict what the customer is looking for or make valuable suggestions to clients about products from multiple manufactures based on their purchasing insights in real time.

With the middlemen adopting to the altered business model in this digital era, there is a scope for a new type of business that would provide customers with complete update on what they should purchase and from which manufacturers. One such example is “one-stop shop” where intermediaries cater to clients with impressive business solutions, providing them with personalized recommendations. This has greatly changed business scenario, giving more emphasis on the customer and customer relationships rather than the product itself.

Looking for examples of such businesses? There are right under your nose. You don’t need dig any further when it comes to names like Yahoo and Amazon. The reason behind their mammoth success is that they act as middlemen between products and end-users, adding a lot of value for the customer. These businesses provide a platform to customers where they can explore and get informed about various products that will cater for their needs, adding richness to their overall experience. And this type of intermediary business scope has come into existence because of technology.

There is a lot of opportunity for middlemen now than ever before to create value at focusing on all the customer touch-points. Provided you use the correct tools and techniques, you can successfully garner favorable results by tapping these touch-points on the Internet, customer service, retail outlet and so forth.

The Power Of Recommendation – CRM Techniques

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The key to reintermediation lies in getting in depth knowledge about consumer preferences and behaviour and then give personalized recommendations based on the information available. Nowadays, personalization is the key to ensuring successful transactions from customers and the technique is adopted by numerous websites, point-of-sales and call centers. As soon as the customer gets into contact with the business, he is greeted with his name, customized recommendations are made to him based on his preferences to encourage him to make a purchase and customized content is presented to him so that he feels connected to the brand. Right now, majority of Internet users get the service or customization at retail store websites. Soon they would be entitled to it in outlets and calls centers.

Right now with the new scope of work for the intermediaries a new term “recommendation technology” has been coined.

What is recommendation technology and how does it work?

Recommendation technology is a process whereby businesses improve their revenue from e-commerce by improving customer retention and number of random purchasers.

With the tools of recommendation technology and personalization at the disposal of intermediaries, it has opened up a whole new venue for the distribution business owners to experiment on. Now, there are two different CRMs based on these two key functions.

  • Rule-based &
  • Collaborative filter engines

With both methods, the way technologies operate in fetching personalized content is different despite having many commonalities Both CRMs end goal is to decipher customer’s preference and then offer a personalized suggestion. The way these processes capture customer insights is manually i.e. either through surveys. Moreover, in order to execute a customized recommendation both these tools need to have access to database to obtain meaningful information.

Ensuring Distributor Growth Alongside Manufacturers

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In addition to using appropriate CRMs for reintermediation, how can distributors ensure their growth alongside manufacturers?

There is no denying that the current business models for most manufactures encourages partial disintermediation as they look for newer and improved ways of getting connected to their customers. In such situation traditional distributors are often faced with the question that what measures should they adopt so that their business flourishes?

Generally, all the distributors come from one of the following two categories.

  • Distributors who want to keep the profit to themselves without having to share their candy with the manufactures.
  • Distributors who are willing to offer whatever that is in their plate to manufacturers and work on ways to grow collectively.

Distributors that fall within the second camp consider growth process varied across different steps.

  • Customer Acquisition
  • Selling To Customer
  • Provide Value
  • Provide Support

Distributors are compensated by manufacturers for performing duties across these areas. In disintermediation, manufacturers either perform the whole process themselves or take up few parts of the process while leaving some for the distributors. Based on the value provided by the distributors in each area, they can increase the dependency of manufactures, making themselves an indispensable part of the business.

Now let’s consider the scope of distributors in both scenarios.

Manufacturer Take Up Whole Process For Some Customers

Typically, manufacturers are unable to provide the whole process to all their customers. However, sometimes a manufacturer might consider approaching his top clients. Here, the distributor can make up for his profit by targeting the remaining of the market, which the manufacturer has left out.

Manufacturer Takes Up Select Steps For All Customers

Certain manufacturers consider taking up some of the steps for all customers like customer acquisition reducing profit margin for the distributor owing to his limited responsibilities.

This may not be treated as a negative sign. Mostly customer acquisition is the most tedious task in the distribution process and many distributors are faced with the pressure of acquiring new clients. If this area is taken up by the manufacturer, distributors can cut down their lead generation costs and focus on providing optimal operations. It is imperative here that distributors outperform the manufacturers by offering value-added services. If they fail to do so, they would be facing a fulfillment prison, as the manufacturer’s team outpaces the distributors.

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End Note

Distribution business model has been subject to change owing to the rapid technological changes being implemented in the way all businesses operate. Right now distributors are facing the threat of partial or full disintermediation. However, there is ample opportunity for distributors to keep growing alongside the manufacturers by being mindful of the following points:

  • Manufacturers can access their customers directly.
  • Customers constantly look for value and personalized experience.
  • How they can utilize customization and provide value to customers?

If these points are taken into consideration and a strategy is built addressing these core issues, it can conveniently convert the threat of disintermediation into an opportunity that needs to be tapped on.

Tags: Distributors

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