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3 Challenges Distributors Face While Capturing Market Share

Devin Ferreira | October 4, 2018

In our last blog post, we discussed some of the reasons an organization would want to target market share as a specific goal for their incentive program.

We also suggested that there are certain types of “offensive” incentive strategies that are more conducive to achieving this goal. For example, points programs and special promotions.

We’ve covered the general “why” of these strategies—namely to increase your “share of wallet” among your customers’ discretionary purchasing.

What I want to dive deeper into here, however, are a few of the specific challenges that dealers and distributors are bound to face when attempting to implement a market-share-centered incentive program.

1) Spending Capacity

If you’re a distributor, you probably have a good idea of who your customers are.

What may be harder to figure out is how much capital they have available for purchasing when it comes to products in your arena. After all, how can you know how much more share of their wallet you can gain, if you don’t know how much was there to begin with?

Getting a handle on your customers’ spending capacity is a common problem for distributors, especially when you know that most customers in your industry are probably buying from between 3-5 distributors total including your organization.

Once you figure out how much capacity is available for you to acquire, you can start to create opportunities to acquire it. One clever solution to this challenge is to survey your customers at the beginning of your program with questions designed toward finding this number out.

For example, if you’re an electrical distributor you might ask your customers how many trucks their business owns.

If you estimate a certain number of electrical supply purchases per truck, then, based on each customer’s number of trucks, you can extrapolate their overall spending capacity (and deduce how much of that capacity you’re currently getting).

Another example would be in the automotive aftermarket. By providing a profiling questionnaire that asks how many stalls or garages their company currently has, you can infer each customer’s spending capacity based on a per-stall dollar value.

Every industry has these little “markers” that, if identified and tactfully inquired about, can help you get a handle on just how much each customer is able to spend on your products and services.

2) Product Mix

Another market share challenge that distributors sometimes face involves product mix. In any industry, certain products will have better margin lines than others.

In order to gain not only more market share, but better market share, you’re going to try and find ways to get customers to purchase more of your high-margin products and services. 

For example, if you’re a home building supplier and you find that one of your contractors is only purchasing low-margin lumber from you, you can probably assume that he/she is going somewhere else for the roofing materials, windows, and higher margin items.

So, while you’re certainly glad to have this customer’s business, it would be great if you found a way to direct him/her to some of your more profitable products.

One effective way to overcome this challenge is to offer a weighted incentive program, one that targets higher margin products/services over lower margins ones. Maybe you offer 3 times the points for each higher margin item, as opposed to only one point per dollar spent on commodities or low margin products.

Another idea is to design your program so that customers need to reach a certain threshold of high-margin vs. low margin products (say 50/50) in order to qualify for a reward. This would obviously involve a more nuanced incentive strategy, but it’s certainly doable with the right program structure.

3) New customer acquisition

Finally, while the previous two challenges have been about doing more with your current customers, a third major distributor challenge involves acquiring new customers.

Just as it’s easier to keep friends than to make friends, it’s going to be easier to maintain existing customer relationships as opposed to developing new ones.

But a business can’t grow without acquiring new customers, so your task becomes how to identify these potential new customers are, as well as figure out how to motivate them to start working with you rather than your competitors.

The key here is to first find a way to get your foot in the door with these customers, and then cultivate those relationships so you can ultimately gain more of their purchase power.

With this in mind, a special promotion is a great way to introduce yourself and your business to new potential customers, giving them a small sample of your products and services in an attractive, exciting, short-term, and minimal-commitment package.

Once these customers have become familiar with your brand, you can then begin to implement a more robust acquisition strategy that involves something like a longer-term points program.

Conclusion

Trying to increase market share is something every business can relate to. In the distributor space, the pursuit of this goal will always present challenges, both anticipated and unforeseen, that you’ll have to figure out how to overcome.

In the face of these challenges, what’s important is to find solutions that will differentiate your organization from your competitors and make you stand out in the eyes of your customers. Because when it comes to the market share pie, it’s only natural to want a bigger piece.

The question is: how do you get it?

 

Sources

http://blog.hmiaward.com/incentive-solutions-programs-that-grow-market-share

http://blog.hmiaward.com/incentive-solutions-why-pick-special-promotions

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