Five strategic initiatives for Distributors to drive customer retention during the Global Component Shortage

Electronic component distributors are seeing record demand and sales growth for products right now. The battle lines are drawn as global chip shortages drive customers to explore new channels and seek out new sources for suddenly scarce parts that have become unavailable from their traditional avenues. Seemingly nobody is immune from this, with even the largest customers, such as automotive manufacturers, facing production disruptions from the shortage of key electronic components.

While the supply chain remains disrupted and demand remains robust, customers are scrambling to shore up their reserves of critical components and buy out available inventory to protect their operational capacity. This dynamic has brought unique new challenges for distributors, but also opportunities to differentiate. This period of supply squeeze and heavy demand will create winners and losers, and the strategic moves taken now by industry players will be more critical than ever in establishing their future relevance and role within the market.

This article looks at five key strategic initiatives for distributors to drive customer retention, differentiate themselves, and come out stronger.

First, a quick primer on roles in the component distribution space

Professional buyers and design engineers alike know the key players in the component market. Still, many have remained loyal to a distributor or sub-set of distributors. Whether this allegiance has been formed through brand and shopping experience affinity, incentivized partnerships, or other differentiators, customers will now be prepared to move more quickly to wherever the stock is, regardless of previous loyalties.

Small volume production run customers and design and prototyping engineers will have trended towards brand and ecommerce experience affinity and design-centric tool availability as key differentiators for their distribution purchasing experience.

Large volume production run customers, professional buyers, and supply chain management professionals will more heavily value incentivized partnerships, shipping/stocking assurances, and robust supporting supply chain management tools in driving their affinity towards specific distributors.

The larger global distributors (Arrow, Avnet, TTI) that supporting large-volume purchasers have design-chain focused broadline/high service distribution brands within their corporate umbrella. For Arrow, Avnet and TTI, these are Verical, Newark/Premier Farnell and Mouser Electronics, respectively.  These high service distributors intend to feed business to their higher-volume production cycle supporting counterparts as customers move from design stage to volume production capacity levels.

For high service and volume distributors alike, there are a number of key strategic areas of focus that are emerging and will help to differentiate the winners from the losers over the next 18+ months of unique market conditions. Here are 5 areas that distributors should be focusing on.

1. Become a bigger bank through smart business integrations

For the larger global distributors, developing methodology to surface stock availability across both the volume and broadline brands within the company’s portfolio simultaneously will be a key enabler, as customers used to buying volume may be put in a position to now seek to purchase from broadline, and vice versa. Doing so demonstrates the full available product portfolio of the overall business to customers wherever they’re looking, and protects against the customer seeking to purchase from outside the family of brands. Linking of user accounts and purchasing credit availability between the multiple brands within each organization to remove potential barriers to purchase is another important opportunity, though difficult to implement without supporting infrastructure investments.

As component manufacturers also are struggling to keep up with demand, lead times will continue to be a major issue. Assuring supply through a strong stocking position in this circumstance is undoubtedly a better proposition for a distributor when possible to do so, against relying on supplier lead time alone. Distributors should scorecard their suppliers for accuracy and adherence to lead-times, and monitor their performance against this. This becomes especially important during times of supply chain shortages, and will enable the distributor to provide adequate warning to customers should delivery become lead time issues emerge.

2. Matching presentation of value proposition to customer personas

As customers currently have a higher propensity to move between multiple distributors to source purchases, there are specific areas on which additional focus must be considered to drive strong brand experience and retention:

a) Customer onboarding flow

Brands should make the registration process seamless for customers, as well as supporting processes such as applying for credit, setting up EDI, and other enable business to business transactional support activities.  Brands should consider, if practical, a one-time introductory conversation with every customer who is willing to do so, by live chat or over the phone with a sales representative, to better understand the needs of the new customer. This process, part of the onboarding flow, should enable the distributor to align customer segment, role of the user at that customer, and potential of the new account. These findings should then be utilized to fuel a robust set of ongoing activities.  For lower potential prospects, engagement through digital communication paths, tailored based on their role and purchasing habits will suffice. For larger, higher potential prospects, alignment of supporting sales staff and field application engineers to formalize support, and introduction to additional solutions to streamline transactional business will be necessary.

b) Customer supporting tools

Promoting business support tools to customers and removing barriers to them, transforming the digital engagement experience will reduce attrition of new customers and enable retention and conversion to your business over competitors.

For larger customers, creating robust and rapid EDI connectivity should be a high priority. Integration of recent advancements such as Email-to-EDI facilitation for mid-sized customers is another path through which distributors can seek to differentiate themselves.

Availability of instant BOM Tools enabled with parts cross-referencing, will be essential for all customers regardless of size..

c) Consolidated business value proposition

During the onboarding process for new customers, linking of accounts and benefits between the operating businesses where possible will be a key driver to extract value across the broader reach of the combined business.

For example, Arrow customers may look to (and should also be actively pointed towards!) their broad-line brand, Verical, to support purchasing needs if lack of availability necessitates at Arrow. Purchases made through Verical should contribute towards Arrow’s ArrowPerks loyalty program accumulation for the linked account.

Enabling customers to transact seamlessly and share benefits across the ‘family of brands’ is not an easy undertaking but will protect the turf of a distributor in mitigating the risk of customers looking elsewhere.

3. Enhancing the focus on product data quality

Early in my career, I led the marketing department for a small engineering company and regular customer of Premier Farnell (in fact, we were based less than a mile away from their Leeds, UK headquarters).  During my time at this business, a central board level component in our products moved to EOL, and then obsolescence. We purchased up all the remaining inventory we could find from every distributor but ultimately had to spin up new versions of our products that actually lacked backwards compatibility to the legacy versions due to the unavailability of suitable alternative replacement parts.  Losing the availability of key components, whether from obsolescence or scarcity, can be very detrimental to a customers’ ability to operate and the quality of their products.

In times where scarcity is an issue, customers will begin to search out suitable alternatives. This is, of course, more difficult when working with complex components that have deep integration to designs, but for many components, cross-referencable replacements are often available, as are similar products that sit in the same product family or ‘series’ of parts. Providing customers with strong, attribute-rich product data and creating linked associations to products that share common characteristics (through ‘series’ affiliation or other attribute commonality), can help distributors and buyers alike to solve the challenge of identifying suitable replacements more quickly. 

A note on cross-referencing data. Offering cross-reference data directly to customers as a distributor is a rather grey area. Component manufacturers would prefer not to have their competitor’s products offered to their customers as replacements. However, locating suitable replacements that may be interchanged is a reality in a market beset by scarcity, and this is a key role for distributors. Equipping FAEs and customer technical support staff with reliable cross-reference data across the franchised offer will be an essential tool for these staff in solving customer issues and building brand affinity and long-term relationships for distributors. Loading part lists from non-franchised suppliers and matching those to dynamically cross-referenced to franchised suppliers is an excellent way for distributors to capture more demand and provide more solutions in this space. Doing so can also build a valuable data set that may be utilized by the distributor to attract non-franchised suppliers to partner up for a distribution agreement in the future.

4. Adding service differentiation to your offer

It may seem counterintuitive for volume-based distributors to start cutting reels during a global shortage of components when larger customers want to buy in the larger increments. However, maintaining dual stock for high runners, including a cut-reel option, is a critical element in providing cross-distributor service capabilities between the different operating businesses of the company. Multi-listing SKUs to include full reel, custom reel, and cut reel enables a distributor to support a broader array of customers, including new customers who are onboarded but would not have typically purchased through a volume channel.  Value add services such as kitting can also take on new importance as customers struggle to staff up their core capabilities.

Pivoting to these changes cannot happen overnight but relies upon the broader capabilities of the entire company portfolio to offer such services, or employing service of third parties (for example, on kitting). Evolving capabilities through service differentiation will help counteract the unusual circumstances that customers are facing and bring sustained differentiation to the distributor’s value proposition.

5. Equipping your teams with the tools and knowledge to succeed

The four items above are all enablers for distributors in driving successful customer retention. Still, improvements and new capabilities will only materialize if customer supporting teams are aware and capable of leveraging new business services and differentiators as these are made available. If a sales branch rep does not see formalized goals and revenue recognition when facilitating account linking and sales enablement across the multiple businesses within the distributor’s brand family, they will be very unlikely to pursue such endeavors.  If Field Application Engineers do not have the information at their fingertips to solve a customer’s parts issue using the distributors own business intelligence data, the customer will begin to look elsewhere.

New capabilities must be built, launched, and nurtured, with visible and trackable metrics associated. Those distributors who do so effectively will find success in attracting and retaining new business, resolving issues, and building brand loyalty for existing and new customers alike that will permeate far beyond the current market conditions.

Summary

Distributors face a tough task in tackling the challenges of the global component supply shortage, but those who best equip themselves with tools and capabilities to meet customers at their point of demand, and find ways for their service offering to resonate with their customers’ needs, will fare best when the dust settles and the global market moves past the challenges it is currently facing.

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