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Are you really providing customer solutions?

by Frank Hurtte

Have you noticed everyone claims to be a solution provider these days? The whole concept seems to be in vogue. When you peel away the braggadocious stories and look through the smoke, however, the solutions are fairly flimsy. In the frenzy of solution talk, most have convinced themselves that solutions are part of their selling process. Self-awareness has gone by the wayside. Let’s dissect this like a kid in seventh grade biology class and take a closer look at the innards of solution selling.

The future looks bleak for those small to midsized distributors that are only selling parts. While I hate all the hype surrounding the “Amazon is taking over the world” stuff I read, there are a few factors that should be considered.

First, Amazon and other monolithic distributors have some inherent advantages in their model. Armed with regional distribution centers and a worldwide territory, they can profitably stock and sell products most distributors would consider to be D (as in dog) items. While a single distributor territory might sell one of these products a year, the national distributors sell enough to keep them in stock.

These products are sometimes referred to as “the long tail” and represent products customers need but have a hard time finding, at least for immediate shipment. Further exploring the situation, Amazon has a track record of leveraging long tail items to their benefit via very detailed search and purchase data analysis. If Amazon doesn’t have the product in stock, they will at least know that five customers searched for the item in the past 30 days and make adjustments to their inventory. Further, these giants use the long tail purchases of customers to lure them into the everyday bread and butter of the distributor.

Second, Amazon has a major advantage in the backside logistics of their distribution model. At a time when many independent distributors are just starting to seriously consider applying modern warehouse management systems, Amazon employs robotics and artificial intelligence to maximize throughput.

Demographics work for and against the independent distributor
It seems like everyone badmouths millennials but, quite frankly, I find this new generation to be pretty cool once you take the time to understand them. One important point, they are what a friend refers to as “digital natives.”

They grew up surrounded by digital everything. In the course of their lives they have used the internet to fix their car, research the best dog food, find the best phone and a few even learned to play guitar. They were the first wave of folks to use Amazon and probably lead the country in Netflix subscriptions.

And, to the frustration of many of us baby boomer types, they only communicate with their friends and family by text message. Millennials prefer shopping online to dealing with sellers.

By 2025, millennials will represent 75 percent of the workforce. We aren’t just talking entry level kids; digital natives will be in positions of power. In many organizations, they will design and control the way our kinds of products are purchased. All things digital, like e-commerce, will accelerate. Distributors without the necessary e-commerce solutions will be seen as dinosaurs of the past; perhaps even limp into extinction like the mighty T-Rex.

Under the bad news, good news heading, all of the above might be characterized as bad mojo. But, there is good news, actually great news, for knowledge-based distributors.

As the baby boomers shuffle off into the sunset, so too does a great deal of long-term institutional knowledge. What’s more, many companies have made the decision not to replace these technical workers. Instead, they look to outsourcing and bringing in experts on an as-needed basis. Where does this expertise come from? Well, knowledge-based distributors should be a major source.

Surround your sales with a protective moat of solutions
One author described service-based solutions as the protective moat surrounding the distributor’s business. Any service/solution that is difficult to digitize is a solution moat. If your products come surrounded by a moat, you are safe from Amazon and if you add a few alligators along the way you can create your own Amazon-free zone.

These service solutions can include everything from advanced engineering assistance, troubleshooting help, machine monitoring, all the way to more mundane things like product kitting. To give you an example of how one distributor built an alligator infested moat around his business, allow me an OEM flavored example.

During one regular management level check-in with the OEM, the executive vice president of the OEM indicated (to the distributor management team, not their assigned salesperson) they were interested in growing their spare parts business. They saw this as a logical way of both expanding their business and being compensated for the time their service department spent helping end customers determine why the machine wasn’t running. In addition, many customers seemed disappointed when the service department indicated spares could not be purchased directly through the OEM.

Completely unsolicited, the distributor came back with a plan to handle the repair parts business for the customer. Shipping documents were established to give the appearance the OEM shipped the parts directly. All invoicing would be handled by the OEM but the warehousing, shipping and other logistics activities were the responsibility of the distributor. Extending further, the distributor argued they should share in some of the revenue generated by the OEM. All parts going out as repair parts were to be invoiced at OEM plus 10 percent, which ensured ample margin space for the OEM that was marking things up nearly 200 percent (really).

The distributor enjoys good margins and the customer gets additional revenue. More importantly, the distributor successfully imbedded itself into the customer’s process. Results show the situation is working because the distributor reports nearly $100,000 in new business. Doing the math, the distributor helped the OEM customer make $200,000 in additional profit margin. It would take considerable effort for the customer to change direction regardless of the perceived value from others.

Wrapping product sales in a thin veneer of product advice is not really a solution
Many so-called solution sellers are wrapping their product sales in a nearly transparent wrap of product advice. While there might be a few that sell products so complex, so important to their customers and so rare that no customer would dream of ever buying online, my guess is they’re not 100 percent safe from an internet-based commoditization. Worse yet, a lot of people have lulled themselves into falsely believing they provide solutions and see no reason to evaluate their process.

Solutions are customer centric and often customized to meet the specific needs of the customer. They fall at the very crux of customer and technical expertise. At the same time, many sellers have not developed a plan for learning their customer’s business past the point of them being a product user. Most salespeople, sales engineers, account managers or whatever they are calling themselves would never have had the conversation mentioned above with a customer’s top level leadership. Very few of these sellers have a strategic plan for gathering the right kind of information surrounding each individual customer.

In research for my latest book, “Plan on Breaking Through: Customer based strategic planning for sellers,” we discovered only a very few sales types could articulate information on their customers beyond the end product produced. There was no data on their customer’s market, profit picture, goals or strategic plans for the future. Simply stated, these sellers were very good at recommending products but not much else. I fear the kind of product recommendations practiced by these sales teams is being experimented with by some Artificial Intelligence lab. When Amazon Alexa can recommend our kinds of products, what’s going to happen?

The best solutions can be measured in goat heads
Back in pre-historic times, some culture measured wealth in goat heads. Somewhere around 3,000 years ago we developed the concept of money. I find money far easier to count than goat parts, but the concept is the same. If you provide a great solution, it helps the customer make more money. I was particularly impressed with the solution developed by the distributor above because of three important things:

1. The distributor made more money than usual for providing the solution.
2. The customer made more money because of the distributor’s solution.
3. The amount of money generated for the customer could easily be measured.

Assuming the spare parts business grows, each year the distributor should be able to remind the customer of how much extra money they raked in because of the distributor’s solution. That is a pretty big crop of alligators in the moat.

If our solutions are valuable customers will pay
Let’s step back a few paragraphs. How might you differentiate a thin layer of fluffy product advice from a real live technical service solution? One easy way to test if you are providing fluff or something real comes via the customer’s willingness to pay for your services. If they see it as a real service/solution, they will pay. If they don’t, well, you’ll know soon enough.

Ask yourself: If you don’t provide these services, who will? We recently blogged on The Distributor Channel Blog on the topic of “Our Customers Need Our Services. If You Don’t Provide Them Who Will?” If everyone besides you charges for the type of services you provide, then why not at least begin the migration?

Extending into the future, I see a great many opportunities for distributors to participate in longer distance services via the Industrial Internet of Things (IIoT). But if you don’t begin blocking off a place in this world – it is a service/solution that can be digitalized.

Training is the new marketing. I love to say that phrase. You should be providing real training. Not to be confused with afternoon-long infomercials, real training is a fee-based solution. Additionally, I believe distributors can monetize some of the “missionary work” that goes into new product launches by training on them before the sales flow. The IIoT thing is still so early in its inevitable adoption, I can’t imagine not subsidizing the early work with fee-based training.

Are you a real live, honest-to-goodness solutions provider?
Solution providing, like everything else, has degrees of difficulty and levels of power. Allow me to provide you a list from one to six, with one being on the edge of solution providing without protective moats and six being wide moats full of nasty slime and hungry gators:

1. Silo-based product selling: as in specialty distributor
2. Product bundling: we can promise this PLC works with our drive
3. Advice and service wrapped around products: I think this is a flimsy barrier
4. Needs-based customization: product modifications, subassemblies and advanced kitting
5. Customer process enhancement: we help the customer get better and sometimes do part of the work
6. Fully integrated partnership: our OEM/Distributor partnership is a great example

After you’ve assessed your company, shoot me an email and give me your honest score. I, on the other hand, will send you a genuine postcard from Iowa.

Straight talk, common sense and powerful interactions all describe Frank Hurtte. Frank speaks and consults on the new reality facing distribution. He has a new book out – “Plan on Breaking Through – Strategic Planning for Accounts.” Contact Frank at  frank@riverheightsconsulting.com, (563) 514-1104 or at riverheightsconsulting.com.

This article originally appeared in the July/August 2019 issue of Industrial Supply magazine. Copyright 2019, Direct Business Media.

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