An electrical distributor says to a manufacturer, “If push comes to shove, I can probably get by with your products.”
What's the punch line? There isn't one.
Manufacturers and distributors do a lot of pushing and shoving — for better margins, more value and increased services. Underneath all that shoving, a significant, not-so-subtle change is taking place.
This change is so important that if manufacturers and distributors don't understand and face this change, they just might push and shove each other right out of their respective businesses.
The Internet is taking down walls between distributors and manufacturers. Without walls, you have no barriers to business. There are no clear-cut definitions of what “manufacturers” and “distributors” should do or act like. Businesses begin acting in all sorts of different ways — and businesses erupt into channels that they traditionally shied away from.
In a world of no boundaries, anything becomes possible. Old rules do not apply because there are no rules (or new ones are springing up all the time). The only thing that seems to apply in a borderless world is the ability to quickly reconfigure to meet new and changing market demand.
For a world without borders, where product parity is the rule, what differentiates one company from another? Service!
Don't believe a recent article in a major manufacturing publication arguing that America is not a service country. Obviously, the author doesn't know distribution. Furthermore, if you limit your definition of manufacturing to “making things,” you've already lost the game. (Remember, a borderless world doesn't necessarily define a manufacturer as someone who makes things anymore.)
Ford Motor Co. doesn't just make vehicles; it distributes them through a dealer network. The more Ford knows about consumers who buy Ford automobiles, the more cars they can build to suit consumer needs. Dealers turned into service centers.
The more you know about the products your customers want, the more you will sell. Sounds simple, but of course, it's not. But tackle the process you must, or you end up just another pushing-and-shoving operation.
BUSINESS 101 IN 2005
Anything goes. The definition of an electrical distributor isn't just a company that distributes electrical products. It's a company that gives an increasingly diverse customer base what it wants!
To conduct business in 2005 and beyond, whether you are a manufacturer or distributor, you must redefine yourself continually. Here's an example of what this means to an electrical distributor.
Nearly two-thirds of distributors surveyed in the 2004 Electrical Wholesaling Reader Profile expected 2004 sales to be less than $5 million. That's truly a world of many small businesses. Yet, small business is what drives business in the United States.
Even in retailing, where Wal-Mart dominates, there are more independent retailers with combined sales far greater than Wal-Mart's. Such diversification is the heart and soul of business. Wal-Mart can move fast to meet a new customer need — but it can't move as fast as a regional, local player.
Therein lies one of your secret weapons: speed to market. Because now, every one of those small businesses has the opportunity to become Wal-Mart by giving customers what they want. In short, crumbling walls means we all have an equal chance at success.
Don't buy that? Then take a look at the following statistics from Electrical Wholesaling's Reader Profile.
Half of the electrical distributor respondents said their companies sell fewer than 100 products. This indicates there is a market of specialists out there!
On average, the largest percent of sales by respondents is to contractors (with industrial and commercial right behind). Remember, the contractor base is changing, both in contractors' roles and in how they compete, opening up even more opportunities for you. Find out what electrical contractors want, and give it to them. (See “9 Opportunities for Distributors and Manufacturers” on page 32.)
The electrical distributors respondents added more product lines than they dropped in the last 12 months. But, manufacturers “infrequently” approached them to add more lines during the last 12 months (14 percent said they weren't approached at all).
So where are these products coming from — perhaps manufacturers outside electrical? If a distributor is being asked for a certain kind of product, and no one is knocking at the door to provide it, what's a distributor to do? Act like a manufacturer, what else?
Opportunities abound. It's only a matter of evaluation and structuring an attack plan.
In a separate independent survey by Accountability Information Management Inc., Palatine, Ill., electrical distributors were asked how they evaluate manufacturers as a whole. They were also asked how they evaluated one particular manufacturer.
The similarity between the attitudes of distributors toward the one manufacturer compared to their attitude to all manufacturers is certainly interesting. (See chart.)
You can immediately see that the “brand” of a manufacturer is far less important than on-time delivery, or delivery as promised. Indeed, “on-time delivery as promised” is the most important in both groups.
As a distributor, you might be willing to shove one manufacturer out in favor of another regardless of brand if your source would offer on-time delivery or delivery as promised better than your current supplier. That's a scary thought for a manufacturer, but it's also an opportunity for that manufacturer! Brands can be enhanced when they are combined with characteristics such as service and training, or, on-time delivery as promised.
FROM THE HORSE'S MOUTH
The survey by Accountability Information Management Inc. produced many extremely interesting comments. Let's review two of them that were repeated many times, and their implication in the crumbling-wall atmosphere in which we operate.
“USA material getting very hard to find.” You might be thinking, “So what else is new?” What you should really ask yourself is, “Does it really matter that much?” This is a global economy we function in, and part of differentiation is not only product but also service.
Service, perhaps, is the only differentiation on a local level that can be the deciding factor of success. You are there — and the product, as the chart shows, becomes incidental as to “who” makes it as long as it's there and it works.
“Local reps with knowledge lacking in the industry.” This is an indictment on what manufacturers are not doing to earn your business, and why, as a distributor, you look for other sources. For example, a lot of the pushing and shoving is over the price of products. Distributors want lower prices to be more competitive, and manufacturers want higher prices to make more money. Both sides lose when the focus stays on price.
How do you break that vicious cycle? By helping customers sell more stuff! That is, the manufacturer should help the distributor, and the distributor should help the contractor. This takes the “helping proposition” well beyond lowering or raising prices.
In fact, this “help” can be translated right into the need for reps to have more knowledge. If a manufacturer's local reps are lacking in knowledge, where is a distributor going to go for that knowledge? Should the distributor create its own “trainers” for customers? Should the distributor seek other manufacturers — especially if the manufacturers aren't calling on him as the research suggests?
The nature of business has always been pushing and shoving, but it's only recently become so intense. And, it's opening up enormous opportunities for today's distributors and manufacturers to do more than just “get by with products.”
To function in a world where the walls are crumbling, you must be ready to take advantage of any opportunity that arises, and you must do it quickly. More than any other factors, service and speed to market will help you push and shove your way to the top of your game.
Jim Nowakowski is president of Accountability Information Management Inc., Palatine, Ill., a marketing firm with experience shaping marketing, public relations, advertising, direct mail and promotional campaigns in the electrical wholesaling industry. You can contact Nowakowski at (847) 358-8558 or e-mail him at [email protected].
9 OPPORTUNITIES FOR DISTRIBUTORS AND MANUFACTURERS
Although the electrical contractor is still the dominant customer, research suggests a shift in the type of customers that distributors serve. Distributor respondents surveyed by Accountability Information Management Inc. provided numerous comments on ways that both the type of customer and the type of product were changing. Here are a few that suggest some interesting opportunities.
Distributors are adding more industrial and small datacom customers.
As your customer base changes, look for products outside the traditional electrical ones you carry. Some manufacturers are doing the same and offering these products through other channels. Convince manufacturers they should be supporting your customer base with these products.
Explore the kinds of work your customers are doing by talking continually to them about their work. What do they need that they don't have? What kind of opportunities are they looking for in their work?
Contractors are looking for ways to save time. Offer labor-saving products.
To the contractor, time is money. Wasted time is lost money. Any product that can save them time will earn their loyalty and confidence in you as far as understanding their business is concerned. Attend trade shows and seek new time-saving products for your customer base.
Customers want it now. Offer on-site product delivery. Everyone needs it now. Start a “now” service by offering to deliver to the site of the contractor. Vary your pricing depending on the type of delivery the contractor requires. Help your customers by knowing their stocking needs, and then serving them by “holding” inventory for them.
Do-it-yourself business is growing. Watch for opportunities. Is there a large retailer enjoying DIY business in your area? Form a “contractor alliance” with your customers to help homeowners do it right. Set up a special DIY section in your shop.
Customers are becoming less diversified and focusing on what they are good at. Then, so should you! If your customer base is going the other way, be a specialist! Find out what they need, and how you can support their work.
On the flip side, many customers are not specializing; their work is more varied. What are they doing, and how can you fit their needs?
When you talk to your customers about the kinds of work they are doing, you will get ideas on not only what to stock but also other opportunities for business outside of being a “distributor.”
The MRO customer base is disappearing and changing to a contractor base. What happened to the MRO? It did not just disappear!
Here is an extraordinary opportunity to find out what happened to the MRO customer base, and then why it disappeared. Did it go to a different type of distribution? Instead of just “changing out” customers, this distributor had the opportunity to have a “stock split” — get two types of customers!
National buying agreements are popular with commercial/industrial accounts.
National purchasing agreements can threaten to undercut your efforts — unless you become part of them. Manufacturers often work on these with their national account managers, but what if a distributor decides to approach end users with such agreements from your point of view?
In a boundary-free world, he who gets the contract first controls the sale, and there is no restriction in a distributor taking the lead on such agreements! It's an opportunity to partner with other distributors to serve local area business. Imagine partnering with an industrial distributor, or a plumbing distributor to support a national account! The possibilities are endless.
Everyone is looking for a deal.
What is a deal? Do you limit a deal to just price? There is no unwritten rule that says a “deal” must be just about price. What if buying at a certain volume includes free delivery? Or, what if you examine your sales, find that every time you sell Widget A, you also sell Widget B. Why not “bundle” them in a deal for your customers? The art of business is the art of deals, and you should NOT limit it to price.