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Are you creating demand or filling orders?

Driving new demand and fulfilling demand requires different approaches

by Allen Ray and David Gordon

In this dog eat dog world of distribution where everyone fights for market share, the question becomes, “how do you differentiate yourself to drive profitable sales?”

Are you like Jerry Maguire, asking “show me the money” and hence asking for funds that have already been budgeted? Or are you like some of the original gold diggers who said “there’s gold in them thar hills”?

What’s the difference? Following the money is focusing on taking market share and servicing demand that either exists or is created by others. Digging for gold is knowing where there is potential and then expending energy to create demand that can be very profitable – and potentially exclusive – to you.

Demand Creation
Demand creation is about educating your customer about why they need a product or service from your company. While manufacturers launch “new” products, frequently they are refinements of existing products, or “me too” products that fill out a product line or are designed to offer something comparable to what is currently available in the market. Today, it is rare to find a manufacturer that spends time “in the field” identifying new needs.

Back when new products were more prevalent, the construction and automation channels were in the demand creation business. Many products solved customer problems. Other products solved problems before the customer became aware of their need and required
the distribution channel to promote the products (and hence create demand). Efforts were made to promote new products. Some manufacturers and distributors excelled at this and used these efforts to differentiate themselves, enabling them to become the go-to distributor for solutions. They were also the beneficiary of the customer providing them with other demand fulfillment opportunities; hence they captured market share within the customer.

Consider: how many manufacturers are actively advertising (online or in print) in end-user publications? How many end-user specialists do manufacturers, reps and distributors have who are not compensated as salespeople?

Over the years, most manufacturers and distributors have driven their sales by seeking market share, renting the business from a competitor (yes, “renting” as the business moves back and forth.) This frequently evolves into a price war, as loyalties shift with each large project or as different buying specifications evolve. Brand support was de-emphasized by many manufacturers, replaced by specialized terms, pricing, rebates and services. The result was that demand creation was handed to the customer or end-user based upon how they see their needs.

So, how do you create demand?

Part of the key is spending time with the demand generator. Who has the power to allocate funds? If it is an end-user, what do they need to optimize their efforts, reduce their operational costs or enhance their output? If it is a contractor, what will help them make more money? Essentially, think like your customer and your customer’s customer.
Part of creating demand requires old-fashioned shoe leather. You need to talk to your customer, customer’s customer, engineers, architects and other decision-makers and project influencers. Listen and think. Gaining access to additional markets may be an opportunity.

The other part is to believe that you have something (product or service) of value and then market it so that your brand means something. Ask “why should someone buy our product / buy from me?” If you cannot answer this question, then you may be only a demand fulfiller.

Then, communicate your brand. If your company does not believe in marketing and demand creation, the probability of sustained profitable growth will be minimized.

Demand Fulfillment
In the movie Jerry Maguire, Jerry was a sports agent who represented a commodity. That “commodity” was a wide receiver. While he delivered the goods (met specifications), he was a commodity that was going to be sold to the highest bidder. In the industrial channels, products are frequently sold to the lowest bidder, whoever has a better relationship or is easier to do business with. While an element of every manufacturer and distributor’s business is demand fulfillment, the question is to determine the percentage of your business that falls into the demand creation or the order fulfillment categories.

As a demand fulfiller, the customer recognizes that they have a need and actively seeks
out solutions or returns to known options. Then they seek their lowest cost of acquisition, either total or product only. We’ve come to an age where the multitude of manufacturer and distributor offerings (purchasing options) via email, Google and the Internet blur the different offerings and/or services that are offered.

Additionally, the market for industrial supplies and services has essentially maturated to the point where price and ease of ordering is frequently used as the determining factor for a majority of purchases. The size of the market varies with selected macro-economic indices.

Supply chain efficiency has reared its head, as fulfillment evolves to almost instant
gratification. Short- and long-distance shipping costs have dropped to the point that
marketing in a 50-mile radius has taken on new dimensions, such as throughout North America, or potentially worldwide.

Perfecting basic fulfillment requirements still eludes many with inventory size/location,
customer pricing, and even pulling and packing the right product for shipment. This is where quality data, process management and supply chain initiatives are needed to ensure profitability for demand fulfillers.

Marketing does have a role for demand fulfillers as they need to increase awareness and communicate “why them” to stimulate demand, essentially to help take market share. The increased share, which can increase sales, should result in increased profitability, if operational enhancements and pricing initiatives are undertaken.

Strategies for these types of initiatives can involve seminar marketing, pricing promotions, service initiatives, preferred customer strategies and branding. Additionally, e-commerce and e-marketing become other vehicles for servicing customers.
With few truly new products entering the market place, or actively being promoted throughout the channel, demand fulfillment has taken over the channel. Share gets switched and companies seek to diversify their offering and geographic reach, in an effort to increase share of customer wallet or share within their product offering. Demand fulfillment has transferred pricing power to the end purchaser.

Customer Stratification
Many manufacturers and distributors are now engaged in what is termed “customer stratification.” Similar to a margin treasure hunt, they are looking at specific
customer buying patterns to determine where prices can be adjusted in order to gain a greater margin. During these treasure hunts many discover that the customer’s assigned price matrix and customer types are not compatible. This could mean finding a gold mine of new margin. Alternatively, it could help to understand exactly how much each customer buys, and what price matrix should be assigned.

But, this is not demand creation or anticipating your customer’s needs. This helps improve margins and profitability.

New Competition, New Customer?
Along comes AmazonSupply to theoretically create demand for you, leaving you with what you believe is increased sales and profitability, by focusing solely on demand fulfillment. Essentially, some are thinking of them as an alternative sales channel. The challenge is, can you do what what needs to be done to fulfill the Amazon order correctly every time? If you ship the wrong item, the penalty is very strong, so strong that the result will be giving away product. This is like underpricing below your replacement cost. You will incur costs with no revenue. So, be sure you know what your error rates are before committing to be a demand fulfiller for others.

Problem Solving
The crux of demand creation is figuring out your customer’s problems before they know they have a problem, and then solving the problem with goods and/or services. In other words, are you proactive in your sales and marketing approach? Are you willing to commit the resources necessary to drive demand with the understanding that your “success rate” may be 25 percent to 33 percent?

Supporting customer needs beyond credit and current services requires that you develop a different way of looking at their business. Can demand creation be relearned? Yes. It starts with questioning conventional assumptions, leadership commitment, vision, customer insights and a willingness to invest for tomorrow’s sales and profits. It requires thinking about the purchase order process, how a P.O. is originated before coming to you and how your P.O. generates an order. For many, it should start with leadership meetings that employ a third party to drive out-of-the box thinking.

So what does it all mean?

If you are seeking profitable growth, you need to employ both demand creation and demand fulfillment tactics. You need to relearn how to spot your customer’s problems.
You should train your sales organization techniques to uncover your customers’ unknown problems or needs. You need to ask questions and be more knowledgeable than your customer. You also need to think like them and bring them ideas. Finally, be at the right level within the decision-maker to better understand the problem that may have been identified by your customer. You want to pull them in to understand how the problem can completely work to your advantage.

Then, if you haven’t developed a differentiable branding and marketing strategy, you will want to develop consistent messaging and tactics that resonate with your
customers for both demand creation and demand fulfillment. Dreaming about demand creation without action will leave you with only demand fulfillment.

Driving new demand and fulfilling demand requires distinct skill sets. Do you have both to accelerate your sales and profits?

Allen Ray is principal of Allen Ray Associates, Dallas. He is a veteran distribution consultant who has worked for manufacturers, distributors and contractors to help them develop productivity and grow profits. Reach him at (817) 271-0236 or allen@allenray.com.

David Gordon is president of Channel Marketing Group, which helps manufacturers and distributors generate ideas to accelerate revenue through strategic planning, marketing planning, coaching and market research initiatives. Reach him at (919) 488-8635 or dgordon@channelmkt.com.

This article originally appeared in the March/April 2015 issue of Industrial Supply magazine. Copyright 2015, Direct Business Media.

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