B2B Distribution: Optimizing Your Product Portfolio, Pt. 1
As a distributor in business-to-business (B2B) markets, expanding your product portfolio may seem like the quickest way to capture new customers or increase the buy of existing customers. However, adding products is not always the most efficient way to drive growth, and in some cases it may even reduce overall margin.
Related Reading: Look Before You Leap: Product Portfolio Strategies for Price-Sensitive Segments
If you’re operating in a market with many competitors who already carry the products in question, you could find demand won’t justify the increased sales, marketing, or inventory costs. Additionally, if the products are low-margin commodities, the argument for adding them becomes even weaker.
If the prospect of expanding your portfolio looks limited, it may be best to turn to what’s familiar. But how can you optimize your current product portfolio? Let’s explore the steps to take to ensure you maximize the success of your offering in the marketplace.
Explore Viability of Value-Add Play
If growing through your existing portfolio is the best path forward, think about how you can improve your overall offering in the eyes of the customer. Are there ways of adding value to your products through services? Value-added services have the potential to differentiate you from the competition, allowing you to justify increased prices or appeal to an untapped segment of new customers.
The value-add play can take many different forms depending on the industry. In our work in the aviation industry, we learned that kitting is an important service valued by MRO shops that repair planes. By packaging parts together in a landing gear replacement kit, for example, distributors can reduce repair times for customers and allow them to get planes back in the air sooner.
After considering the viability of the value-add play, it’s possible some customers won’t be interested in additional services beyond the product itself. In our experience, these customers who aren’t interested in the “bells and whistles” typically purchase from suppliers for two reasons: price and availability. They favor distributors that have the lowest prices, the best availability, or some combination of the two. In the case of one aftermarket distributor, their customers would typically buy the lowest priced option among distributors who had the product in stock; distributors who didn’t have the product available weren’t considered. When all else is equal—price, product, service—price will win.
If pure distribution is what your customer is looking for, then it’s necessary to edge out the competition on these factors alone. Thus, in order to maximize price and availability, distributors must be strategic about which suppliers they align with.
Consider 3 Supplier Sourcing Strategies
As a distributor, it is unlikely that you would be able to drive better price and availability across all your suppliers. Instead, you will need to focus your efforts on partnering with particular suppliers whose products best allow you to win with your customers. This may require you to make an investment, like offering more value to a supplier to enter an exclusive partnership. It also may require hard decisions, like terminating relationships with one supplier to get closer to another. In our work across industries, we have identified three core supplier strategies to achieve better pricing and availability for customers.
Read Part 2: B2B Distribution: Supplier Sourcing Strategies
