We decided to look back a more reasonable 20 years. The largest trend we spotted among these comments was the degree of customization and targeting now available thanks to multiple technology advances.

Drivers

“Distribution has certainly gotten far more competitive, complex, and scientific,” said Talbot Gee, executive VP and COO, Heating, Airconditioning, and Refrigeration Distributors International (HARDI). “Distribution used to enjoy the benefit of being the only game in town (e.g., as a source for certain products), which made it highly profitable; then competition, and more importantly purchasing as a profession, and national accounts, shifted the dynamic considerably. Lower prices were expected, so logistics efficiencies became the key to profitability.”

Those logistics were improved partly with new business technologies. Richard Cook, HARDI president, and president and COO of Johnson Supply, pointed out that “investments in technology became increasingly important, as well as a large part of distribution’s capital expense equation. Along with that investment, human skill demands to effectively use these systems changed the mix of distribution personnel, not only because of their ability to use the systems, but also to use the systems as a competitive advantage at both the customer and manufacturer levels.

“Another interesting byproduct of this trend is that many distribution companies have a better EDI (electronic data interchange) and procurement system than the manufacturers they are representing,” Cook said, “so there is still a lot of efficiency available when manufacturers’ procurement systems get more advanced.”

“Then 3PLs (third-party logistics providers) and overnight shippers made excellent logistics a basic expectation,” continued Gee, “which led to value-added and fee-for-service models, in which distributors made up for lost product margins by generating services revenues.”

He called today’s business model “a service-to-survive model, in which you must deliver great products, with great service, with incredible accuracy, on a thin margin. This places enormous emphasis on optimized sales, operational ingenuity, and efficiency — hence the ‘science’ of distribution.”

Categorizing customers as separate business types is challenging, he said, but worthwhile. “Customer segments do not have the same needs, so distribution that serves multiple segments must have different value propositions.”

Best Practices, Energy

One segment of contractors has started embracing best practices and energy marketing, offering services such as quality measures, energy audits, and generally pushing the lead. These contractors may want more training.

“The need for these kinds of best practices has never been greater,” said Gee. “The consumers most likely to want or demand the higher efficiency or premium features … are also the customers most likely to identify poorly trained technicians. If contractors want to sell the higher-end products (which I believe is a key to true profitability in our industry), they must be highly trained, and much of this responsibility falls on the distributors,” he said.

“Distributors now have to be able to stay in front of the most cutting-edge technologies and practices for their most progressive customers, while being able to help with the basics for their other customers looking to grow or become more established.” This customer diversity is a challenge, “but those who do it best are often at the top of their respective market(s),” Gee said.

Cook said he sees great opportunities for contractors getting involved with the whole-home and energy markets. And in the growing solar market, “we also are the natural channel.”

Distribution sales and marketing forces “have had to become more solution based,” said Cook, “with a greater understanding of customers’ business processes and needs as additional value propositions.”

Multiplication, Divisions

“The HVAC industry is much more sophisticated today than ever before, and utilizes technology now more than ever,” said David Brown, general manager, Lyon, Conklin & Co. Inc. “Contractors now use iPads and laptops for customer sales presentations, diagnostic tools for troubleshooting technical issues, and they order equipment and materials online.”

In addition, the increasing focus on the environment and the transition to R-410A refrigerants have caused the industry to respond with better technology to lower energy costs, he said. And the options have only multiplied.

“In years past, when a customer ordered a system, there were just a couple of options to give them a complete system,” said David Williams, Gateway Supply. “Today there are tons of options that will reach the same SEER rating. For instance, if someone asked for a 15 SEER split system, you cannot just write up a given set of units to achieve the rating. There are so many variables that have to be answered before a counter person can write the order.”

“Technology is changing daily, and how we train and market has begun to evolve because of that fact,” said Rob Eckert, sales support manager, Republic Co. “Right now as I answer these questions, I can sit in my chair with my smart phone, change the temperature on my thermostat at home, and post a link on multiple websites, both marketing the new thermostat we sell and a link to all of the training necessary to sell, install, and troubleshoot it.

“The ability to market to large or small target audiences now with email and the Internet has allowed Republic to communicate and manage relationships more effectively,” he continued. “At the same time, with tools like Google analytics, we can now track more effectively where our leads are coming from, and determine what is working and what is not, more methodically. This has allowed us to become more flexible with different marketing programs for each of our customers.”

People Business

There is no doubt, however, that wholesale-distribution is still about relationships, whether they are pursued in person, on the phone, or on a screen.

“The single greatest consistency in our business, despite dramatic changes in processes and resources, is that people buy from people,” said Michael Senter, chief executive officer, ABCO HVACR Supply + Solutions. “There is nothing more important in stimulating a purchasing decision than integrity and trust. This was as true 85 years ago as it is today.”

However, the ways people establish that integrity and trust has changed dramatically, he said, due to electronic communications. Its immediacy “has created new, important challenges for all wholesale-distributors to meet and exceed, as we seek to help each of our HVACR contractor-customers fulfill their promises and commitments to their end-users,” Senter said.

“Yet, with all of the dramatic changes in processes and communications, the consistency of trust and integrity as the most important factors in building strong, sustainable sales relationships creates a solid foundation on which to continue to build and improve the quality of wholesale-distribution,” he said. “These are experiences shared by all members of the wholesale-distribution channel today, just as they were when The NEWS was started more than eight decades ago.”

“In today’s world, almost every order we acquire is a battle,” said Williams. They’re not arguing with customers; it’s just that “we rarely just get an order without having to qualify and/or justify the product and/or price.”

With all the options out there, extreme product diversification has become a necessity, he said. “We have brought on new and different products, like crawlspace liners. We are constantly searching for products that could benefit our customers and allow them to find something to do that others are not doing, which inevitably helps our business.”

Value Added

Face it: “Products are products,” said Eckert; “Twenty years ago the accessibility to purchase thousands of different items was valuable by itself, so the distributor with the right product mix was successful. With a contractor’s access to products growing every day, a successful distributor in today’s market has to provide the products, technical knowledge, customer service, and fast response times that the customer needs to be successful.”

“The definition of value added has changed for a lot of our customers,” said Dennis Larson, sales and marketing manager, Refrigerative Supply. “Twenty years ago, faxing a copy of an invoice to a customer was value added. Today we need to be able to provide that customer’s invoice online. He wants 24/7 access to his account to pay invoices, check our inventory, and pay.” Online training also needs to be available in every format, 24/7.

For Williams, value added means making sure counter staff are well versed in all the new products’ features, and they can answer technical questions. “We have a clear responsibility to our customers, and eventually the end-users, to convey what the equipment will and will not do.” Staff also help customers review their project needs thoroughly, down to small items like screws, tape, and staples.

“Many aspects of our counter service have remained the same,” he said. Being an independent distributor, we have to find ways to out-service our competition. So, we still try and greet every customer personally, and do things like carrying out and loading the customers’ trucks, and especially thanking them for the order.

“If we ever lose this, we might as well close the doors.”

“I would venture to say 20 years ago, many of the value adds were relationship based,” said Gee; “now these services must be far more quantifiable and tangible. Kitting, after-hour and even automated will-call counters, online and on-demand resources, incentive rebate processing, and bid and spec support are just a few examples of expensive, but often necessary, value-added services many distributors have to find a way to provide to keep the best customers.”

Finally, like most everything else mentioned here, today’s value adds are more tightly targeted than they were in the past, Cook said. “Organizing business resources to provide unique solutions to customer needs, is a profound shift in the distribution focus.”

Publication date: 09/19/2011