IT distributors face a tightening of trends that all will be familiar with – shrinking margins and commoditisation of previously service rich offerings. The former has always been the case, the IT industry setting customers’ expectations of higher functionality and lower prices every year. The latter is a result of broadening IT literacy and the bundling of functionality within one stop hardware and software solutions.

IT buyers are a disparate group, large and small, technologically sophisticated or in need of a heavy service offering but they all have one thing in common – loyalty is low and suppliers right through the supply chain need to work hard to keep business. The IT industry has seen a number of high-profile business failures amongst IT resellers and the culprit is this pressure on margins and hence profit and perhaps a failure to move with their customers.

A New Approach
So, tighter product margins, a reduction in high-margin services, higher expectations and the now-ubiquitous presence of the web. Where does this leave the IT distributor? In surprisingly good condition – in part. The key appears to be to take lessons from other sectors, although this might be hard to admit.

The most cut-throat market of all, retail, shows the way. In the nineties, retailers started to invest heavily in data warehouses and business intelligence tools. Data mining became one of the hottest phrases in IT producing the infamous (and very possibly apocryphal) Wal-Mart discovery that placing beer next to nappies increased sales (Dads on the way home from work…apparently).

Margin Squeeze
IT distribution bears striking similarities – thousands of resellers, tens of thousands of customers, each buying different mixtures of myriad products. This is combined with tightening margins and low buyer loyalty, plus beleaguered sales teams constantly having to be updated on changing products. Only when they have the tools to keep up to date with the opportunities offered by their marketing teams and the trends evinced by their customers can they maximise sales and margins.

Richard Love, marketing director at Computers Unlimited typifies this approach. In his view, distributors have three customers on whom they must keep tabs, the vendor, the reseller and the end customer. In common with his contemporaries, he has also experienced a relentless and continuing squeeze on margins – he also has ways of countering this squeeze.

One Step Ahead
“We need to strike a delicate balance between the needs of all three of our ‘customers, ’” Richard says, “we need to know where our vendors want to go, what challenges our resellers are facing and how and when our end customers want to buy.”

With 2,500 resellers and a turnover projected to grow from £75m last year to over £90m this year, Computers Unlimited are clearly onto something. So what’s key?.

Richard Love: “The trick is to try to stay one step ahead of the customer, to understand where the market is going and to help them to get there.”
This applies to the vendors, in some cases by helping them to set up web-based trading, the resellers, by providing them with training and sometimes swallowing margin, and the customers, through buying trend analysis and where they are going to buy their products and services.

Recently, a new breed of out-of-the-box sales intelligence technology has emerged that focuses on these needs. Designed for sales professionals working in wholesale and distribution, sales intelligence solutions take information from existing back office and accounting systems and deliver insight into customer buying patterns. They therefore proactively keep the sales team informed of sales opportunities or potential problems with drifting sales.

Implementing Vecta Sales Intelligence
The leader in this field is VECTA Sales Intelligence, which also incorporates those elements of CRM that are relevant to distributors and resellers such as contact, diary and activity management. It automatically delivers critical information about customer buying patterns that translates into real sales opportunities. It is also able to identify potential up-sell, cross-sell and switch-sell opportunities, in addition to highlighting customer drift. All this without relying on the user performing complex data analysis.

Richard Love agrees that this sort of information is vital. Computers Unlimited has recently restructured to allow sales and marketing to work more closely together. The ability of the sales managers to maximise sales is predicated on having the data to hand to implement his market strategy.

Challenges
“Put simply, we need to understand the types of ‘bundles’ that our customers want. We have a number of exclusive products that carry a higher margin than our non-exclusive products. We need to be able to price, cross promote and sell different combinations of these products to different resellers and their clients. It’s one thing to come up with the combination, it’s another to spot the trends and execute on the strategy.”

Another area of focus for growth, common to all distributors, is to grow mid-size customers. Richard explains: “80% of our business comes, as you would expect, from our top 20% of resellers. It’s not that hard to sell more to them because we have a lot of contact and a certain amount of built-in loyalty. The challenge is to grow sales through our ‘mid-tier’ resellers, the 600 or so companies that can boost our bottom line significantly if we can add sales without much extra effort.”

This is where VECTA could help – it does not require the level of investment in time and money that traditional Customer Relationship Management (CRM) or Business Intelligence (BI) solutions need. There is no need to build using toolkits and crucially, end-user adoption is virtually guaranteed because salespeople don’t need to put data in before they get information out.

So what does this mean in practice? Richard agrees that the quick delivery of data to his sales teams based on insight gained through analysis of buyer trends would be of real benefit: “If we can see in real time the product lines, the revenue and the profitability of our customers, we can react faster. It could enable us to increase revenue per customer and identify where we were losing business in plenty of time to put any problems right.”

In an industry where margin and customer retention is all, it has never been more critical for distributors and resellers to understand their customers’ buying patterns. Those who thrive in such a market are those who know their customers better than they know themselves.

Key Pressures:

IT decisions are being made in the boardroom not by IT departments.

ROI justifications are becoming more sophisticated.

Customers demanding flexible pricing models.