John F. Kennedy once said, “A rising tide floats all boats.” He was referring to the concept that when an economy is performing well, all companies benefit from it. Over the past few years, that's what has happened with the U.S. economy, when many businesses succeeded in large part because of robust economic factors. But since business has turned sour, success in today's environment requires taking share.
Taking share requires energy, ingenuity, resources and desire. To reduce your rate of decline or to grow your business you must increase your market share within your territory. If your marketplace produces $100 million in annual sales and you have a $10 million business, your share is 10 percent. When the market contracts to $70 million, you need a 14.3 percent market share (a 43 percent increase) to maintain your sales volume. You need to take this share from someone because the market will not automatically help you grow your share.
Many distributors think the easy way to take market share is to compete based upon price. They believe customers who themselves are challenged for business solely desire financial concessions. However, customers quickly learn to shop their business to more distributors, knowing that increased competition lowers prices and that distributors have become desperate for the business. It all contributes to a downward pricing spiral.
It seems like at least one electrical distributor in every marketplace leads with price in the belief that this will help their business. Unfortunately, price leaders tend to have reduced margins (unless they are supported by manufacturers) and are driven by the need for cash flow. They bring the market down and set marketplace expectations for all as competitors react. In speaking with distributors around the country, we've identified 20 share-taking strategies that distributors are using or considering. Ten of these strategies are in this article. For 10 more ideas e-mail us at [email protected] or [email protected].
Reconnect to your customers
During tough times, customer communication is critical. What are their needs? How has their business changed? Learn what they are seeing from your competition, and from theirs. These insights will help you forecast better and develop new services to meet a changing market. Existing customers represent your best opportunities for expansion. Always ask yourself: Am I getting all of the customer's business? 75 percent of it? In all product categories? Reconnecting to the market can also include research on how your competitors are attacking the market and the development of counter strategies to hit the spots where they are weak and where you can take additional market share. Information is power.
Identify growth niches
Segments exist in every economy that grow faster than the overall market. Research your customer base and focus resources on where they are growing or consider tangential customer groups. The niche needs to be large enough to impact your business. For example, the sales processes in the industrial and institutional markets are comparable, or perhaps some residential contractors in your market are doing service work.
Expand your contacts
Many companies only know whom they accept the order from or whom they send the invoice to. By extending your communications reach you can influence and capture more business. Do you know all of the estimators, project managers and foremen for your contractor customers? What about the engineers and maintenance personnel in the plant? Or how about the architects and engineers designing the building? Each of these audiences may either have business or influence business. How can you influence the purchasing decision at the architect, engineer (specifier) or developer level? Follow the money trail. This is where selling gets done and product selection happens.
Ramp up marketing and consider promotional initiatives based upon incremental customer performance (but make sure someone controls pricing). Customers have discretion in where they place their business and we live in a world of WIIFM (What's in it for me?) Remember that contractors pass on the price to their customers and that you only need you to be competitive. Develop other compelling reasons to buy from your company.
Promote your unique selling proposition
Do your salespeople understand why customers should buy from you? Do they sell your points of differentiation (or do you hope they do?). Your brand is important. Define it. Communicate it. Train others on it. Sell it. Consider how you can use metrics and case studies to support your positioning. Be specific.
SPAs grow share
SPAs can be a powerful sniper rifle to earn business. One West Coast distributor is actively using this tool. He says, “Getting additional business from existing customers means we have to adjust prices. We are engaging our manufacturers in order to use additional SPAs.” Effective SPAs are targeted at specific customers or market segments critical to your success. Which customers could you target for new or incremental business by using SPAs? Remember to put the administrative system into place to ensure you claim all that you are owed.
Review your pricing strategy
With many companies using price as their market share — or survival — strategy, you need to ensure your prices are updated in a timely manner, that your price matrix is accurate and that you are using and managing pricing strategically. Many companies also err by allowing their salespeople to have unrestricted access to pricing and price decision making. Also consider opportunities for ideas such as loss leaders, packaged pricing, cross-selling and bundling (with companion products). And remember, the purpose of pricing is to generate a sustainable profit.
Being there is half the battle
Many industrials and large contractors cannot afford to manage electrical material inventory anymore. Inventory carrying costs and personnel costs make this prohibitive. But if you have inventory management expertise, offering it to your customers makes you their in-house distributor. Offer “free” on-site warehouse services, charge for material used as well as restocking charges for returns, and negotiate a minimum purchase volume agreement. Being an insider provides unique opportunities and can create a steady flow of business.
Sell service value
Do your employees and customers know all of the services that you offer? Do you know what your customers value? Conduct an exercise to identify and measure your performance on your services. With what you have learned, train your sales staff on how to sell this value to your customers. When one company used this approach, they talked to customers and found out that product availability and delivery were essential to capturing business. They launched a service that offered guaranteed product availability and delivery times within defined geographic areas. The company then used their delivery schedule commitment as a marketing tool to prospective customers within those areas.
Now is the time to expand and upgrade your sales staff. Consider reallocating personnel resources to revenue-producing staff from non-revenue producing areas. With companies reducing staff, good people are on the market and others may be nervous about their company's ability to service customers. According to a Midwest distributor, “When our competitor, a larger regional, started to cut personnel, we selectively hired a salesperson after looking at his customer following. We are still looking at hiring other selected salespeople.”
Taking market share is about capturing dollars and units. Measuring your business both ways enables you to truly understand business changes and to share this information with your manufacturers. They need to move units to ensure profitable factories; you need to move units to generate revenue. You need to work together to take market share, but it requires commitment, resources and focus. Capturing more share generates more opportunities today, and even greater volume tomorrow.
Allen Ray is principal of Allen Ray Associates, a consulting firm that helps companies improve profitability through effective pricing strategies and streamlining business processes through effective e-business utilization. He can be reached at (817) 704-0068 or [email protected]. David Gordon is a principal of Channel Marketing Group, a consulting firm that develops market share and growth strategies for manufacturers and distributors. He can be reached at (919) 488- 8635 or [email protected]. Visit their industry blog at www.electricaltrends.com for more insights into growing your business profitably.