Marketing is a frequently misunderstood function among most distributors, reps and manufacturers. Historically, marketing for distributors revolved around promotions and events such as counter days, open houses or training events. Promotions were frequently relegated to implementing manufacturers' customer promotions and sales spiff strategies, company promotions or incentive strategies.
Brand management, supplier relations, market research, merchandising, supporting product launches and more are now considered integral to the success of a company.
While economic conditions and market niches in your area will dictate your strategy, a review of some of the marketing issues expressed in our Channel Challenges survey can help electrical distributors further differentiate themselves within their marketplace and to their manufacturers.
Co-op funding
As expected, a growing issue is the use of co-op/marketing funds. For years, manufacturers have lamented about inappropriate usage and ownership of the funds. Times are changing because manufacturers are becoming more performance-oriented. Because more manufacturers are quantifying how their co-op dollars are spent, distributors will be asked to develop marketing plans that show how they plan to utilize a vendor's co-op investment. Rather than just fund counter days, they are looking to fund sampling strategies and other initiatives to drive new product sales. According to one manufacturer, “There isn't much value to me of having my salesperson stand at a counter day that has little traffic, let alone not meet with decision-makers.”
As usual, reps are caught in the middle and are often the ones who must say “no” to distributor requests for co-op funds. Some even fund involvement in counter days and open houses themselves to ensure the lines they represent remain visible.
Rather than invest a percentage of sales into all distributors, manufacturers are scaling back — and in some cases cancelling — their co-op strategies and quietly utilizing market development funds (MDF) to invest in desirable strategies or providing incremental funds based upon sales growth. Distributors who think through a plan and present a strategy to their manufacturer have a better chance of receiving financial support.
Moving into 2009, look for manufacturers' marketing funding to further tighten due to economic realities. Funds will exist but manufacturers will be more selective in where they spend them. Distributors need to plan to sell a manufacturer on why the manufacturer should invest in them.
POS
Point of sale (POS) information is a hot topic for reps, as it becomes a driver of commission and an opportunity for manufacturers and distributors.
Manufacturers said they would use this data for sales compensation, to help reps manage their businesses better, to determine market share and for marketing purposes. More than 72 percent of distributor respondents said they would use POS data to identify additional products to sell. Unfortunately, many distributors don't effectively analyze this data or know how to use it in their sales and marketing strategies. The ones that do use POS data for up-selling, cross-selling and vertical marketing initiatives can represent opportunities. They use tools from companies like Sales Management Plus, www.gosmp.com, to mine their data. Manufacturers are participating and subscribing to data from Activant's Vista Information Services to view aggregated POS information to understand their market share and product movement.
Branding
Over the past 10 years, leading distributors have allocated more resources to locally building their brand. This involved marketing communications initiatives, development of services, reaching out to additional product influencers, community involvement and enhanced personal communication. The efforts are paying off.
While competitive pricing is important to capturing business, relationships continue to be the biggest reason customers do business with distributors, followed by price and service. The equation can be altered if differentiated services are offered. The key to developing these services is listening to the customer, understanding their needs and tailoring your core competencies to meet customers' needs.
When reps were asked their opinion about distributors calling on end-users and specifiers in addition to contractors, 64 percent either agreed or strongly agreed that distributors should be doing this. While conflicts may occur, if there is enough trust in the relationship and the rep's business grows, no one is concerned who generates the business.
Product launches
Everyone talks about wanting to do better product launches, but when it comes time to execute, few consistently succeed. Here's a sampling of manufacturers' comments regarding product launches:
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Distributor management needs to support new product launches.
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Distributors should develop a defined system that could be shared with key manufacturers.
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Joint plans should specify the role of both the distributor and the manufacturer or rep.
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Wholesalers should hold training sessions for all outside and inside staff, including quotations personnel.
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Sales and sales management should identify target end users, set sales goals and adjust compensation policies to reward new product sales.
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Samples or literature should be freely provided to salespeople and shown or given to customers.
Reps said they need better access to sales samples and “leave behinds” from their manufacturers, they want group training at distributors to be encouraged at the management level and need more realistic timetables for reps that consider the rep's trade-off in time invested versus commissions earned on the new product.
Reps also said manufacturers need to improve their promotions for end-users and salespeople, offer initial stock promotions that give distributors investment protection (dating, discounts, guaranteed sales), target key distributor partners with product rollouts rather than “all” distributors and have adequate product available from the factory.
Preparing for 2009
As we head into 2009, manufacturers are relying more on their distributors to market their products. But as distributors accept this responsibility, they will be more likely to promote their own companies and focus less on the manufacturer. Manufacturers who co-invest with their distributors will gain preference and increased visibility within a given marketplace and the opportunity to grow their business and take market share.
The challenge for a manufacturer is to decide which distributor(s) to invest in and figure out how best to provide in-field marketing planning support. While reps may have local marketplace intelligence, marketing planning has not historically been one of their fortes. Distributors who view marketing as a strategic resource and a marketplace and manufacturer differentiator can position themselves for superior growth potential.
Allen Ray is principal of Allen Ray Associates, Kennedale, Texas. He can be reached at (817)704-0068 or [email protected]. David Gordon is a principal of Channel Marketing Group, Raleigh, N.C. He can be reached at (919) 488-8635 or [email protected]. Check out their blog, www.electricaltrends.com, for industry insights.
Distributors Sound off on Product Roll-Outs
Electrical distributors weren't afraid to voice their concerns about the current state of product rollouts. Here is a summary of their comments from respondents to the Channel Challenges survey.
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Manufacturers need to do a better job of educating their own salespeople on new products.
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Suppliers must develop programs to initiate the stocking and marketing of the new product(s), and offer dating and guaranteed sale policies.
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They need to supply distributors with end-user samples, literature and two-minute to four-minute product demonstration videos aimed at potential customers for use at sales counters and on the Web.