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Industrial distributors: Big changes ahead

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Several challenges – and opportunities – are on the horizon for distributors.

Industrial distributors who cling to traditional business models and the way they've "always done things" face serious challenges in attracting new customers and retaining existing ones, according to the new UPS Industrial Buying Dynamics study.

"Today's B2B buyers want what I call a ‘rich experience'. They expect the same kind of customer experience they get from the best of online B2C retailers." – Simon Bhadra, UPS Marketing Manager

The study, which offers an in-depth look at the rapidly changing relationship between distributors and industrial buyers, shows that shifting market forces and higher expectations among industrial buyers are raising the bar for distributors of all sizes. UPS Marketing Manager Simon Bhadra shares these key findings and insights in the study's four broad categories: the desire for a B2C-quality buying experience, more direct-from-manufacturer purchasing, expanding e-commerce and a growing millennial workforce.

Expecting a B2C-quality experience

Global research firm TNS surveyed 1,500 buyers from a wide range of industries, and American buyers rated distributors highly (above 90 percent) on product quality, availability and timely delivery. But 35 percent of buyers found fault with price and payment options, 31 percent rated service issues most challenging, and 25 percent said distributors dropped the ball on such value-added services as repairs, training or technical support.

"Today's B2B buyers want what I call a ‘rich experience,'" Bhadra says. "They expect the same kind of customer experience they get from the best of online B2C retailers." This is especially true when it comes to service and post-sales support, Bhadra says, since most B2B transactions can be complex and costly.

He noted caster wheels as a prime example of the trend. According to Bhadra, caster wheels are relatively simple devices in the industrial environment, but there is an impressive amount of science involved for a B2B buyer application. An auto manufacturer that needs to move engine blocks will ask questions about the specs, the load-bearing capacity and useful life. "Buyers will want quick answers about warranties, how to use the product, and instructional videos," he says. "That's the kind of support buyers want."

Direct from manufacturers

Unless a distributor adds value, real or perceived, today's industrial buyers are more likely to buy direct from a manufacturer. In fact, 64 percent of buyers said they already bought direct, and 30 percent planned to consider doing so.

"That's scary for a distributor," says Bhadra, especially with more manufacturers interested in selling direct. "The enabler is the Internet, which creates opportunities that can marginalize a distributor that doesn't deliver the level of convenience and service their customers expect."

However, it's not the end of the road for distributors. According to Bhadra, a stronger emphasis on customer service and hands-on support can help emphasize and reinforce their value. One example: To provide more knowledgeable post-sales support for its buyers, a UPS customer that distributes industrial measurement equipment hired engineers to staff the support desk. "That was a big investment, but the payoff was one-call problem resolution and high-level customer satisfaction," says Bhadra.

E-commerce can't be ignored

Before the digital buying boom, a printed catalog, price list and order form were all a company needed to advertise products and services to customers. "I know great distributors who really care about their customers and have gone on for 40 or 50 years without any online presence," Bhadra says. "They still have buyers sending them letters explaining what they want, with a check inside."

But for the vast majority of B2B companies, pen-and-paper purchasing is long outdated – and could hinder or prevent future growth. According to the study, 66 percent of buyers purchase through distributor websites, up from 57 percent in 2013. "The real eye-opener is that 72 percent said they would shift spending to a distributor with a more user-friendly website," Bhadra says.

Bhadra points to a UPS customer that distributes HVAC component parts nationwide as an example of how distributors can smartly use e-commerce to their advantage.

"They've seen sales ramp up 40 percent since upgrading their website two years ago," he says. "Their site is user-friendly, easy to navigate and features step-by-step videos, showing how to install parts."

The HVAC parts distributor's online store also integrates with UPS technology to streamline processing and tracking of shipments.

"Now they want to expand to the West Coast, and we're talking with them about using our contract logistics and warehousing capability," Bhadra says.

Millennial tastes drive buying behaviors

Industrial buying changes are magnified even more when it comes to millennials, those buyers between the approximate ages of 18 and 33. These "digital natives" have grown up with technology, and over 79 percent report buying online. Some 51 percent routinely buy through third-party websites like Amazon Business or Alibaba.

What's more, according to a Pew Research study, millennials now account for the largest chunk of the workforce – making them a top buying demographic for distributors. "Ninety-nine percent say they already buy direct or would consider buying direct from a manufacturer," says Bhadra, "and 85 percent would shift spending for a more user-friendly website, compared with 72 percent of buyers overall."

Accustomed to websites that offer detailed product specifications, zoom-able high-definition photos and user reviews, millennials use their innate tech-savvy to make purchasing decisions. They're also used to getting information from multiple channels – including social media – before buying, and 34 percent expect to see a clear delivery date, the Industrial Buying Dynamics Study says.

Although the study highlights a number of concerning issues for distributors, according to Bhadra, the shifting landscape should spur businesses to evolve from a service standpoint. "The solution [for addressing these market shifts] is to put together a superior cross-channel experience for all your buyers," says Bhadra. "If you have high-level customer service, knowledgeable sales people, a user-friendly website and post-sales support that's consistent across multiple channels, you are in great shape."

Download your copy of the UPS Industrial Buying Dynamics study here.

Find details on UPS solutions for industrial distributors here.

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