I have not blogged much in 2014. I have been busy and
distracted by summer, my garden, coaching football and other non-work stuff.
I had lunch with a client last week. He owns an industrial
distribution company.
Distribution is a great business. Distributors sell things
that customers need and make some profit from every sale…very straight forward.
Not too complex. That is, unless the distributor decides to raise the bar,
create separation from competitors and leave them behind.
My experience in distribution is that some distributors and
their salespeople earn their business by offering the lowest price to the
customer. This strategy is a loser. It is a race to the bottom. Winning orders
by being the lowest bidder results in slimmer margins and slimmer sales
commissions. Is that really a win? Winners strive to make money and not to give
products and services away.
A solid strategy to hold margins and separate yourself from price
cutting competitors is to provide added value to your customers. If you are in
distribution, consulting, manufacturing or any other business you can button
down your revenue and profits by being better, providing more value.
My client runs a relatively small operation in a world of
big box distributors. He can’t compete on price. But the big boxes can’t
provide the comprehensive services that his organization delivers on a
day-to-day basis. His customers get expert advice. His team helps the customer
make the correct product purchase every time and guarantees it. He maintains a
repair shop that fixes broken equipment, configures new equipment before
shipping and can reverse engineer and fabricate parts for older equipment,
keeping those oldies but goodies in service. When you call his company you talk
to a seasoned product engineer. When you talk to the big box order desk you had
better have a product number because, for the most part, there is little
product knowledge at the other end. My client delivers added value to his customers and
earns their loyalty.
By pushing the differential advantage message, “We’re not a
catalog, we are engineers” my client has kept his competition at bay and
maintained profit margins in a business world racing to be the low price
option.
My own experience as a salesman for a medical supply
distributor is another example of how to maintain profit margins by providing
added value. The tactic was simple. It wasn’t my original idea. I had a once in
a lifetime sales manager who ate our competitions lunch and taught me how to do
it.As I called on doctor after doctor I asked for a moment of the doctor’s time…not easy to get. My reason was that I had something new to show him/her. I made sure to have something new and interesting in my bag every day. Since I called on the doctors twice a month, I just needed to come up with twenty-four cool things a year to maintain my access to the doctor, his office staff and their medical supply orders. After a while my greeting when I arrived at the offices became “Hi Dave, What’s new?” Mission accomplished. I did have to offer competitive prices, but I did not have to be the low bidder to earn business. And, my margins were solid on the new and innovative things I detailed to the doctors.
The easy way to do business is to sell on price. When you
earn little in profit you can make it up in volume…I guess. That is nowhere I
want to be.
If you want to maintain fair margins for yourself and your
company and endear yourself to your customers, it takes a strategic value added
plan and a little more effort.
Are you an order taker or an order maker? The choice is up to you.
Good selling.
