By Tom Piscitelli
All distributors care about is getting the order. That was what my boss told me when I was a rookie sales rep for a manufacturer in the early 1970s. Granted, he was from North Jersey, and I was assigned to distributors in Philadelphia, where things can be a little rough around the edges. However, it was still, at the most, only a partial truth. Unfortunately for me, I wasn't going to understand the whole truth until later.
As a contractor doing business in a very competitive environment, you have to gain every advantage you can. After all, you tell yourself, if you don't press for all the business you can, your competitor will take it from you.
Your distributors can offer you a lot more than just the products you need at a low price. Most contractors know this and have made some of their buying choices, and paid a small price premium, based on something else a distributor provided that helped grow their business.
On the other side of the table is the distributor who wonders why some contractors don't value all the distributor has to offer. Those contractors take advantage of the extra distributor services and still demand the lowest price. Thankfully, they also have some mutual contractor business relationships that go beyond the lowest-price need.
How can contractor/distributor partnerships be improved so that each party sees some benefits? Let's begin with understanding the concerns of contractors and distributors.
How Contractors Treat Distributors
"What's Your Lowest Price?" Certainly the question is valid, because we all weigh price against value when making any purchasing decision, in our personal lives as well as in business. Unfortunately, much of what the contractor buys from the distributor is a commodity, the same product in the same box that many other distributors can provide. The contractor has learned — actually he has been taught, that he can pressure distributors to give him a lower price. As a result, many distributors become willing to engage in pricing wars. The contractor assumes distributors have plenty of margin to play with because this tactic results in lower prices.
Thereafter, low price becomes the basis for all future business dealings.
Cherry Picking. There are some products and services that contractors recognize as providing additional value, which they will pay a small premium to acquire. This could be a specialty product, such as geothermal equipment, or a value-added service, such as job-site delivery. In either case, the contractor realizes that the overall cost is competitive even though the specific product or service price costs more. The cherry picking contractor will still pressure the distributor for the lowest price on everything else. If the distributor refuses, the contractor can always take his business elsewhere, and usually does just that.
The Business Partnership. The business partnership is built upon the best value to both the contractor and the distributor. In this relationship, both the contractor and the distributor reach a mutually beneficial agreement on how they will do business together. This means the contractor and distributor must have a significant amount of mutual trust established. Each must be clear about what he or she wants out of the partnership, and be willing to make commitments in exchange for getting what they want.
How Distributors Respond
Again, this varies, but here are some typical corresponding distributor responses to the contractor behaviors I have just described.
(What's Your Lowest Price?) Hearing this all day, all week, all month, all year, every year, can be wearing. Distributor sales reps expect contractors to ask the question. They also know that some business will only be won by having the lowest price, while other business can be gained by helping contractors be more profitable in other ways.
Some distributors, and their sales reps, only know how to sell on low price, and are streamlined to the point were they are pretty good at delivering on that promise. But don't be looking for something extra, because they won't be able to deliver it. Other distributors have built their business with capacities for doing more for their contractors, and they simply can't offer the lowest prices and stay in business.
(Cherry Picking) This gets a little more complicated for the distributor. The lowest-price can accommodate the contractor on commodities, but doesn't measure up with the specialty needs. The distributor might stock up on a new product line the contractor can use, but the contractor won't likely get the service he needs that goes along with it. On the other hand, the "value-added" distributor can provide the extra products and services, but can't offer the absolute lowest price on commodities. The distributor needs the commodity business to help support his investment in resources and people. If they can't get some of that business, they can't continue to support the contractor's special needs.
(The Business Partnership) If the or contractor know how to build and maintain this relationship, then each party gets the best of all worlds. In this scenario, each explains openly what they need to be successful, and each is willing to look at the overall cost of the business relationship and make their decisions accordingly.
If the contractor stocks up on pre-season specials in order to get the lowest price, he is also investing in handling, warehouse space, warehouse inventory management, and other costs that often cost more than the initial price reductions had saved. If the contractor could get a competitive price guaranteed, without the need to buy and inventory large quantities, they would have lowered their overall cost, met their goal, and the distributor would be selling products at a reasonable profit, meeting his or her goal. Both win!
Establish Up-front Dialogue
If we want a different result, we have to change the way we behave and how we view our business. This all begins with your desire to establish a partnering relationship with your distributors.
Contractors, if you are ready to change the way you do business in exchange for an improved bottom-line, then these are the steps you need to take:
- Sit down with your management team and decide what you want from "the perfect distributor." Anything goes. Get creative with your thinking. Any idea is worth discussing. And write this all down. Title that page, "What We Want."
- Ask your distributor sales rep if he or she can talk about how your companies could form a better working relationship in which both could benefit. If they agree, set up a meeting.
- Explain your vision of a business partnership to your distributor, and confirm that this is something that they'd be willing to work toward. Present your "What We Want" list and discuss it in detail. Explain that you don't expect them to make any commitments on the spot, nor do you expect them to agree with everything; you're just showing them what you would like to get from the perfect distributor.
- If the distributor has been trained in this approach, (perhaps through my "Winning the Sales War" training, for example) then the sales rep and manager will fully understand that this is the beginning of a process that will result in profitable changes for both of your companies. They should be asking many questions, and not offering any solutions or agreements at this initial meeting.
- A week or two later, in a second meeting, the distributor confirms what he or she understood you wanted. Once that's established, the distributor should review what they can, and can't, do, along with the commitment needed from you.
Expect the distributor to ask you for your business in exchange for giving you what you asked for, and be willing to commit your business to them if they agree. In some cases, you will be looking at a higher price. But if the service or support you have asked for saves you a particular cost, or increases your profits, then the higher price will result in a lower cost or, you will increase profits.
- Reach an agreement on all points. Write out your agreement out and shake hands. Then, you're on your way! This strategy has a 100% success rate. At the least, you can get some of what you want, to help you reduce costs, increase profits, and make your life easier.
This article is based on the presentation, How to Partner with Your Distributors, which Tom Piscitelli will be giving at HVAC Comfortech 2005, which will be held in Nashville, TN, Sept. 14-17, 2005. For more information about HVAC Comfortech, call 216/931-9550.
Learn from the leaders: In 2004, HVAC Comfortech presented more than 30 speakers providing educational seminars. All the sessions were recorded, and are available for purchase. For pricing and ordering information, visit the show website: www.hvaccomfortech.com.