Is it Time for Prime in the Electrical Industry?

IS IT TIME FOR PRIME

IN THE ELECTRICAL INDUSTRY?

As the world emerges from the COVID-19 pandemic, digital transitions from in-person to virtual work and online v. in-person shopping will stay rather than return to the way things were done before. The wholesaling model emerged in the early 20th century before widespread telephone use, before credit cards, and before couriers such as FedEx could deliver products quickly from across the continent. The value that the wholesaler provided was a local source for product, credit, and information on products. With product information widely available on websites that can deliver quickly, the value that traditional wholesalers offered is eroding.

The electronics distribution market has been dominated by online national distributors because components are commodities and the value that a brick-and-mortar distributor can provide is limited. The electrical wholesale channel has been insulated from disruption to date because of the complexity and broad range of products, along with the need for local inventories especially in western Canada. Amazon began as an online bookstore, but has become the de facto source for consumer products. This push into new markets puts the electrical wholesale channel at risk. What began as Amazon Supply targeting the B2B market, entered Canada in 2019 as Amazon Business as well as Business Prime. Setting up an account is designed to be easy and takes less than five minutes. According to Lisa Citton-Battel, Director, Consumer Business Group at 3M Canada, “Amazon Business presents an exciting opportunity for 3M Canada as both a seller and a buyer.”

The reliance on Amazon and other online ordering through the pandemic has made online ordering comfortable for those that preferred shopping in store. While these orders may have been for consumer goods, the habits and expectations formed will spill over into a consumerization of the ordering process for B2B purchases as well. The Amazon Effect, if you will, includes expectations of readily available product, purchases completed with one-click-buy convenience, information on delivery time and cost at the time of

The post-pandemic world appears to be digital, but all is not as it seems. Two out of three buyers want to work with people in addition to digital resources. The inside and outside sales representatives represent the company to their customers. The relationships they have are in part because buyers like interacting with them.

order, and greater price sensitivity by easily comparing prices from various sellers.

The shift to digital for sales and purchasing began in the late 1990s, but the result of the pandemic has been an acceleration of this transition. Sales have evolved from transactional order writing to a consultative process. Information and product specifications are available online, and ordering can be done electronically. The era of the salesperson doing the milk run and handing out doughnuts is over. By a ratio of three to one, B2B buyers prefer to self-educate, which according to consulting firm Deloitte, the digital transition is causing a “transformational shift in value creation.” In a digital world, functions that previously provided value to customers no longer do so. A paradigm shift is required for the electrical channel to continue to provide value to customers.

While the threat to the electrical channel from Amazon is real, it provides an opportunity for firms that are willing to adapt and change to reflect the needs of customers in the digital era. Of customers that buy online, 23 per cent have higher buyer’s remorse than those that used a sales rep. Inside and outside sales representatives in the digital era require a higher level of knowledge of other industries and of their customers in addition to product knowledge. Maximum value can be added by sales by synthesizing this knowledge with knowledge of products in a consultative rather than transactional selling process.

The post-pandemic world appears to be digital, but all is not as it seems. Two out of three buyers want to work with people in addition to digital resources. The inside and outside sales representatives represent the company to their customers. The relationships they have are in part because buyers like interacting with them. Companies with a strong culture and engaged employees can see service levels increase by five per cent with a 10 per cent increase in employee engagement. Workers in the electrical channel don’t only sell pipe and wire; they keep hospital equipment running and schools lit.

The advantage Amazon holds is technical from investments in physical and digital infrastructure, as well as in their proprietary algorithms. While these factors provide a leading e-commerce platform, there are benefits that electrical wholesalers have in competing with Amazon. The algorithm that Amazon uses can learn through customer types and specific SKUs purchased, but does not have local customer knowledge that sales reps have through their hardearned relationships. For vendors, the advantage in selling through the wholesale channel is that greater data is available on customers and markets than would be through the Amazon platform. Sharing of this data increases value that the wholesaler provides to the manufacturer, which further strengthens channel partnerships.

Competing with Amazon and others in the digital channel on price is not a feasible strategy due to their lower operating costs. Price is only one of the criteria for a buying decision, and the price v. quality comparison is not a new one. According to Benjamin Franklin, “the bitterness of poor quality remains long after the sweetness of low price is forgotten.” For the Millennial and Generation Z demographics, they may need to taste the bitterness a few times until they learn to value other buying criteria.

In order to add value in the digital era, a hybrid model that leverages modern ERP software with human capital is necessary. ERP software provides the data to combine with knowledge from the sales force. In older systems the data is captured, but the reports and utilities to mine that data are lacking. Leading edge software while being a significant capital expenditure

is a requirement for business survival. In the digital era, e-commerce, outside sales, and inside sales form a three-pronged approach to deliver value to customers. Flexibility and speed are requirements in the digital era, as customers will no longer tolerate delays in receiving quotes, and the software needs to be able to adapt to changing requirements.

As a channel comprising manufacturers, agents, and wholesalers, greater partnership is required. This partnership requires the combined knowledge of all parties on the customers, industries, and the products that meet their needs. Vendors and wholesalers that sell online should be required to have minimum advertised pricing to resist commodification that results from price comparisons. Creativity and communication with customers is required to determine what functions are valued. Process flexibility is necessary to eliminate the tasks that do not offer value so that the capacity is there for tasks that do. Inventory management software can ensure a return on capital, but partnerships with vendors on creative solutions such as consigning stock locally can ensure service levels for customers while maintaining inventory at a level that satisfies shareholders. For some customers, jobsite delivery, custom labelling, staging of products, or other value-adds will drive their purchase decisions. According to Deloitte, wholesalers of the future will anticipate the needs of customers and deliver the solutions to meet these needs and add value.

There is a silver lining to the entrance of Amazon and new e-commerce competitors into the electrical channel, in that it has had incremental change but relatively little disruption as compared with the effects Uber and Airbnb have had on the transportation and lodging industries. Amazon itself, while being an advanced competitor, is still at its core a wholesaler. While the need to adapt is stronger than ever, there is an opportunity for creative approaches from the electrical channel to add greater value than the traditional way. For those that embrace change and are willing to adapt, the future is looking electric. n

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