In 2016, there is no “business as usual”, and speakers at VMA’s Annual Meeting offered sound advice to navigate the new reality of 21st century commerce.
The digital landscape is having a huge impact on business, with mobile apps and social media creating a labyrinth for manufacturers and distributors. In the midst of this digital revolution comes the shale revolution, a high U.S. dollar and falling oil prices. While these changes may offer challenges, they are also creating opportunities for those who are willing to embrace them and create a new model for successful business.
The Digital Transformation
Jill Rowley pointed out that, while in the past, business deals were sealed on golf courses or over steak dinners, today those deals often begin on the internet where 90% of business-to-business (B2B) buyers start the search for business solutions.
The digital-mobile-social model is constantly morphing and will become increasingly integral to conducting business, so it is essential that company leaders learn how to reach the millennials who are now about a quarter of the U.S. population and will constitute half the workforce by 2020. This generation, which knows business only within the context of this digital revolution, will comprise a full 75% of the workforce by 2025.
Since it will be necessary to attract millennials, who will be the decision makers, it is essential that businesses learn to effectively use the tools this generation uses and to recognize that they have a different attitude about work than the preceding generations.
Millennials tend to want to work for companies with purpose beyond profit. “They want to make money because they want to move out of their parent’s homes,” said Rowley, “But they want to make money doing something that matters.” Generally, millennials expect to be in management within 2 years, they want recognition and to be promoted because they perceive themselves to be leaders. Ninety per cent of them also will not stay with their employers more than five years. They also feel the need to be connected at all times; millennials send and receive an average of 88 texts a day.
While this mindset may be difficult for current management to understand, Rowley stressed that “we can’t fight what it is”, so we need to understand it and work with it.
To help achieve the goal of being top-of-mind for buyers and potential employees, Rowley encourages companies to have a genuine, integrated presence in social networks. “While it may sound like we’re stating the obvious, the bottom line is that customers are changing the way they buy. So we have to change the way we sell.” Ninety per cent of today’s B2B (business to business) buyers never respond to cold outreach, and they are 57% into the process of making a decision before they ever talk to a salesperson.
In a recent survey asking B2B customers how they chose a vendor, a huge majority of buyers choose the vendor who provided him or her with content to navigate each stage of the buying process and most of them viewed at least 5 pieces of content (on social media) from the winning vendor before making that choice.
The best vehicle for B2B selling is definitely LinkedIn, and Rowley stressed the importance of thoughtful engagement in that space by sharing insights and valuable content while developing relationships with the right people.
Rowley shared a quote from Simon Sinek. “People don’t buy what we do, we buy “why”.” In other words, people are less likely to follow a brand and more likely to follow people. The younger generation doesn’t want to be marketed to. “If your buyers are in social, your sellers need to be too!” she advised.
Wholesale Distribution in New Commerce
The new realities of doing business were also recognized by Joe Nettemeyer of Valin who said that “Wholesale distribution is a battle of managing differences.” If you’re not really good at it, you’re not going to survive. “The fact of the matter is that the role of the distributor is changing,” he said. “We have to be better at providing our buyers with a digital experience and I don’t think we are meeting the expectations of this next generation. It can take 24 hours to turnaround a quote. That’s too long. Millennials want it NOW. They have expectations of getting information immediately. You have 3 seconds to grab someone’s attention. Those that really get this are the leaders of tomorrow.”
Nettemeyer also stressed that reliable data is absolutely essential to compete in this environment. “Competition is about having the best information and data and actually using it, across the organization in each and every customer interaction. Winners gather information and act on it. Everyone else loses.”
Fifty years ago, the strategy was to focus on the features and benefits of a product. That is no longer relevant, just as location is basically unimportant. As long as you can get product shipped and where it needs to go on time and with good traceability, that is what matters.
Nettemeyer said that new business designs will disrupt the status quo; sales itself is changing. “A million B2B sales reps will lose their jobs to e-commerce by 2020, especially if you have undifferentiated products,” said Nettemeyer. “Sales reps at wholesalers and distributors will be impacted more so than any other sector and 22% of the 4.5 million US based B2B sales agents will be gone.”
In order to succeed, it’s not enough to sell product. “You have to add value now, provide differentiated technology to solve problems,” he said. E-commerce platforms can create a premium, seamless experience for customers, and that is one way to excel.
“Get out of your box,” he said. “Status quo is the enemy. Take a moment of self-reflection, look at yourself in the mirror every night and ask yourself if you did your best. That’s the challenge for all of us.”
Guidance in Uncertain Times
Alex Chausovsky of ITR Economics said that while there are people who say the U.S. economy is shrinking, it has in fact been growing. And he projects that there are better days ahead.
He is expecting a cyclical low in the third quarter of this year, but says that we will then have rising economic activity over the course of 2017 (3.5% growth) and into 2018 before we head into the next downturn.
Two thirds of all current GDP is driven by personal consumption. Consumers are spending while businesses are barely investing. Only 16% of the activity in the economy is from business investment. “We were so affected by the last downturn, many are hesitant to invest,” said Chausovsky. “And many decision makers are anxious and uncertain and waiting to see one way or another what happens in November [after the U.S. election] before they start to pull the trigger on some of those much needed investments.”
Regarding manufacturing, while there are those in the media who say it is dead in the U.S., Chausovsky argues the opposite. “We are currently almost where China is, but look ahead to 2020, we leave them in the dust. The U.S. is very well positioned for the long term to be a manufacturing powerhouse and he does not see manufacturing at this point going into recession as part of the downturn in 2018.
Valve Industry Outlook
Chausovsky said that several of the sectors upon which valve manufacturing depends are expected to have better years in 2017 than in 2016. Although there are some concerns, the leading indicators for the valve industry are good.
Chausovsky is pessimistic about recovery of oil prices. “As of 2015, every day, two billion gallons of oil are going into storage, then next year 1.1 billion will go into storage every day. There is such a glut in inventory that even when the market gets back into balance it will take years before we use that overage. As long as production overcapacity continues, prices will stay low.”
There is a weakening business environment in countries that were the hope of the world, although 2017 will be a better one for major world markets. Chausovsky recommends that manufacturers plan with that in mind including an expected mild rise in power generation in China.
Ongoing concerns include the strong U.S. dollar, uncertainty around Brexit, recessions in South America and Russia recessions, and aging demographics. The job market is also tight, so wages will have to be raised. “People will be coming to you and asking for raises,” said Chausovsky. “If you want to retain these people, you need to give them a raise or someone else will.”
On the positive side, disposable personal income is up as are personal savings. Unlike in recent times past, the average consumer has a safety net to deal with unexpected expenses and retail sales continue to do well.
In summary, “No imminent recession is in sight,” said Chausovsky. “Better days are ahead of us and while some people say the economy is shrinking, core factors point in another direction.” While the expected growth is not robust (about 1.9% for 2016), we will see rising economic activity over 2017 (3.5%) growth and into 2018 before heading into a downturn. Most of the sectors where valves play a role will have better years in 2017 so Chausovsky said many businesses will see better performance.