SEARCH

Flat, hot and crowded

Developing competitive strategies for an increasingly congested marketplace

by Frank Hurtte

A few years ago, Thomas Friedman penned a best-seller titled "Hot, Flat and Crowded." The book outlined population growth, demographic shifts and the pressure these would place on future energy strategies. For many folks, this book served to chronicle the need for "all things green." For me, it was a thought-provoking look into how shifts in demographics and people will affect our planet.

As I look into the next couple of years, the world of distribution will experience many of its own shifts in population and demographics. And just like Mr. Friedman, I can't help but believe that our world will be hot, flat and crowded. Ignoring these critical shifts probably won't put you out of business in the next few years – distribution is a forgiving industry. But ignoring these shifts will make your job a lot harder, your business less profitable and your local banker nervous.

Demographics and populations? My guess is many of you are wondering exactly what role these play in our industry. Flashing through your mind come visions of U.S. Census counts or the controversial new Arizona law and immigration statistics. Trust me, enough ink has been spilled on these topics to flood the state of Iowa up to a tall pig's ham hock. Instead, we refer to the changes in distributor company profiles.

Our world is flat and getting flatter
Not in the Christopher Columbus sort of way – instead think of the break downs of distributors. In days of old, distributors could easily be classified as mechanical, electrical, fluid power, industrial, PVF and a dozen other ways. And our customer contacts could have easily been pigeonholed in the same way. The way things worked back then was simple – distributors for mechanical products called on mechanical designers, fluid power guys called on the hydraulic expert, electrical engineers were called on by the electrical wholesaler and on down the line.

Now, thanks to technology shifts and four recessions worth of downsizing, rightsizing and company reengineering, the silos are breaking apart. Plus, technology shifts are making our products easier for customers to understand, install and use. The subtle mysteries of the technical products we sell are breaking down the barriers between our worlds (lines of trade). The age of advantage going squarely to the guy with 20 years of experience in the field is shifting. Let me drill into a couple of examples of this phenomenon.

Plug-and-play technology has washed over our home and professional worlds. In your personal life, think about the last time you purchased something that connected to your computer. For me it was a brand new Flip Video. I opened it, put in batteries and plugged it into my computer. In less than five minutes, I was up, running and watching a short test video of my office coffee pot. Contrast that little story with the days before plug-and-play technology was developed. Read a manual, install special software, adjust some "dip-switches" and (maybe) a half-day later things worked.

This same technology has migrated its way into the products we sell. For instance, automation-based sensors, speed control drives and motion control gear now feature plug-and-play installation. Gone now are some of the barriers which differentiated distributor types. The mechanical guy can sell a sensor which ties to the automation computer – without massive experience or technology prowess. And, increasingly it makes "customer sense" to assume the power transmission guy recommends the sensor tied to the motion his products create.

But product technology isn't the only thing flattening our world. Let's think for a moment of the great advances in technologies used within our business. The great strides in phone technology allow distributors to shift technical questions around with the greatest of ease. A product specialist can handle phone calls from a wide geographic area without the customer feeling the slightest hitch. Another technology – artificial intelligence in the business system – allows a customer service person to maneuver through thousands of part numbers by asking a few intuitive questions of the customer. Gone are the days that an inside salesperson had to work in the industry for four to five years just to learn his or her way around the product catalogs.

Our world is getting crowded too
No matter what kind of distributor you happen to be, your post-recession world is going to seem just a bit more crowded. Here's a statistic for you – one recently published survey of distributor sales managers indicated that 72% of them plan to expand their business by taking on additional product groupings.

This translates into electrical distributors selling safety products, power transmission distributors selling motion control products and fluid power distributors expanding into industrial control products. Nobody is safe; there isn't a product distributor alive who won't discover the guy down the road is now offering some of his products to
my customers.

If you are convinced of this crowding phenomenon, consider this: Amazon now features an Industrial and Scientific division. Need to buy a copy of my new book? Why not shop for bearings, a couple of fittings and a micrometer all at the same time? Heck, later on, you can stop by Automation4Less.com or one of a dozen or so Web sites devoted to selling our kind of products.

The hot tools for a flat and crowded world
First, it makes sense to state there are two strategies that must be considered in the hot times to follow:

• Offensive strategies developed for the new product lines, technology sets or territories that you deem ripe for expansion.
• Defensive strategies established for the attack from other distributors or selling mechanisms.

We will find that some of these overlap and that is a very positive thing.

Offensive strategies
I like the idea of going out and attacking other peoples' business, especially if it means supplying more stuff to existing accounts. Most of us subscribe to the strategy, "It's five times easier to sell more to an existing customer than to find a new customer." However, I think it is important to understand, this customer already has someone similar to you – and that person is a trusted supplier (well maybe they are).

Targeting is a must have tool. In order to expand, you must understand customers who can provide the best return on your expansion-focused investment dollars. Rather than attacking everyone with your hot new product line, why not categorize those who might be the easiest conversions? Here are a few qualification questions:

• Are there any competitors who are struggling to come back from the recession? Have you identified their accounts?
• Do any of your customers buy the new products via a no-service competitor? Have you categorized this as price-driven or just lack of good supplier?
• Are there customers who buy large amounts of your product and connect it directly to the new line? Could this become a subassembly?
• Do some products lend themselves to a faster sales cycle? Have we developed specific plans for each of these?

A specialist process is important. Many distribution organizations find a specialist important in developing a new product line. The specialist provides technical muscle to help the sales team through the early stages of the product. But this is only part of a successful strategy.

The difference between upper quartile distributor use of specialists and their less profitable peers is found in the lack of a process. The high-performing guys don't use specialists as "techno-geeks." By the way, a "techno-geek" is the person who knows all about the technical aspects of the product, but is totally reactive in their sales activities. The specialist strategy in this hot new world involves a person who understands technology, but also guides the actions of the sales team based on their detailed understanding of the product line. If you need specific examples of this, I offer dozens of examples on my Web page – www.riverheightsconsulting.com – check the specialist resource area.

A supplier strategy is critical. You are going into new uncharted territory. It makes sense to develop a plan for having the best partner possible. I wouldn't invest a cent into developing a new product line until I understood the motivation of each and every one of my partners. Here are a few things to think about:

• Does this supplier have a strong track record with distribution?
• What special attributes are you bringing that cause them to want to partner with you?
• Will you be their "favorite horse" or just part of the distributor stable?
• Is your partnership supported at all levels of the supplier's organization?
• Are you both committed to a long-term marriage or is this just a short fling?

Before you go out into the hot, crowded world
First, you need to think about offense and defense. I only covered the offense part but remember: someone is out there thinking about expanding into your business (I can pretty much guarantee it). We have developed some thoughts on a defensive strategy and they are yours just for the asking.

Finally, the good old days are over and all of the easy jobs are taken. The future isn't necessarily going to be tougher – but it will be different. We face a number of challenges, but we also have a whole bunch of cool stuff stacking up in our favor.

Technology is more affordable now than ever. Every distributor can afford to look into the analytical tools needed to better run their business. Our customers need us more now than ever. Distributors that understand the importance of providing great service and measuring the value they provide via this service in dollars and cents will be the heroes of our business.

Frank Hurtte of River Heights Consulting has developed a unique training system for distributor specialists. Reach him at (563) 514-1104 or frankehurtte@riverheightsconsulting.com.

This article originally appeared in the July/August 2010 edition of Industrial Supply magazine. Copyright 2010, Direct Business Media, LLC.

---

Post comment / Discuss story * Required Fields

Your name:

E-mail *:

Subject:

Comment *: