Confessions from an After Hours Association Meeting

Thinking about a Late-Night Conversation

At the AHTD Fall meeting a few weeks ago, I had the
opportunity to join a group of young leaders in the automation industry.  Several points of discussion are worthy of further discussion.  Here is a recap of the earlier post. 

 

Last night I joined a group of young leaders in our business for “one more round” and found myself listening intently to a discussion centering around eCommerce and the future of the automation industry.  Without giving away the entire conversation, the focus of the chat involved:

·        Does an “online only” distributor truly create a market for manufacturers serving this industry?

·        What is the difference between being a solution provider and a market server via a webstore?

·        How do customers, especially Millennial customers, use the internet in making buying decisions?

·        How important is the price to the online buyer?

 

This was massively educational, and this morning I am dragging, but I can certainly say it was a small price to pay for such a powerful exchange of information.

 

-----------------------------------------------------------------------------------

Does an “online only” distributor truly create a market for manufacturers?

I have seen both sides of this argument.  Some say yes, while others feel justified in saying a solid no. I believe, 80 percent of the time, the answer is no. 

 

Online distributors provide logistics and MRO support.  Here are a couple of examples of how it might work: 

·        A customer buys a machine from an OEM or special machine builder.  The design uses a part that comes from a manufacturer not well-known to the customer (let’s call it Acme Anvil Company).  They check with their local distributor only to discover Acme Anvil is not one of their normal product lines.  Rather than hassle with the reengineering involved to make another brand work, they search the internet and discover an online distributor who carries Acme Anvil.  A sale is made.

·        A machine builder needs an odd-sized power supply.  The local distributor carries the product but indicates the supply chain issues have extended delivery out far longer than the project deadline.  The customer goes online and discovers a product in stock at the online-only distributor.  The customer makes a purchase.

 

In both examples above, there was no active selling.  These were not new applications or market-creating opportunities.  Instead, the online distributor had the product and provided an easy transaction for the customer.  The next examples are different:

 

·        A special machine builder is unhappy with the management of cables running through their machine.  Since the current design looks like an explosion at a twine factory, one of the company’s engineers decides to search for better ideas.  Local distributors bring a few ideas but nothing the engineer sees as revolutionary.  Visiting an online-only specialty distributor, he is exposed to cable management systems typically used in offices.  The machine builder discovers a few of these concepts that could be applied to solve their problem.  A sale is made.

·        An OEM serving a very specialized market would like to shave costs on the equipment they provide.  They are looking for a very low-cost control unit.  After some quotes from traditional distributors, they do a Google search on control units and discover an online distributor which carries a relatively obscure Asian manufacturer’s brand.  They phone the online distributor who answers some of their questions.  The new product appears to be suited for the application, so they buy a test unit.

 

Looking back at the last two examples, the first distributor facilitated, perhaps by accident, a new application for one of their manufacturer’s products.  With the right attention from the specialty online distributor, this could grow into something big for the manufacturer.  It was a market-making event.  The second distributor created an opportunity for their supply partner.  It was cost-based and might also turn into a market-making event.

 

I still stand by my estimate that 80 percent of the time, the online guy is simply providing logistics. 

 

What is the difference between being a solution provider and a market server via a webstore?

First, I believe there may be a difference in the “cost of sale” for these two groups.  Online-only sellers don’t have the expense tied to traditional sales teams.  Typically, their support does not involve technical people traveling out to the customer.  However, they may spend a very high percentage of their gross margin keeping their webstore up-to-date and easy to find (SEO-wise).

 

River Heights Consulting’s Thoughts

Problems arise when Manufacturers don’t understand the costs associated with traditional active selling and the market demand service of the online-only distributor.  If a manufacturer wants their distributors to actively seek out and create new applications for their products, they must provide a greater margin for the distributor who simply processes orders.

 

Even Solution Providing distributors should have or consider adding a viable webstore to their selling tools.  After a century of offering outdated, ragged, and filthy catalogs, most customers have opted to ditch their old-school methods. Remember, they are still shopping even if they never touch the “buy button” on your store. 

 

How do millennials, especially Millennial customers, use the internet to make buying decisions?

This is a great question.  And one that some of the older readers may have a hard time accepting.   Customers, the people within our customers who buy, have changed their buying behavior. When I started my career as a sales engineer, one of the key parts of my job was keeping customers up to date on new products. 

 

When I first launched, I only tailored my product presentations to the products I thought the customer could use.  However, I had a friendly engineering manager set me straight.  He said, “Just because we don’t use every product doesn’t mean my team doesn’t want to know about them.  Your job is to educate us on everything your company makes in case we change direction.”  Try this approach today and you will find it difficult to keep an audience.

 

Today, customers gather their information well ahead of a sales call.  For the most part, this is faster and easier than listening to a seller.  When customers need a salesperson, it is for a specific question, to line up a demo, or to gather other options.  If the seller doesn’t carry the skillset to do these things, they could be walking obsolete with one foot on the unemployment line and another on a banana peel.  One company went so far as to write a whitepaper called “the death of the B-2-B salesman.”  Don’t believe me?  Check it out HERE.  

 

How important is the price to the online buyer?

This is another great question from this alcohol-fueled conversation.  That night I said, let me give you the consultant’s answer.  “It depends.”  Everybody laughed, but I wasn’t kidding.

 

Believe it or not, there are price shoppers.  These people will scour the interwebs in search of a bargain.  Once, I had a guy tell me he found a source for “good used” safety PLCs for his machines.  I explained the issues with firmware revisions and potential legal discussion should one of his purchases be a lemon and result in someone being injured.  Truthfully, I was probably a jerk to him, but I didn’t want to be associated with his bargains in any way, shape, or form. 

 

I can tell you this-- when we surveyed a group of customers a year or so ago and talked about important information on an industrial distributor’s website, all the customer contacts said, “Delivery and stock information is the more important than price.”  One engineer told us, “My job is to find the products and turn them over to our purchasing department.  It’s their job to haggle on price.”

 

Ballpark pricing is important.  Accurate pricing is a good goal, but customers are looking for technical information with current availability.  Maybe next year or further in the future, like 2030, when we get the supply chain issues fixed, the price will be viewed as the most important.  It’s too early to tell.

 

Finally,

There were a couple of other questions that came up in our conversation.  I prioritized the answers to keep this less than “encyclopedic” in length.  For my younger readers, “encyclopedic” refers to the Encyclopedia Britannica.  It was a set of 32 books containing over 32,000 pages and 40 million words. I worked my way through college selling these monstrosities.
Wait, did that just make me a jerk again?

 

If you want to argue any of these points, shoot me a message.  If you want further details on the late-night conversation, I am happy to fill you in.

Frank Hurtte, Founding Partner of River Heights Consulting, shares his personal experiences with 28

years of "in the trenches" training and 17 years as a consultant.  He serves as a personal coach to industry leaders across many lines of distribution.  He has authored 5.5 books (one is almost done) and has written hundreds of articles for national trade magazines, including Industrial Supply Magazine.

Frank is also a sought-after copywriter of marketing materials for technology companies.  His charismatic, yet laid-back, easy-to-follow manner makes him a favorite among public speakers.

 

 

.