5 Ways for Distributors to Grow Profits and Gain Market Share

If your company isn’t growing in 2019, here are five strategies that will help you boost profitability and market share right now.

Managing any business in an efficient, profitable manner while posting year-over-year growth is no easy task, even in a positive economic environment. It can be especially challenging in sectors like industrial distribution, where distributors go head-to-head to maintain the market share that they’ve carved out for themselves.

“It’s a mature industry that’s highly competitive, and where distributors are just kind of fighting it out with one another,” says Greg Githens, a leadership coach and author of How to Think Strategically. “Distributors can go for more volume and get market share, but then their margins get squeezed. They can also do a better job of sales and service but, in most cases, their competitors are taking a similar approach and making their own inroads in these areas.”

A better approach is to understand that growth is less of a strategy and more of an aspiration, and that most of your competitors probably share that aspiration. Githens tells electrical distributors to get introspective by asking questions like: What is the biggest challenge we face as a business? “You don’t grow despite the issues in your business environment,” he points out, “you grow because you step forward and address the most important issues.”

Other questions to ask include, what is happening in our business ecosystem that creates discontinuities that can be leveraged into opportunities? And, do we have opportunities to scale our processes to gain efficiencies that we can then invest back into growth opportunities? “Growth (or gaining market share) is either the result of having a good strategy,” Githens says, “or it is the result of blind, dumb luck.”

Don’t Make it Just Dumb Luck

Use these five strategies to make sure more of your distributorship’s growth strategies are deliberate, and not just a result of “blind, dumb luck”:

1. Lean on blue ocean growth strategies. In red oceans, industry boundaries are defined and accepted, and the competitive rules of the game are known. Put simply, companies are battling it out with one another to grab market share and stay profitable (with the “blood” of the battle turning the ocean red). Blue oceans refer to the unknown market space that’s untainted by competition, and where demand is created rather than fought over. “Despite the fact that electrical distribution is a mature industry, there’s still plenty of untapped opportunity out there that no one is getting into,” says Githens, who tells distributors to look specifically at opportunities that they’re uniquely positioned to exploit. “Instead of just fighting with your competitors, ask yourself where you should be putting your attention instead in order to ferret out some of those lesser-known markets, customers, and segments.”
2. Get out there and walk the fence line. Githens says he’s consistently surprised at how little time company leaders and managers spend being inwardly-focused. In other words, they pay more attention to what’s going on in the external world than they do to the activities taking place within their own four walls. Distributors can break out of this mold by simply walking the fence line once in a while. “Walk around the periphery of your business,” Githens suggests, “paying particular attention to what’s going on in your company, how your customers see you, how your community sees you, how your suppliers see you, and so forth.” Then, dedicate some time to looking outward at what’s happening in your marketplace, in your industry, and with your suppliers. “Where are opportunities out there that no one else is really seeing?” says Githens. “When you can answer these questions, you’ll know where to best focus your attention.”
3. Meet your customers where they are. One of the best ways to improve profitability is to have more happy, loyal customers. Getting there isn’t always easy, but in the electrical distribution field it often comes down to having the right product (or service) at the right time and at the right price. Knowing this, Max Gabin, branch manager at Rexel’s San Diego location, says his team is continually looking for ways to make deliveries as seamless as possible for customers. “We’re always coming up with new ways to get quotes back and deliveries out the door faster,” he says, “because we’re operating in a market where those services are getting more and more important for our customers.” To meet those needs, the company has 24-hour lockers for order pickup, six counter sales reps (up from a previous four), and a plan to potentially begin offering Saturday hours. “We want customers to be able to come in and get out, and not have to wait,” says Gabin, who adds that the weekend hours would be particularly valuable for Rexel’s solar customers. “We know a lot of them work on the weekend, when most distributors aren’t open.”
4. Focus on small process improvements. Making incremental gains in profitability and growing market share don’t always require huge, companywide initiatives. In fact, some of the smaller “wins” can add up quickly once an electrical distributor decides to put some elbow grease behind them. At Rexel’s San Diego branch, for example, Gabin says the company has been tweaking the way it fulfills and delivers orders to job sites. “There’s a line haul that comes from our main hub in Los Angeles and leaves all of the materials here at 3:00 am,” Gabin explains. “Then, our drivers get here at 4:00 am, load it on their trucks, and leave.” That order sorting and loading process takes about two hours out of a driver’s day (which usually totals eight or nine hours)—a time window that Rexel would like to whittle down to an hour or less. To make that happen, the distributor just started using several staging locations that effectively “break up” the routes versus just having everything dropped off at the branch at 3:00 am. “We have three routes here—north, south, and east,” Gabin says. “When the drivers come, they still have to load up their trucks but they don’t have to sort through everything.” This initiative was rolled out a few weeks ago in the interest of reducing delivery times, and Gabin says it’s going well so far. “It’s just one more thing that we’re trying to get faster at.”
5. Open your mind to new opportunities. When business is good, it’s all too easy to fall into the trap of running the day-to-day without thinking about what other opportunities are out there in the marketplace. Only when business slows do companies scramble to find those new, profitable niches (which, incidentally, have either been covered by someone else or dried up by then). Instead of waiting for sales to recede, why not start now? “Find things that your distributorship is uniquely good at, leverage those strengths, and detect new opportunities before someone else does,” says Githens. “Even in an industry that’s facing Amazon and other threats, there are still pockets of opportunity that you can exploit in order to gain an advantage in the market.”

SIDEBAR: Put Your Marketing to Work

A long-time marketing expert, Harsha Reddy, co-founder of SmallBizGenius, offers these three tips to electrical distributors that want to increase profits and/or grow market share this year:

1. Provide outstanding customer support on every sale. Businesses sometimes lack the resources for customer support, especially if they’re handling large volumes of it. “Having outstanding customer support might be the deal-sealer for you to stay the intermediary for B2B sales,” Reddy says.
2. Make it more convenient than buying direct. If you offer a smooth purchase process, from ordering to billing and shipping, along with some generous return policies, you can help to create a habit that’s hard to break. “Customers appreciate when their time and efforts are appreciated and not wasted,” says Reddy, “which is why a more convenient shopping experience is definitely worth the investment.”
3. Develop strong marketing ties with your suppliers. Every company has its own marketing strategies, but that doesn’t mean you can’t come up with some interesting ways to work in tandem with your suppliers to help both of you reach a larger audience. “Offer to deepen the connection between brands using additional marketing tactics,” Reddy suggests, “including digital and content marketing.”