Ask your customers how you can provide more value, and most of them will automatically think of price cuts and discounts. But distributors are increasingly realizing there are other ways, from service to cost savings, that provide value but don’t chip away at margins.
What’s more, I would argue that these alternatives provide greater value to both distributor and customer.
And in today’s market — when distributors are leaking revenue to online-only competition — it’s critical to understand which of your customers’ needs are going unmet or under-met, and invest accordingly to fight today’s margin pressures.
You can only offer so many product discounts and still be profitable. Here are five of my favorite ways to create value through leveraging greater resources and knowledge with your customers:
- Document cost savings. If your product helps customers launch safety initiatives, or you’re providing vendor-managed inventory programs that cut time and money spent on shipping and holding, that translates to real and probably substantial savings for that customer. And it may amount to more than they realize. Document that savings. Before your sales reps are comfortable or equipped to present this kind of data, you may need to provide them additional training, or even a reconfigured compensation plan. But that effort will pay off in the long run, when customers ask for price cuts. Instead of simply saying yes or no, your sales rep instead can answer, “Well, I can’t do that, but I can work with you to find additional cost savings.” Through just such a conversation, a previous distribution client discovered that its customers were suffering lost productivity and increased labor costs because window installers were incorrectly framing windows. The distributor created a template that builders could use for framing, and that template saved time, money and the headache of trying to re-fit improperly framed windows.
- Coordinate marketing efforts. Many of your customers, particularly smaller ones, could use your help and expertise with marketing. By partnering with them on mutually beneficial projects – from sharing resources and materials, to joint product promotions to working together on blogs and social media – you both save money and reap the benefits. Distributors that provide marketing support help their customers sell more. And when customers sell more, they also buy more.
- Automate processes. Are you still sending invoices by fax or mail? Do customers have to call you with questions or orders? When customers are late with payments, do you call them? All these processes could easily be automated. For example, a password-protected system would allow customers to view their invoice online, and even click and pay their balances. More advanced systems also allow you to send them automatic reminders when it may be time to re-order product, and to take those orders online. If a system that accomplishes all that is too big as a single investment, I recommend prioritizing tasks that you and your customers would most benefit from automating.
- Consider consignment. Traditionally, distributors have been reluctant to offer consignment, because it often means absorbing costs associated with storage, and requires upfront expense. But the other side of that coin is that it frees up a customer’s costs that would normally be tied up in inventory, which means they have additional funds to invest in their business. Consigned inventory also benefits the distributor. For example, you’ll have greater insight into the customer’s inventory usage, and with the right technology you could be alerted when they need additional product. Perhaps more importantly, consigned inventory links you and your customer with a bond that will be difficult – and costly – for the customer to break. If the customer decides to take his business to a competitor, it would require a substantial reinvestment of working capital.
- Share what you know. As an experienced distributor you have undoubtedly built up a sizeable storehouse of knowledge. Within that storehouse, certainly, are tidbits that your customer could benefit from. For example, if you’ve recently installed or updated an ecommerce system, you probably experienced a few bumps along that road. Your customer would likely appreciate some advice that might help them avoid some of those bumps in the road. You can use your knowledge to create seminars to walk customers through the various steps involved in adopting new technologies. It’s even possible to create a website template customers can use to plug in their own logo, colors and other materials.
When you can provide tangible, documented benefit to your customers, chances are they’ll appreciate you and your products more, and won’t insist on lower prices. Earn your place as a preferred supplier, and it will be harder for disruptors like Amazon to take your business.
To learn more about Mike’s approach to value creation in distribution, read his NAW-published books: What’s Your Plan? Smart Salesforce Compensation in Wholesale Distribution, Working at Cross-Purposes: How Distributors and Manufacturers Can Manage Conflict Successfully and Value Creation Strategies for Wholesaler-Distributors. You can also reach Mike by visiting ircg.com.