Want to know the industry’s hottest business trends for 2015? They may surprise you. Get ready for crowd-funding projects and dialing up doctors. Here, we highlight some of the biggest challenges distributors are facing and the solutions they’re dreaming up to remain top players within the marketplace.
Curing Health-Care Ills
“Outside of payroll, health care is the highest expense I have as a business owner,” says Dan Crandall, owner of Fine Print Commercial Printers Inc. (asi/194109), based in Meadville, PA. The Affordable Care Act (ACA) has been promising relief for Crandall and others struggling to foot their firm’s health-care bill. But “the jury is still very much out on whether anything in the legislation has had a positive effect on the downward pressure on pricing,” says Jim O’Connor, president of CBIZ, a business services firm in Manasquan, NJ.
Starting this January, the government’s Small Business Health Options Program (SHOP), which helps companies with 50 or fewer employees shop for coverage, says shopping and comparing plans will be easier for businesses and their employees. Essentially, SHOP takes the idea of insurance exchanges, in which consumers can shop for various insurance options in one place, to the business-to-business market, says Mark Greutman, a financial expert and blogger based in Syracuse, NY.
But O’Connor and others insist that even after the ACA launch, SHOP and the benefit of health-care exchanges, the only way to reduce company health-care expenses is to raise co-pays and deductibles and ask employees to carry a larger share of health-care costs. Not that it helps, says Crandall, who adds that his insurance renewal rates have climbed as much as 40% year over year, an increase that seems unconscionable when compared to other markets. “If I went to the grocery store and bread or milk went up 40% I’d be flipping out,” Crandall says.
Those kinds of price increases have sent small-business owners scrambling for other strategies to reduce health-care costs, often with little success. One option, says O’Connor, is for executives to lean on services such as medical hotlines where, for a nominal fee, doctors and nurses are available 24/7 to diagnose employee ailments and prescribe medicines so that staffers don’t have to waste time and money in urgent care or a doctor’s office.
One service, MeMD, charges businesses less than $35 per month per employee to provide around-the-clock access to medical professionals, says John Shufeldt, founder and CEO of Scottsdale-based MeMD. The company, he says, has been growing more than 300% a year since it was founded in 2010. The idea is one that many companies are embracing – save money on health-care expenses and lost productivity by having employee medical concerns answered in the office. That can save employers as much as $700 per emergency room visit or 90 minutes lost in a doctor’s office, Shufeldt says.
Nix the Paper Invoice
Now that Apple and Google are making it easier to pay for just about any retail transaction through your phone, it stands to reason that business-to-business deals could be settled in the same way. For some distributors, it’s already happening. Take Rector Communications LLC (asi/305623), a distributorship in Indianapolis, for example.
Two years ago, Tom Rector, the company’s CEO, found himself standing in the middle of a cornfield, a few feet from a swamp. The closest outlet was hundreds of yards away. Still, Rector, whose company was on hand to sell promotional products (T-shirts, coins, belt buckles, water bottles and toy muskets) to commemorate a nearby civil war reenactment, had no problem completing credit card transactions without a power cord in site.
Rector used Square, a bottle-cap sized electronic device with a slot at one end that plugs into smartphones and allows vendors to swipe credit cards for instant transactions anywhere by using cell and wi-fi signals. For four days, Rector and his team stood in sweltering 110-degree heat, running one credit card after another in the middle of the field. But Rector was fine with that, since his company netted thousands of dollars at that event and similar ones.
Describing his distributorship as “light years ahead of our competition,” Rector feels as though the industry needs to embrace evolving technologies like remote retail capabilities and e-payments, if for no other reason than to keep customers happy. “The trend is that our customers want things fast, and at the same quality and same competitive price,” Rector says.
Practices like electronic payments actually help Rector Communications do that, since e-payments get money in the door at twice the rate of paper invoices. “If we can collect the money faster, we can turn that money around for bigger projects,” such as capital improvements and expanded staff, says Rector, who says his firm offers “five or six gateways” through which they accept customer payments. More to the point, “if we don’t collect the money fast enough, then we’ll grow ourselves out of business,” he says. The company also accepts reorders via text message.
And while other industry firms might not collect payments through mobile apps or iPhones just yet, others see the writing on the wall. “I really do think the industry will go the way of e-payments,” says Fine Print’s Crandall. He has noticed a shift from paper to email invoices in recent years, and he guesses that payment apps aren’t far off. He’s wise to think that. According to Statista, an online statistics portal, mobile payment transactions topped $235 billion worldwide in 2013 and are projected to top more than $721 billion by 2017.
Alternative Access to Capital
Like so many creative projects funded by Kickstarter, small businesses are realizing the power of crowd funding as a new source of capital for business ventures. In 2012, $2.7 billion was raised by small businesses through crowd funding, according to Massolution, a crowd-sourcing research and consulting firm based in Los Angeles.
That’s certainly been the case for Rector Communications. Recently the company launched Ink the Cause, a charitable arm of Rector Communications that was itself funded through Kickstarter, Rector says. Through Ink the Cause, individuals or companies contact Rector’s firm, have shirts designed for their cause and then launch social media campaigns to raise money and awareness for their philanthropy.
The company also used crowd funding to raise money for its new Simply Touch Technology, which allows Rector Communications to offer shirts with NFC (near field communication) technology, which allows a person to hold a phone to their NFC-embedded promotional product for real-time updates and messaging on a company’s cause, marketing message, event or other item they may be promoting, in a similar way to how QR codes can be read via smartphones.
The beauty of crowd funding, experts say, is that it not only raises money for a company, but also builds mass loyalty by way of an investment model that requires a multitude of sponsors to make it work.
“Crowd funding is really about engaging community involvement,” says Kim Kaselionis, managing partner and founder of Breakaway Funding LLC, a consultancy based in Sausalito, CA. In the distributor’s case, building a sense of community among existing clients is a smart way to solidify rapport and loyalty. “Any time you can find a grassroots way of raising money,” says Fine Print’s Crandall, “that’s a great alternative.”
Playing With Price
Not surprisingly, pricing pressures and margin dips are a continuing problem for many distributors. These days, distributors say they’re feeling the pinch from both sides. Web-based companies offering premiums at rock-bottom prices are an ongoing competitive headache for distributors trying to maintain robust margins. But now they’re also squeezed by tiny mom-and-pop shops with no overhead and minimal margins. Because many “work out of their garage and don’t have any employees, they don’t pay the same expenses I pay with a staff of six,” says Michelle Taylor, owner of Logo Wearhaus (asi/382569), a distributor based in Balston Spa, NY. “I’ll lose bids for pennies because I can’t go as low as they can,” Taylor says. “It’s driving me crazy.”
Taylor is not alone. Whether distributors feel the pinch from Web-based companies selling directly to corporate clients or from tiny outfits with the power to slice margins razor-thin, most mid-sized distributors say it’s an industry trend that they predict will be a continuing burden in 2015. Part of the problem is that “the Internet has created pricing transparency,” so that clients realize what the distributor markup is, says Brian Abrams, president of Chicago-based Corporate Imaging Concepts Inc. (asi/168962). “If you’re offering product where [the price markup] used to be opaque it’s not anymore.”
But what can be done about it? One thing to start – and something distributor companies should definitely emphasize in 2015 – is to “change the conversation and change the playing field on their competitors when their margins are being squeezed,” says Anne Graham, managing director of the Legendary Value Institute in Vancouver and author of Profit in Plain Sight.
A marketplace revolving around margins is “a sure sign that they’re being seen as a commodity vendor instead of a value-added supplier,” Graham says.
The best way to change that, she says, is to increase the perceived value a distributor offers. Many distributors are already realizing their need to leverage this advantage. As Bob Horwitz has found out, clients often come crawling back begging for their distributor’s help when orders go wildly awry with low-cost competitors. Often a corporate marketer discovers after ordering, say, coffee mugs online, that the Web-based vendor won’t decorate them and won’t offer any help in that area, says Horwitz, president of Idea Workshop Inc. (asi/229563), a distributor based in Minneapolis.
That’s a great opportunity on which to build, Graham says. How? For starters, Graham suggests that distributors figure out every conceivable “point of pain” a client may endure if she buys products directly from an online vendor, which might include products arriving late – or not at all. Maybe the products she orders can’t be decorated and she won’t realize that until she gets them. Figure out at least five to 10 possible painful outcomes then gently warn clients about those specific risks, explaining that, by purchasing products from a distributor instead, those risks are virtually eliminated.
That way, Graham adds, distributors can easily explain that the 10 extra cents a client might pay per coffee mug will be money well spent in the long term. When all else fails, Graham says, send the client to the competition. It might sound counterintuitive, but distributors who say, “I’m confident that if you try one of these companies you’ll realize how much better our service is,” are saying implicitly that they’re the best vendor for their client.
Not unlike doctors who are happy to refer patients to someone else for a second opinion, distributors who are willing to let go of clients so they can try another option are likely to regain that client down the road, Graham says, with an added level of trust.