November is a pressure packed month for distribution marketing executives. So much is expected of them by top executives who want a marketing plan for the year ahead with costs firmly determined and goals/objectives clearly outlined. The bosses want a marketing plan that is fresh (very, very new), robust, comprehensive, perhaps unorthodox (very out of the box) and cheaper than last year’s.
That’s what the CEO and the CFO would like but the reality is quite disturbing. Fundamental changes are taking place in the economy and many of the factors driving these are heavily impacting the electronics market. Most of the outlets – TV, print publications, radio, newsletters, webinars and even web advertising in the forms of still and interactive banner ads – used by businesses to influence customers’ purchasing habits or the public image of their enterprises are changing rapidly. The mediums are evolving to be more effective but not a single one can actually provide 100 percent proof of this efficiency.
This creates a peculiar dilemma for marketing executives. In recent years, and perhaps even today, it’s become easy to simply stop spending money on print ads. The jingle was “print is dead, long live the web.” But, now, the use of the web itself is undergoing a rethink. This is the era of clicks and eyeballs so each dollar spent on promoting a company or its products must not only resoundingly produce a great return but drive traffic back to the distributor's website for further e-commerce activities. If only the situation was that simple. This poses a unique challenge to marketing managers at distributors. They are tasked with spending internal marketing budget as well as joint-advertising dollars (co-op, in the language of the trade) provided by component suppliers. Many executives are struggling to figure out what would get the biggest bang for their partners' bucks.
Electronic components distributors once had a simple message. They facilitated the movement and distribution of components from the suppliers of parts to OEMs. That was before a battalion of other players became involved. Printed-circuit-board makers were amongst the first to dive in, followed by ODMs and contract manufacturers, then independent software vendors and design firms. More recently, fabless semiconductor manufacturers have flooded the components markets, further expanding the universe of companies distributors represent directly or indirectly and, in cases, even compete against.
That wasn’t the only historical twist. Today, very few OEMs (Samsung and a handful of others) remain vertically integrated, making most of their own components. OEM divestiture of captive chip businesses led to the birth of companies like Agilent, Freescale, Infineon and NXP. As a result of these activities the largest component distributors –Avnet, Arrow, Future, and Digi-Key – now represent hundreds of suppliers and count their customers in the tens of thousands. Distributors sell not just to purchasing and procurement folks anymore but also to design engineers, hobbyists, students and anyone else who itches for a component.
That’s not all. Somewhere along the way suppliers and customers dumped more responsibilities on distributors, figuring their shoulders are broad enough to carry the extra weight. So, distributors today are involved in more activities in support of customers than the early industry executives could have ever imagined. Take the example of Future Electronics Inc., which in October celebrated the 10th anniversary of its Memphis Area Distribution Center and noted the range of services provided by the company at the location. In addition to traditional distribution services like inventory replenishment, consignment of on-site inventory and bonded inventory management, Future takes care of shipping and logistics, export control compliance, design engineering support and supplier promotional activities.
What is the Message?
Defining a sales and marketing message that comprehensively represents everything distributors do nowadays has become a major headache for these companies. They not only represent suppliers and service customers but they’ve also become major partners for engineering teams at the biggest OEMs, many of which have sharply reduced in-house design resources. Small and medium size OEMs are even more dependent on distributors nowadays for design support. Many of these companies have limited resources and lean heavily on their distribution partners for services related to product test, environmental and other regulatory compliance requirements, vendor management and supply chain support.
Distributors seemed at first to be coping fairly well but complications have cropped up since as a result of changes in the media landscape. The components market never really embraced TV and radio as the right medium for creating awareness about their products so any changes in the broadcast industry hasn’t registered any impacts on them. The effects of changes in the print publication market have been more striking, however. Many of the trade publications that once served the industry have been shuttered and the handful of those left are a shadow of their former selves with paltry advertising pages; only the rare marketer advertises anymore in print publications nowadays but the few that do swear by the medium.
The internet deepened the divide and has dramatically altered how companies package and deliver marketing messages, a major challenge for an industry that was once heavily dependent upon print for disseminating information. Add to this complication the ability of companies, both distributors and component suppliers, to market themselves directly to customers via corporate web sites, newsletters and other direct mailing devices.
Distributors face other problems in packaging the marketing message for themselves and on behalf of suppliers. They must decide which group of customers is more important than the other -- design engineers or purchasing/procurement. The biggest distributors today focus heavily on design engineers although they continue to talk about addressing purchasing. Check out most of their mailings and marketing campaigns, however, and clearly engineers are now the primary target of many distributors.
Don’t be fooled by this strategy, though. Distributors still value purchasing and procurement professionals. They are also struggling to fully connect with design engineers who seem as slippery as eels; engineers often prefer to be left alone. They’d rather go and dig around for the information they need than be shepherded like cattle to a webinar. That’s why Digi-Key continues to rate highly with many engineers because it offers a wealth of information designers can simply call up on their own.
Some distributors know this and are being swept along by the mass push to focus-on-design-engineer. Most distributors are upgrading their websites to elevate ecommerce and are redirecting design engineers to the sites from other marketing programs. The race is on to capture and drive design engineering eyeballs to distribution websites. It’s a commendable response to changes in the environment but one that doesn’t take into account the reality of the role purchasing plays in the supply chain.
“We know design engineers and we connect with them but the final sale of volume products is often decided by purchasing,” said a senior executive at a global Top 2 distribution company during a presentation. “We just don’t know purchasing as well as we should.”