How Distributors Can Compete With Amazon and Other Online Providers

An ever-increasing threat to your business

Amazon and other on-line providers have made significant inroads into many industries with their B2B marketplaces. In a very short period of time the landscape has changed and now your customers have access to a significantly wider assortment of product available in stock with guaranteed next day delivery. Additionally, the price points advertised make it very difficult to compete against without significantly eroding your margins. 

This threat to your business is not going away. Are you asking your team what you can do to survive? Remember, the definition of insanity is to continue doing the same things over and over but expecting different results. Now is the time to implement responsive tactics to stand out in the crowded marketplace.

Action plan to counter the threat

Leverage your customer relationships. One very important advantage you have compared to Amazon and other on-line providers is your individual customer relationships. The time and effort spent cultivating these business relationships should not be overlooked or allowed to diminish. Make sure you emphasize your personalized customer support in taking care of the customer. Your company sales reps understand the local market dynamics and what each customer is facing on a day-to-day basis. This local knowledge isn’t available from Amazon. Another advantage you have at the local level is offering training clinics and product & business-building workshops. “Lunch & Learn” clinics (on-line or on-site) also provide a valuable customer relationship building opportunity. And there is one additional tool you should consider adding to your arsenal - a loyalty reward program. 

A B2B customer reward program is the perfect tool to increase customer loyalty. By rewarding their loyalty, you become more important than just providing a part or product for a price. A well designed and executed performance-based reward program will not only drive incremental revenues – with incredible ROI on each dollar invested - but actually change customer purchasing behavior. 

Use Your Customer Data. Amazon utilizes data mining to target customers with relevant offers to maximize profitability. You can do the same by leveraging your own historical purchase data, providing opportunities to tailor customer messages with reward offers specific to each individual customer. Your customer transaction data is quite literally a goldmine and a customer reward program is the perfect way to help unlock its value.

Reduce reliance on discounting  

A reward program is an invaluable sales tool to stay connected to your customers and deliver added value – and will cost much less than discounting. Discounts and rebates eventually become entitlement programs and aren’t effective in supporting your key sales and marketing goals. A well-run reward program can be used to help achieve virtually any sales goal your organization may have – from gaining traction on a new product launch, increasing the number of categories purchased, selling overstock and obsolete inventory or driving on-line ordering. 

My firsthand experience using a reward program

As a former VP Marketing for an auto parts distributor, I have firsthand experience in effectively using a customer reward program. My objectives for launching a program were: 

1) changing my customers purchasing behavior to achieve the annual sales and marketing goals

2) offering them something unique that would allow our company to stand out in a highly competitive marketplace.

The most important elements I sought for our reward program were:

• Wide variety of reward options including name-brand merchandise, sporting & music events, travel rewards, a large selection of gift cards as well as cash cards for those customers that only want cash. Keep in mind that your own company promotions garner limited customer participation due to a “one size fits all” structure. You never know what may incentivize each of your customers so ensure you have a robust array of reward options to entice just about anyone.
• A performance-based cost structure. This means that your ongoing reward program costs and fees are triggered only when your customer responds to your offers. Our vendor did not charge a flat monthly fee and start-up costs were low. The performance-based cost structure allowed me to experiment with different offers to see what worked. If there wasn’t any response, then there wasn’t any cost.
• Full-service program provider. This was probably the most important element to me as I didn’t have the time or resources to add another initiative on my already overflowing plate of responsibilities. Our vendor was a full-service provider; they did all the heavy lifting managing the program. After getting the program launched, I spent approximately one hour per month overseeing the reward program. I would just tell the vendor what I wanted to do, and they took care of implementing and reporting. 

The results

Our program results far exceeded my expectations. I implemented two separate programs targeting different customer channels. One customer channel was characterized as high volume but lower margin. Growth tiers were developed and implemented for this channel based on increases compared to the prior year and tracked quarterly. Starting just above the projected organic growth projection for the year, each successive growth tier provided higher rewards (e.g. +5% to 10% growth earned double rewards, 10% to 15% growth earned triple rewards and customers could earn up to 5 times the rewards for 25%+ year over year growth). This tactic drove incremental gross profit dollars to a level that paid for the total reward program costs many times over and the program became a profit center for the company.

Now is the time to take action!

In July, 2020, I presented a webinar on this topic where I explained how you can leverage your customer relationships with a reward program that will help to maintain and grow market share and drive your key sales goals. Click the button to watch.

Contact us today for an introductory discussion or schedule an online demo.