What's happening in distribution?

I talked with 2 friends today.One has been in animal health distribution for “all his life”; the second teaches at “The B-School”. The subject with both was the role of distribution and the inevitable tension that exists across the channel, sometimes “exploding” into what is best termed “channel conflict.”

Our conversations were peppered with words such as “trust”, “consolidation”, “role”, “going direct”, “distrust”, etc. All signs of various levels of nervousness or fear; mistrust and apprehension: the realization that the world is much different today than when I was a kid 50 years ago. I was a B2B distributor early in my career. I “get it.” Emotions are roiling; it’s time for a change: it’s time to establish a new covenant among and across agribusiness partners – a customer-based, value-focused covenant. The battle is over familiar topics: who “owns” the customer? Who is “our customer”? What role will our channel partners play going forward? And so on. Sounds all too familiar, doesn’t it?

“The Channel” has played a pivotal role in agribusiness over the last century. Sadly and with the excitement of great potential, the role of the channel is changing dramatically.

Changes not withstanding, distribution has played, and has the opportunity to continue to play, a unique role in the United States. The channels’ processes and the roles of the players, off-shore, don’t “look” the same nor provide the same services nor do they offer the-potential-to-add-significant value, which our channel partners can play in North American agribusiness. Distributors, retailers, dealers, vets, agents and advisors all play critical roles.

Roles bring with them responsibilities and the concomitant obligation to give back and add value moving down the channel to the end-user. Each of the players in this distribution game understands their position and the reality of the changing world of agribusiness. Hence the growing distrust and channel conflict – all over customer knowledge and who owns the customer, it would seem.

A good Dealer or Distributor partner is invaluable: in the past, they were guaranteed the financial success they sought[1]. North American “Distribution Systems”, my academic friend reminded me, traditionally “owned” certain responsibilities:

a. Sales,

b. “Demand fulfillment,”

c. Physical distribution,

d. “Product modification and after-sale service, “ and,

e. “Risk assumption.”

In everyday language, the agribusiness “OEM”’s rely on their channel partners to be just that: “partners”.

Distribution is asked to generate demand, to sell their manufacturers’ products and to negotiate pricing; we ask them to run a business, stocking their shelves with inventory from our “plants” and at the same time to train their people to support us (and, we want them to support only us, knowing full-well they are, in most cases, multi-line outlets); we ask them to move product around the system and to customize it in the fields or barns; we ask them take on some major risks: inventory carrying, customer credit, investments in their own place to support the specific distribution and support of our products. We ask a lot. Good distribution partners give a lot – in some cases even more than we might have dared to imagine.

Those comfortable halcyon days of agribusiness have been disappearing ever since the mid-90’s. Information, transgenics, the power of the internet and the flattening of the world seem to be among “the root-causes.” There has been a blurring of roles, a continuing shrinkage in number of outlets there is also the threat – real or perceived - of manufacturers cutting out the middle guys, and a growing need to transform producer and grower data into actionable knowledge used sensitively to create a competitive advantage and noticeable point of differentiation.

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[1] I recognize that there are different naming conventions by industry: if we’re talking about the distribution value chain for seeds, crop chemicals, pharmaceuticals, etc. For ease, I’ve opted to use neutral words that work across multiple scenarios.

Needs-based Segmentation revisited, part 2

In the previous posting I spoke about "the toolkit" we use for needs-based segmentation: targeting, segmentation and grading. Targeting, Segmentation and Grading (or, Valuation) are three of the most powerful weapons in any business' arsenal. This “toolkit” is comparable to open-source code. Constructed theoretically over the last 15 + years by integrated databased sales and marketing masters, this approach recognizes that: a. No firm can be all things to all people b. The value of the firm is equal to the sum of all the customers with whom it does business (and yes, your CFO will accept this!). c. All firms are constrained by resource limitations: people, time, money, etc d. It makes compelling sense to invest your sales, marketing, channel management, and customer service dollars and effort in direct proportion to the expected return on that investment e. Especially in tough economic times, investing in customer relationship management and customer experience management positions a firm for competitive uniqueness as business improves Accordingly, actionable segmentation to promote selectivity and wiser investment decisions is one of the most valuable applications for your marketing database and your CRM/CEM initiatives. Until quite recently, more business communications than not aimed at customers and prospects(present and potential) tended to address them as a great, undifferentiated mass…because there was really no practical way to do otherwise. It was the “We can be all things to all people” approach. Obviously, no business can survive and flourish if it attempts that approach. Limited resources: people, time, money need to be invested in direct proportion to the limited resources that can be applied – and accordingly, this is where targeting, segmentation and grading come into play. Today, computer and business intelligence advances have made it easy and practical to break down the companies in your market universe just about as finely as you like, according to whatever factors you choose. Recognizing the fact that not all customers are created equal, it also allows you to target your limited resources toward those that are most potentially valuable to you. It gives you a practical alternative, and the next best thing, to one-on-one communication. The technique is called needs-based segmentation – the segmentation strategy of choice, since it is needs that drive market behavior. This is the clustering of customers (and later, prospects) according to common sets of needs and purchasing behavior…as these relate to your organization’s external service values…then dividing your customer list into one or more segments, each consisting of a group of customers who share a common set of needs, and a way of doing business.

revisiting: Actionable, needs-based segmentation

Decisions, decisions, decision. Targeting, Segmentation and Grading are three of the more important decisions any company can make. In fact, Targeting, Segmentation and Grading (i.e., the valuation of customers, prospects and the “universe” from which to choose) are the primary building blocks of an effective CRM and CEM (customer experience management) strategy. These actionable steps represent conscious management decisions based upon business intelligence, corporate memory, and the on-going strategy of the business plan. “Being in Business” necessitates making decisions. The single most important set of decisions any business-to-business enterprise can make are those involving selection - of the products and services you will provide, of the customers for whom you will provide them, and of the channels through which you will market them, differentiation, sourcing, profitability, etc. Segmentation is at the heart of this selection process. I originally presented this idea of actionable needs-based segmentation more than10 years ago. I want to reiterate the validity of this approach and present some simple tools with which to put these principles into action, while recognizing the need to incorporate the additional insight available to us today as a result of new channels such as social media and the heightening of social responsibility. This “toolkit” is comparable to open-source code. Constructed theoretically over the last 15 + years by integrated databased sales and marketing masters, this approach recognizes that: a. No firm can be all things to all people b. The value of the firm is equal to the sum of all the customers with whom it does business (and yes, your CFO will accept this!). c. All firms are constrained by resource limitations: people, time, money, etc d. It makes compelling sense to invest your sales, marketing, channel management, and customer service dollars and effort in direct proportion to the expected return on that investment e. Especially in tough economic times, investing in customer relationship management and customer experience management positions a firm for competitive uniqueness as business improves Accordingly, actionable segmentation to promote selectivity and wiser investment decisions is one of the most valuable applications for your marketing database and your CRM/CEM initiatives.

call centers: trying to get a problem fixed

Customer Service is dead! at least within 8 out of 10 representatives.

sure: that's anecdotal at best and based upon my ongoing struggel to gain connectivity.

For the last 7 weeks I've had new internet and TV service. I also have gotten a "fancy", new wireless printer. I can't get either to work!

talk about frustrated. I have spent more time with the various call center people and technicians and managers; yelling at IVR systems (more likely swearing); and wondering why a problem can escalate without notice and satisfaction.

Simple programming- a couple of lines of code at max -, for example, would solve one problem - not putting an already irate customer back at the start of the "voice mail jail box" of going through a rigid IVR tree.

Instead of having to spend fully 5 to 10 just to get through the front end of the IVR and the automated testing and the often fallible voice recognition software that politely deflects my profanities: the system is smart enough to recognize my phone #. Since I now have called in 12 times on the same - yes, THE SAME ISSUE - that same smart computer program could - nay, should - recognize that I'm probably unhappy and put me to a special cue.

Maybe that is too much like common sense.

Oh, but I remember what I keep wanting to make as a point:

common sense isn't so common;

call centers need to be renamed "customer management centers"; and,

the most successful implementations of CRM and CEM go back and adhere to the basics of civility, common sense and giving value to their customers.