Distributors who want a fresh perspective on the distribution business should check out the annual conference of the National Association of Wholesaler-Distributors (NAW), held each January in Washington, D.C.
This year's meeting, held Jan. 24-26 (for a NAW update, see p. 16 ), offered an intriguing presentation by Michael Raynor, co-author of “The Innovator's Solution,” and, previously, “The Innovator's Dilemma.”
The latter book, which he co-authored with Clayton Christensen, was a popular business book in the 1990s. It explored a business dilemma. Although business leaders are taught to please their most profitable customers, this strategy can help new competitors develop “disruptive technologies” that initially target less-profitable customer segments. The authors said these disruptive technologies help new competitors creep into a market by focusing on niches that established companies either ignore or don't want, and then allow the new competitors to expand from these footholds and compete directly with heavyweights in those markets.
While most of the examples in Raynor's NAW presentation focused on manufacturers, the concept could apply in the electrical wholesaling industry if a new competitor uses “disruptive service” strategies to enter a market. For instance, perhaps a new competitor could attack one of your small product niches by offering third-rate products from unknown offshore manufacturers at cut-rate prices. Once they get some name recognition and acceptance with your customers, perhaps they would take on higher-quality products and move into the mainstream areas of your business.
It wouldn't necessarily happen because you are a bad business person. Like the manufacturers profiled in Raynor's book, it would happen because you are primarily focused on serving your best customers.
I can think of one company that used a disruptive service strategy to barge through the back door of the electrical industry and is now gobbling up huge amounts of market share. At first, this company focused on customers that many distributors didn't want because they didn't seem to have too much buying potential. The new competitor's service strategy didn't seem too disruptive at first. They served these customers by staying open when the branches of many electrical distributors were closed for business, accepting credit cards and selling only the most commonly ordered products.
Once this company became established as a viable channel of sales in the electrical market, it began taking on premier product lines, and expanding into high-growth markets like residential voice-data-video (VDV) products.
Now they are here to stay. The company is Home Depot, and with annual electrical product sales estimated at over $3 billion, it has disrupted the electrical market like no other company we have ever seen.