The time to plan for 2004 is running out, and 2004 planning may be your most important. Why? For most companies, the past few years haven't been too good.
In 2003, many companies will achieve their profitability objectives through cost-management, but once those savings hit the bottom line, how will they increase profitability in 2004?
If you listen to the media and read government economy reports, you would presume that business is improving and that everyone should be projecting a good 2004. After all, according to Mr. Greenspan and economists, we are in the beginning of an economic recovery.
Unfortunately, much of the “recovery” remains consumer spending and defense spending. Some high-tech companies are also reporting positive trends. The problem is, these are not the infrastructure issues that electrical distributors supply.
At the North American Electrical Sales and Marketing Conference, manufacturers and distributors agreed the area with the biggest need for improvement is planning. Both sides need to be better prepared prior to entering into a planning session. By communicating each other's goals, developing plans to achieve those goals, executing the plan based upon a predetermined schedule and then providing feedback, the plans are achieved.
To develop your 2004 strategy, let's start with macroeconomics.
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The residential market should continue to grow, albeit at a slightly slower rate than in 2003 due to the inevitable rise in mortgage interest rates. (They have risen more than 1 percent since the summer).
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A low prime rate provides low capital costs. This will spur strong companies to make strategic acquisitions, at an advantageous price.
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The commercial market is overbuilt in many areas. Vacancies in many markets are high. We don't need more office space because many tech companies abandoned their space in the past three years. However, aspects of the commercial market will grow, especially retail as some retailers continue to open stores. Nationally the commercial market may not be strong, but you could be in a strong local market.
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The industrial market is a challenge. Too much has moved offshore in the past three years, but the MRO side will improve as companies increase production and conduct overdue maintenance. Don't hold out much hope for capital projects, though, unless it's an expansion. Companies that face large investments will consider offshore opportunities.
Overall, in talking with manufacturers throughout the industry, the consensus is growth of 2 percent to 4 percent in 2004, with much of that coming the second half of the year.
What to Do? There are three ways to play: conservative, niche and aggressive.
Conservative distributors manage costs, get the business current customers give, and hold on. There's no magic here. If you cut too deeply into personnel, no one is left to service the customer, let alone come up with ideas to grow business.
Make sure you have good processes and are not doing unnecessary steps. See how technology can reduce hard dollar costs while improving service to customers.
Niche distributors look for markets that are growing in their area. They then focus on that growing market or markets. Areas to consider include government facilities, residential, datacom, health care, etc. Niche distributors may also develop specialized packaging/services for customer segments.
Independent niche distributors look for local market opportunity, focusing sales efforts in regional or smaller territories. As market specialists, they conduct research and ask questions to gain insight on where to focus business.
How is the local economy? Who is hiring? Ask customers, talk to people at the chamber of commerce, talk to the local newspaper editor. Seek information.
Armed with information, niche distributors develop an internal work group to craft a strategy. Then they enlist select manufacturers to support that market segment and target, target, target.
A combination of market knowledge, customer needs, communication, services and having the right product will enable you to attack the niche. Most competitors are concerned about touching “everyone,” but customers respond to companies that “speak” to them.
Aggressive distributors develop strategies to take share from market leaders through flanking strategies and from smaller competitors through customer dominance.
These companies that seek significant growth aggressively develop plans where they reevaluate their company — not that the company has problems, but more to the adage “if it ain't broke, fix it.” The best strategy is to attack yourself.
Where can you improve? What is no one else in the market delivering? How can you improve service? Be more responsive? Customize solutions to customers or customer segments?
Obtain answers to these questions, then introduce new services, products, programs, promotions, and partner with manufacturers who are like-minded.
Do these strategies work? In talking to a number of distributors, the answer is yes. The distributor companies employing these strategies reported sales increases of 4 percent to 21 percent — in markets that are flat at best. Some distributors report even higher increases among customers involved in incentive or frequency strategies.
The common factors among these companies with climbing sales include:
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Senior management is committed to marketing, not just promotions.
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The corporate marketing strategy integrates customer research, service strategies, communication, promotions, sales incentives and brand building.
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The distributor strategically partners with a select group of suppliers. Suppliers involved in the strategy experience greater than average sales growth.
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There is a commitment to following the plan and updating it throughout the year.
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There is a willingness to measure performance, and report results.
David Gordon is a principal of Channel Marketing Group Inc., which develops share-taking strategies for manufacturers and distributors. He can be reached via e-mail at [email protected].