In a former role as a commercial insurance company CMO a few years ago, a counterpart at an important broker visited me to discuss the new digital marketing system we were building and testing.
We were always sensitive to the concerns of our partners, and since we were dramatically increasing our level of interaction with customers, I was ready to listen closely. My visitor surprised me with her simple request. She said, “We aren’t quite sure what you are up to, but please include us in everything you are doing!”
The lesson is that digital marketing–establishing digital interaction with customers and prospects around topics that matter to them–can strengthen relationships between distributors and product companies, benefiting both if they work together.
In The Digital World, The Full Spectrum Of Distribution Channels Will Remain Viable
In industries where distribution and production are distinct, distributors of all types often add significant value to customers. They provide a wide array of product choices in an economically efficient way. They provide greater pricing transparency–or at least enable customers to view multiple offers at a range of price points. And they provide objective advice to customers on the choices that are in their best interests.
As a result, there is and likely always will be some portion of customers who recognize the value of independent and/or owned bricks-and-mortar distribution rather than less expensive direct alternatives. Examples can be found in service sectors such as commercial insurance brokerage and consumer mortgage origination, as well as retail sectors such as (gulp) music, travel, and books.
Obviously, the Internet revolution started waves of change more than a decade ago. There are many examples of new distributors disrupting entire industries through digital technology (Amazon, iTunes, Travelocity). There are many other examples of nimble producers winning through digital distribution (Geico and Progressive in personal insurance; Fidelity and Charles Schwab in retail brokerage). And, ultimately, the big guys do catch up–State Farm, and JP Morgan Chase are great examples of updated go-to-market approaches based on new realities but built on traditional strengths.
The technology-driven disruption is taking a new turn–now customers are taking the lead as they shift to mobile devices and social media platforms of all shapes and sizes. Their expectations are now established by what they can do in their lives outside of work. Soon customers will fail to see why they can’t have the same level of information and peer interaction in their working activities, and they will quickly demand intuitive access to the information they need, as well seamless integration between their current producers and distributors. Existing distributors and producers will need to provide this; otherwise, their customers are likely switch to new producers, distributors, or both.
The Disruption Will Continue
Technology continues to evolve faster than most of us can follow. Cloud computing, coupled with the explosion of social and mobile, means that new ways of creating more benefits at lower cost are appearing every month. Customers will continue to be better off as the distributors they buy from develop digital capabilities–their search for better value will be steadily easier, and will lead them to the best price for the level of quality they seek.
Naturally, their distribution needs and preferences will differ between segments–some will seek more features and personal advice, while others will want to minimize cost. Distributors and producers need to understand ways they can add value to customer segments with different preferences, by integrating digital marketing capabilities with other forms of customer interaction.
There is a lot to gain for the producers and distributors who get it right–although there may be fewer of one or the other in the future. Current inefficiency in many industries leaves a lot of opportunity to use digital to get better. Countless instances of mismatches between what is provided and what is preferred, legacy IT system cost structures, imperfect pricing stemming from imperfect (or partial) information, and arm-wrestling between producers and distributors exist today, opening opportunities for savvy existing competitors or new entrants.
Structures Won’t Necessarily Change, But Winners And Losers Likely Will
What does this mean for the different parties, and why is marketing going to be steadily more important? Let’s examine each group:
• Distributors can build big-company capabilities on small-company budgets. Cloud-based software-as-a-service systems have low up-front investment requirements and are ultimately scalable. Vertical integration in the marketing automation space means that selection of components will be less uncertain, and different components will be easier to integrate. But distributors must strive to increase the value they provide to customers in order to confidently work more closely with the producers they partner with. Digital marketing helps customers understand the value their distributors provide.
• Producers can and should include the customer in all facets of their businesses, which means increasing their level of direct customer interaction. A good place to start is seeking customer input on product development, based on unmet or emerging needs. Feedback on service quality at different points in the life cycle is equally important. In order to get the most benefit, producers need to work together with trusted distributors to improve the quality of all of their customer interactions. Then they need to incorporate the insights they gain into the products and services they offer through their distribution, and be sure the customers are aware of the improved value they provide through an evolving digital marketing process.
• Customers stand to be the big winners. They will have increasingly easy access to alternative distributors and producers, as well as the resulting information, whether or not they have any intention of shopping or switching. Some (or perhaps most) of the efficiency improvements will ultimately flow to them in the form of lower prices for any given level of service and quality. And at some point, they will begin to consult with each other on purchases, even in a B2B context. The producers and distributors who are doing the best job will be in a position to win at the expense of the rest.
A Few Thoughts Based On Digitally Driven Marketing Trends
Forward-looking articles are always more fun when they end with predictions. So here are three:
• Producers may consolidate, while distributors may proliferate. As the world becomes steadily more transparent, inefficient producers will suffer. On the other hand, the cost and difficulty of building and maintaining quality digital marketing capabilities is dropping rapidly, lowering entry barriers to new distributors who understand specific customer segments.
• More and tighter partnerships will form. As producers and distributors seek to form tighter, more integrated customer interaction capabilities, they will need to choose where and with whom to invest. The days of letting 1,000 business relationships bloom may be coming to an end.
• Ultimately, the lion’s share of the benefit will flow to the customer. And isn’t that what it is all about?