By: Benj Cohen
Wouldn’t it be amazing if we could easily align customer requirements with high-margin products? Imagine if your sales team could swiftly shift customers toward items that enable you to reach rebate goals.
While these are excellent concepts, they can be challenging to implement. Yet the benefits of fine-tuning your product mix can be significant.
A few weeks ago, I spoke with a distribution leader who shared that 25% of their revenue comes from rebates. That’s just one lever to optimize a product mix for better business outcomes.
Running distribution sales is complicated. Distributors must be agile enough to respond to changes in the market, take advantage of opportunities like rebates and react to changes in customer demand. The complexities compound because you have an array of products to sell, a variety of vendors and a sea of customers.
Every distributor needs to optimize its product mix to increase sales and maximize revenue.
Why Optimize Your Product Mix?
Optimizing your product mix is essential to success; it’s become easier to do with technology. It’s just as important as inventory control, which seeks to keep the necessary products on hand to meet consumer needs without spending too much upfront. Product optimization aims to sell more profitably by adapting to continuous market shifts, consumer demands and other factors, such as rebates, incentives and opportunities for additional sales.
We’ve seen distributors optimize their product mix to:
- Increase gross margins by switching customers to higher-margin products
- Unlock better rebates to increase revenue by switching customers over to different vendors
- Eliminate supply chain issues by switching customers to an in-stock alternative
- Prevent overstocking by steering sales of dead stock products
Initiatives Distributors Can Launch to Optimize Product Mix
Distributors can lean on several strategies to optimize their product mix. These strategies boil down to:
- Switching customers to vendors with better rebates. Rebates make up a quarter or more of a distributor’s total profit. Distributors can identify the product the customer is buying and switch them to an equivalent substitute product from another vendor with a better rebate to optimize profitability. Better rebates = better profits. The customer remains satisfied because they’re getting the product they need.
- Changing customers to higher margin product substitutes. Steering sales to higher-profit products makes sense; for distributors, that’s often an in-house brand product. Oftentimes, an in-house product is cheaper for the customer and cheaper to manufacture — a win-win for the customer and the distributor.
- Upselling new or past purchases. The trick here is to find the add-ons tied to the highest-profit products, such as extended warranties, maintenance plans or accessories. The trick for distributors is to scale this idea to increase the overall value of every sale.
- Steering sales of complementary products with each order. Distributors can encourage customers to purchase items as a set. For example, if a jan-san distributor sells a hand sanitizer dispenser, they can promote the sale of compatible hand sanitizer refills. This tactic increases the average order value and creates a more convenient customer experience. Ultimately, it’s like a good restaurant server who asks you if you want fries with your meal and brings the dessert menu when you finish the main course.
If these are your target strategies—and we know they can work—the real issue is in the implementation. How can you run an effective product optimization campaign? How can you scale it repeatedly across products and channels?
How to Effectively Run a Product Mix Optimization Campaign
To run one of these initiatives, distributors need to identify all the eligible customers and make it easy for reps to contact those customers and track results. This is doable manually, but it’s tough because distributors have so many customers. Distributors should ask themselves—how long would it take, for example, to identify every customer who is buying Product X so reps can switch them to in-house Product Y?
And if they can identify those customers, how easily can they measure what % of reps have contacted them?
That’s the tough part.
To make it easier, distributors can invest in technology to fuel their product mix optimization initiatives. Sales enablement tools for distributors can accelerate the implementation of strategies that optimize the product mix. These tools eliminate the hours you spend pouring over data and even the need for anecdotal details from sales reps for trend identification.
Efficiently Optimize Your Product Mix for Success
Efficiently optimizing your product mix includes systematizing the data analysis to determine trends and giving your sales team a roadmap to switch to products that make your customers happy and make good business sense. Distributors must make these decisions at digital speeds to keep up with market shifts. Businesses increasingly use AI tools to optimize marketing, sales and ROI. It’s time for distributors to capitalize on the latest software to optimize their product mix and maximize their returns.
Benj Cohen founded Proton.ai, a growth engine for distributors. His company’s mission is to help distributors harness cutting-edge artificial intelligence (AI) to drive increased sales. Benj learned about distribution firsthand at Benco Dental, a family business started by his great grandfather. He graduated Harvard University with a degree in Applied Math, and speaks regularly at industry events on the benefits of AI for distributors. Benj has been featured in trade publications including MDM, Industrial Distribution, and Industrial Supply Magazine. His company, Proton.ai, announced a $20 million Series A round of funding in 2022, led by Felicis Ventures.