Inside the mind of a Distributor Manager
I can still remember my first sales lesson – at the ripe old age of 14, I was working at my family’s gas station. My dad gathered me and a couple of his hired men into the office of the station on a rainy summer day. Gasoline prices had just risen to 33 cents a gallon and there was big concern that customers would be put off by the high price. He started the conversation with the statement, “put yourself into our customer’s shoes. What are they thinking about gasoline here at Hurtte’s Texaco?” There was a moment of silence, followed by ideas like; at this price I better get something extra with my gas, at this price I won’t be able to use my air-conditioner, and that service station attendant better not spill a drop of gasoline.
At the time, I did not realize that I was being given my first lesson in sales – understand the customer. In a recent coaching session, my client and I were discussing the best way to present to a distributor manager. Early on in his career my client had worked in a distributor business - he understood the behavior of distributor sales people. His experience told him that distributor managers and their sales people often differ in their thought pattern and opinions. For example, one is compensated on gross margin; the other is judged on profit, turnover, vendor relations and other variables. My client knew he could influence the actions (and reactions) of sales types, but predicting the reaction of their bosses was less reliable. This article is intended to help provide insight and to spark new conversations with existing distributor contacts.
For the manager, it is not all about sales. Growing the top line sales number is important – but a number of other factors come into play. Each of these can serve as a trump card to negate your proposal of top line sales growth (for your specific product).
Does your proposed sales growth come at the expense of some other product?
This can range from your product making another product obsolete to your product replacing another (functionally equivalent) product already sold by the distributor. In many instances this is obvious – other times thought has to be put into creating the list. A little intelligence gathering prior to making your product presentation can help you determine where you may be in the mix.
How easy is your product to sell?
When this question is brought up, many people think price point. Because the product has some cost advantage, they assume it will be easy to sell. In fact, a number of issues come into play. Selling to existing customers is important. Finding that existing contacts at top customers buy the product is even more important. The competitive landscape is also an issue. An unmet need in the local market area adds to the attractiveness of a product. Finding a market niche occupied by a dozen strong competitors requires a whole new strategy of thought. If you provide this information early in the product conversation, you will differentiate yourself.
Are there conflicts with existing lines?
If your product overlaps with an existing line, the distributor manager level will be concerned. Expanding product lines into periphery areas is a proven strategy for large and powerful brands. Their current product offering may be incomplete and poorly placed, but adding your line may still be viewed as a direct challenge. To address this type of challenge, the (strong brand) manufacturer will develop a “loyalty program”. These programs offer special incentives for distributing all of the products available from the manufacturer…including the weaker lines. Today many distributors rely heavily on “manufacturer’s programs”. (Food for thought: Recent reports indicate that Electrical Distributors earn more than half of their before tax bottom line via these rebate driven programs.) Adding your product line may bring additional sales, but could also result in the loss of rebate or program dollars.
Does your product overlap a buying group or marketing group membership?
Groups such as Affiliated Distributors, NetPlus Alliance, Evergreen Marketing Group, and Sphere1 can make a difference in your product line’s reception. Distributor Groups reward loyalty to member manufacturers and penalize distributors who select a supplier from outside their ranks of members.
Do you have a good distributor inventory program?
Distributors are faced with the burden of balancing customer requirements against a world where needs change rapidly and without notice. If your product is technology based, obsolescence can be a fear. Inventory programs that do not give the distributor an easy escape hatch are going to be a harder sell. Distributor managers prefer stock programs that allow for “no fault” return policies. If your product line does not pan out in one year – and this happens – can the distributor pack up the unsold merchandise and just call it even? Annual stock rotation is a must. Distributors are weary of having their shelves be the “last resting place” for suggested stock lists that were not properly developed.
Does your product add to the profitability of the distributor?
The most difficult to discuss – yet the most powerful driver – is distributor profitability. Thousands of variables are involved but a simple understanding of a two will allow you to “peak under the hood” of the distributor machine. GMROI (sometimes called turns and earns) allows you to understand the relationship between gross margin and the number of inventory turns. This relationship is equal to gross margin percentage times the number of inventory turns. For example, a 25% gross margin product with 5 turns per year equals a GMROI number of 125. A similar product with 30% gross margin with 4 turns produces a GMROI number of 120. In GMROI methodology - higher (the GMROI) is better. Being able to discuss how your own product might affect GMROI and profitability is a good way to break put yourself into the distributor manager’s shoes. Activity based transaction costs are another measure of profitability. If your product eliminates a piece of human involvement at the distributor you can add to the profitability. As an example, if your company packages three commonly used products into a single box, you have eliminated the need for two lines to be entered in customer service. The same logic implies you have reduced the need for human involvement in the warehouse and potentially in purchasing. Being aware of these two concepts will increase your value at the distributor.
- Does the pricing come loaded on a disk or does it require manual loading?
- Does your product offer a nationally recognized brand with existing customers?
- Are you willing to turn over existing business?
- Is this an exclusive offering or will other distributors have the same product?
- Is this product currently stocked in another branch’s warehouse or in the distributor’s central distribution facility?
- Are co-op dollars available? And, how liberal is the co-op program?
The first step in understanding is “walking a mile in my moccasins”. Before you present new products or lines to a distributor manager, answer these questions. Your credibility will improve and the quality of the conversation will drive bigger and better results for your bottom line.
Frank Hurtte (firstname.lastname@example.org) is a consultant to distribution, manufacturer’s agents and the sales channel at River Heights Consulting. He has 28 years of real world experience and is available as a speaker and executive coach. He has written a number of articles and white papers on distribution and the selling process. Frank has helped a number of businesses and not-for-profit corporations through the strategic planning process. You can contact Frank at 563-514-1104 or through www.riverheightsconsulting.com.