Driving the need for a new focus in distribution are a number of trends which we identified last month. In review, these are:
- Customer relationships are increasingly critical.
- Gaining access to customer information yields marketplace power.
- Value-added services are expanded to meet customer needs.
- Channels of distribution are evolving and changing form.
- Distributors are forming alliances with suppliers to reduce costs and increase power.
- Business is becoming "North Americanized" and trade borders between the U.S., Mexico and Canada are dissolving.
- Products are being introduced from Europe and Asia that influence North America in terms of application and design.
- Multi-branding is commonplace.
- Consolidation continues.
- Deregulation is opening markets.
- There are serious workplace shortages.
- There is more "professional" ownership of distribution and fewer family owned businesses.
- E-commerce is enabling 24-hour / 7-day a week business.
- The consumer is now more educated based on availability of information via the internet.
- There is great interest rate volatility.
- Great intergenerational wealth transfers are occurring or about to occur.
Given these trends, wholesalers must develop strategic visions to capitalize on the changes which will be brought about by these trends. Each of these trends presents problems as well as opportunities. Strategic visioning identifies the problems and determines how they will be overcome and also identifies opportunities and determines how the wholesaler will take advantage of them. For example, if customer relationships are becoming increasingly critical, then specific customer-by-customer plans will need to be made to protect our most valuable accounts and similar plans developed to target those accounts we wish to capture. If value-added services are expanding to meet customer needs, then we must identify what services we can presently provide and plan to develop new needed services to meet the customer's needs.
As our markets mature and we find a surplus of product and suppliers fighting for a shrinking or stable demand, we may find it harder to increase our value offerings to customers because of shrinking margins which limit our ability to invest, a fragmented customer base which gives us too many market segments to aim our plan at, and a shortage of management and sales talent.
Power shifts in a maturing market from the manufacturer towards the consumer. The wholesaler-distributor who wishes to enhance his power in the channel of delivery will, however, find ways to add value for the ultimate customer, and in so doing will increase his value to the manufacturer.
Since the wholesaler cannot economically provide every service and value, the only option is to focus on "differentiated" service levels to attract customers. The wholesaler might decide, for example, to focus on providing superior product availability, creative credit arrangements, customized dealer programs, training for customers, or promotions. The main thing is to do certain things that have value to the customer better and more economically than the competition.
Distribution in a mature marketMuch of our attention lately is focused on the high tech, high growth companies which have been fueling the stock market's rise. It's exciting to see the impact of startup companies on our economy and on people's lives ... and to see the fall-out effect on established companies who must integrate the new developments into their organizations.
The reality is, however, that most wholesalers still work for or operate companies which meet traditional needs for commodity and infrastructure products that hold our society together. While all the hoopla of the "second industrial revolution" surrounds us, we must still find ways to successfully bring these already established products to market. We are in a race for what may be a shrinking or stagnating pool of product need and we must find ways of developing market niches, cutting production and process costs so that we can come to the market with a price advantage, and finding ways to create or identify demand for the specific value-added services we bring to our customers. This is not an easy task and carries all the risks and demands of the startups.
A recent NHRAW Spring Meeting featured sales and marketing consultant John Sedgwick who addressed some of the needs peculiar to mature markets. Sedgwick, whom I have worked with in industry causes for many years, spent most of his early career in training and distribution marketing management with Honeywell before forming his company, Applied Learning Associates Midwest.
Sedgwick says that, in a maturing market, the rules for successful competition shift dramatically. Supply exceeds demand and where there once might have been two or three competitors in a region there is now likely to be eight to ten. As a result, presence in the market is not enough.
Sedgwick points to the marketing function as the critical component. This means that the entire company must be brought into the effort, led by the sales force and management. He outlines six steps to developing a superior sales force. These are:
1. The sales force strategy must become an integral part of the overall business strategy. Company leaders must determine such things as which lines of business are to be primary lines, who are the target customers, what are the geographic goals and limits, who are the critical suppliers, and what are the strengths and weaknesses.
2. The selling and marketing effort must come together. Every customer contact employee must be part of the marketing effort. In a mature market the largest, most important target customers will require customized marketing and this will require a sales organization linked to the rest of the company and empowered to drive the marketing strategy for the largest accounts.
3. The sales manager's primary role is sales force development. He or she must be constantly analyzing the activities of the sales force and giving corrective direction and feedback to keep the strategy on course.
4. Eliminate the "route salesperson" role. The successful organization moves away from strict geographic territories to a combination of technical support, inside sales staff, counter sales and a small group of outside contacts highly skilled in relationships and consultative selling.
5. Compensation systems must match company goals. As opposed to a growth market where number of contacts and "spreading the story" is the primary goal, mature market compensation plans should reward things such as target account results, market share in key product lines, new account development, and growth for targeted products.
6. Train all salespeople every year. They must be constantly reminded that their primary role is business development and not just becoming product and program information experts.
The whole theory behind this is that companies in a mature market cannot fall asleep at the wheel. Success is possible indeed, but it will go to those who actively work their market. Power or leverage in a mature market moves away from the manufacturer and towards the customer. Those in the chain of sale - wholesaler, retailer, manufacturer's rep - who increase the "value" they add to the sales process will increase their own leverage, operate more profitably, and be more likely to survive.
In line with the idea of removing redundant costs, the more legitimate functions assumed and managed well by a distributor, the more likely he is to remain a valued member of the supply chain. With marketing as a critical function, this must be an area where the local wholesaler excels. Distributors need to hone their marketing skills and capabilities as part of the Market Center Distribution concept.
Key to a future strategy would seem to be the development of an E business strategy whereby the distributor provides on-line catalog, 24 hour ordering, and web sites with full product information. This is almost a given when distributors get together at industry gatherings. Certainly some of the big national mega distributors are devoting large resources and time to developing these capabilities. Surprisingly, we may be ahead of customer demand in this area, however. I recently took part in a daylong brainstorming meeting with one of our customer (contractor) trade associations. In listing their top 30 problems, I was surprised that electronic technology and its application hardly registered with them. Most problems dealt with personnel shortages and training of employees.
This is not to say that we should not continue focusing on electronic capabilities. It is just that we might have to accept the fact that we might be out in front of our customers on this "value-added" service. No doubt that proficiency in these areas will eventually stand a wholesaler in good stead, however.
Whatever the value-added services, the greatest value-added a distributor offers a manufacturer is its location in the local market and its contacts with local customers. This is something a national manufacturer or wholesaler without local facilities just cannot easily provide. It is a strength which distributors will want to stress and build upon as more and more pressure is put on them to justify their role in the supply chain.
For our part, at NHRAW, we will be focusing our events, workshops and convention programs on these concepts in the years to come.