Who’s Doing the Work?

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We recently wrote an article where we asked the question, “Who’s doing the work?” By sheer coincidence, the last few days I have received several calls from distributors complaining about supply-partners who practice “saturation” distribution.

 To define the saturation approach, allow an explanation. Some manufacturers believe customers have a natural desire to buy their product and to hedge their bets, they decided to sign up every company willing to place a stock order and, maybe, place their products into inventory. Some distributors even say things like, “Acme Anvil allows everybody with an oversized garage and a business card to be one of their authorized distributors.”

While the situation may not be anything like the previous (distributor provided) description, it does present a bit of an issue for distributors who are actively selling the products. Let’s break distribution down into two basic categories and do a bit of comparison.

Introducing the Logistics Distributor
On the left, weighing in at 800 pounds and looking like the gorilla in the room, we have the logistics specialist. Known for massive distribution centers, elaborate websites, hundreds of locations and line cards too lengthy to print on the first dozen pages of their catalog, these distributors thrive by solving customer (especially MRO) logistics and administrative issues. When their salespeople have any product knowledge at all, it tends to mirror the 35-word description of their webstore.





Now the Knowledge-based Distributor
On the right, and known for nimble movement and sometimes dirty fingernails, we find the Knowledge-based distributor. These people invest heavily in engineering talent, customer-specific application insight, complex problem solving and highly trained sellers. Many of their representatives not only recommend multi-vendor solutions to existing applications, but they also discover new applications for the products provided by their supply partners.

 Selling activities are expensive for someone
The graphic below shows the activities performed in selling a somewhat technical product and the percentage of the activities carried out by these two types of distributors.


Percentage of Effort born by the Supply-Partner
Activity
Logistics Distributor
Knowledge-based Distributor
Market creation via the discovery of new uses for the product
90-100%
20-25%
Application of products in known situations
100%
20%
Generation of non-price proposals
100%
10-20%
Technical support
100%
20%
Troubleshooting existing products
100%
25%
Maintain local inventories
Depends
Depends

Supply-partners pause to answer these five questions:
1. If your distributors aren’t engaged in these activities who is?
2. What happens if these sales-related activities are not provided?
3. What is the cost for you to provide these services?
4. What is the impact on perceived customer service if troubleshooting and technical support calls cannot be answered immediately?
5. How many “no problem found” warranty returns do you get from customers not dealing with a well-qualified distributor?

 A few words for Knowledge-based Distributors
For one thing, not every sale is a knowledge-driven sale. Nearly every distributor has at least one or two commodity-like product lines. For most, these are viewed as add-on sales; products required to complete a system or make one of your flagship products work. I believe it’s important to sell these products but it is equally important to know which products fall into the “commodity-like” group. Your activities provide less value to the manufacturers of these products.

NOTE: This is NOT a good CRM system.
For your knowledge-based product, I recommend you begin tracking activities conducted for specific manufacturers. If you have a reasonably good CRM system, this might be only a minor change in some of your tracking. I especially encourage you to track the time spent not only by salespeople but also by the support staff, specialists and application engineers.

Thoughts for our Supply-Partners
Tiered distribution sometimes makes sense. The primary thing to remember is the cost of selling remains the same for distributors even when the pricing pressure becomes intense. Special Pricing Agreements (SPAs) must be applied with this point in mind. Further, care must be made to ensure the Knowledge-based distributor and your “other distributor” are not competing for business under the same SPA (it happens).

 Another point Supply-Partners must consider is the situation of nationally focused distributors, who tend toward the logistics side for most technical products yet have a handful of locations living in a Knowledge-based environment. Do you have safeguards to protect the rest of your channel? If not, product pricing can shift to locations providing you very little value.

 A final word
Many organizations see themselves as knowledge-based distributors. It seems everybody wants to be viewed as a solution seller. There is nothing illegal, immoral or wrong with following a different business model, but danger flares when your perception and reality lack alignment.

I challenge you to review the activities in our chart above and determine where you stand.



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