It's late; the clock is approaching the witching hour. And we find ourselves in the dimly lit lobby bar of a convention hotel. A quick glance around the room indicates a few of our colleagues have consumed a bit too much — and the liquor has magically transformed from adult beverage to “truth serum.” But you and I, well, we're as sober as a pair of judges down at the county seat. In this tastefully appointed setting, we notice two groups engaged in animated conversation.
At one end, we see a group of wholesalers. They swell with pride as they recount stories of solving customer issues, discovering “work arounds” when there are manufacturing delays, staging their customer's purchases to ease congestion at a building site and epic stories of customers who rely on them to make things happen. Hugged around another table, we can make out a group of our manufacturing allies. But their conversation isn't so positive. Their hot comments tell the tale of margins given away and countless issues with distributors who rarely speak of anything except finding the “hottest price in the universe.”
Notice a huge divide? One side touts the virtues of the greatest value generator on the planet, while the other makes reference to “margin-sucking piglets.” To quote my favorite scene from Paul Newman's classic film “Cool Hand Luke”: “What we have here is a failure to communicate.” And our failure comes in our inability to describe our value in terms relevant to those around us.
Splashed everywhere, terms like value proposition, value statement and the ever-popular value-add are proclaimed by distributors daily, but the words ring hollow. Here's why — deep down inside, few of us and even fewer of our salespeople truly understand the value of what we do. It's not lack of action, we do plenty. Instead, it's lack of understanding. When we think about the value of our actions, we tend toward how much it cost us, rather than the importance to our customers or suppliers.
When distributors lack this basic understanding, they become just another commodity on the road of life. We all understand the selling and buying of commodities. Price, low price and even lower price become the cornerstones of the conversation.
Since distributors really are the “middlemen” all the signs advise us to avoid, we'll dissect our conversation into two parts: customer value and supply partner value. And, as we stated in our last message, if we weren't providing value to both of these sectors, we would have gone the way of the buggy whip.
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Recently, I hosted a group of journeymen distributor salespeople. These folks all had 10 or more years of experience in our business. We scratched out some time to talk about the value they provide to their customers. I asked the group to start off slow with the low value things and work our way up to higher value. The list was long (actually covering more than 50 points), but here is a sampling:
Local inventory, which matches the customer's need.
Job site delivery, which often includes assistance unloading.
Emergency access to warehouse items during peak seasons.
A will-call counter with fast pickup for items required or forgotten on jobs.
Identification of oddball items needed for service truck work.
Staging of orders for delivery at just the right time.
Education on new technologies, and updates on governmental regulations.
Assistance in developing new market events and laying out customer programs.
When the group discussed these activities as a competitive advantage in the market, one salesperson said, “All of our good competitors do these things. So I rarely talk about them with my customers anymore.” Interestingly, none of the salespeople felt as if any of their competitors “make a big deal out of” these activities either.
So here we are providing (and paying for) expensive services to our customers and relying on the customer to connect the dots of the value equation. Incredibly, only a couple of members of the assembled group had taken time to think about how these actions impact their customer's business.
To illustrate how we impact our customer's business, let's examine one of the points from our list: emergency access to warehouse items. We'll relive a classic tale from the annals of distributor life. My guess is that you can relate.
The family gathers for an old-fashioned outdoor cookout. It's 6:30 on Friday evening. You fire up the grill, the brats are simmering on the side burner, and the neighbors will arrive in about 10 minutes. As the kids impatiently watch the reigning master of the backyard barbecue don his apron, the cell phone rings. Out of instinct, our apron-attired hero swoops it to his ear and answers. One of our best customers has an emergency. The details of the day don't really matter as much as the point that this customer needs something, and we need to make a run to the warehouse.
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Now here's the issue that keeps me awake at night. Lots of my friends and colleagues have sacrificed hobbies, bowling nights and family time to solve dozens of customer issues. And they don't know if it's worth a thousand bucks or a couple sawbucks to the customer. But it would be nice to evaluate the impact, even if we only look at it for just a moment. Here are a few questions to ponder:
How much labor (overtime would certainly be an issue) might the customer incur if the inventory was unavailable?
Was a team of outside contractors (cranes, lifts, carpenters) on the clock waiting for the part to arrive?
If the customer were using our product to heat, cool or refrigerate a process, would there be lost or damaged products?
Might your customer lose money in the form of an unsatisfied customer or a contract to maintain schedules?
Would there be an impact on future business as the business community questioned whether the proper amount of time, money and attention had been focused on maintaining the proper inventory?
It would be easy to attach our misplaced family time to the effect we have on the customer's pocketbook. Wrapping just a little cognitive time around specific customer situations could put us in the fiduciary ballpark. Presenting a year's worth of these instances along with our understanding of the financial ramifications to the customer's top guy would make us stand out in a crowd, not to mention, give us the information required to make some darn good recommendations around the products and services we sell.
How are we sounding so far? Understanding our value to the customer will open doors, help us fight off unproven competitors and make us shine like a Mardi Gras Doubloon on parade day. But how do we convince the other guys, the ones with big factories and suited sales guys?
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The business of manufacturing is infinitely different from distribution. We garner our success by gathering as much business as possible from our customer base; customer share. Often we aren't interested in every single customer type. Manufacturers think about market share. Fixed costs represent the bulk of their structure. Hence, they worry about keeping their factories operating. Most of our costs are people oriented (something like 67 percent of our gross margin revenue). We encourage our people to make individual decisions driven by local events and circumstances. Manufacturers live in a structured environment where policy sometimes precedes localized opportunity. The list goes on ad nauseam. Suffice it to say the two business models share little more in common than the ultimate buyer of the product. But we create value. To illustrate, let's go back to our barbecue already in progress.
Not only did we create value for the customer, we created value for our supply partner. Here are a few questions to ponder on this point:
If we provided the customer with the spare part required to fix a broken piece of equipment manufactured by a supply partner, did we help them build brand loyalty?
If we advised the customer on the correct procedure for installing the spare part, did we help them avoid warranty costs later?
If we used the opportunity to convert the customer to our supply partner's product, did we help them build their brand and increase market share?
By quickly and efficiently handling the issue after hours, did we shield the customer from their impersonal messaging system announcing they were open from 9 to 5 Eastern time, Monday through Thursday, and 9 to 3 on Fridays? We get frustrated with these systems, and our customers under pressure vow to never buy again.
Those few points are just a short list. We help our manufacturer's bottom line by handling thousands of small orders that are costly for their warehouse to ship without some type of draconian shipping and handling charge. We introduce new products to customers who know and trust us because of all of those barbecue interruptions. All of this carries a value.
When we handle 3,000 warranty returns a year — we are creating value. But most distributors lack the will to document, measure and discuss this type of reverse service. And, just like our customers, the supplier's first response will be “that's just part of being a distributor.” Maybe it is, but it costs us money and creates value for them. And providing value is the name of the game.
“Avoid the Middleman and Save” — not if things are working properly.
In today's business environment, distributors are getting pinched. As customers and supply partners jockey for added revenues, we find ourselves “enjoying” the effects of margin squeeze and increased demand for extra service. Simply put, we are being asked to do more work for less money. And, most of the time, we are finding a way to deliver. But it can't continue forever. The time has come to protect our place. When things are working well, suppliers and customers benefit from a strong distributor channel. It's our job to make sure they understand how we work.
Frank Hurtte provides Strategic Insight for New Times. He speaks and consults on the new reality facing distribution in a post-recession world. Contact Frank at River Heights Consulting via email at [email protected] or via phone at 563/514-1104.