Myths about customer relationships abound in the world of distribution. A few are based in reality while some are based on a promotion gone viral. At best, most are only partially accurate. The adage, “the customer is always right,” has always stuck in my craw. I suspect many fine folks out in distributorland will disagree when I say if you live by this motto, you will soon be enjoying downward mobility and celebrating financial ruin.
Our industry has historically viewed any customer as great as long as they met two criteria:
1. They paid their bills.
2. They maintained a pulse and were still breathing.
On a side note, a few of our sellers would argue about the bill-paying part. In an effort to make distributor folks around the country wonder what their manager is doing, raise your hand if one of your guys has ever asked you to sell “just one more” piece of equipment to a guy who is already running 90 to 120 days late.
Many wholesalers behave with a retail mentality, trying to attract customers in a generic way. Progressive distributors are re-engineering their business to draw in a specific type of customer. Thinking strategically, they are focusing their money and efforts to entice and retain clientele who best suit their business model. Further, they are developing sales processes and infrastructure to provide the best value to this targeted customer subset.
Distributors are selecting customers rather than customers selecting distributors. Establishing a well-thought-out and carefully defined companywide target customer segment is a serious slice of strategy. In the name of transparency, I was reminded of this during a series of conversations with distributors in preparation for an article on strategic planning.
During a discussion centered on Strategic Planning, Randy Boyd, president and CEO of AC Supply, Fort Worth, Texas, made a comment that sent me down a path of discovery. He said: “Over recent years, we have focused our attention on selecting the right kind of ‘A’ products, and those attract ‘A’ contractors. Our strategic plan is simple: attract the right customer type and sell them lots of parts.” I believe this deserves exploration.
The first move in establishing a plan involves understanding your company’s position in the market. The HVAC industry continues to morph in a direction more deeply defines some natural segmentations. There’s been a shift in the kinds of business walking up to our counter. Growing divides exist in the inherent needs of these customer segments. Small contractors and larger branded dealers differ not only from their brethren working in maintenance departments in large commercial buildings, they differ from one another, as well.
Products to build a position with the right customer set
Positioning the company to align products and services to the requirements of customer groups delivering the biggest growth and profit potential is a critical task. Determining the targeted customer group is purely strategic. Further, the strategy is different for every distributor.
Boyd’s AC Supply has built a reputation by maintaining a broad inventory of the parts needed to make a system work. “We lacked some of the ‘A’ product lines required to attract the important contractors into our stores,” he said. “We wanted to cement relationships that included more than just being the place to find hard-to-find parts. We decided we would need to leapfrog ahead in technology to carry a spot with some of the well-established dealers in the area.”
Not all of these customers are massive organizations. When pressured to help me understand who these ‘A’ contractors were, Boyd said: “For us, the profile is as much about behavior as size. Ideally, I would rather have a whole bunch of little guys over a few giant contracts. It’s just more fun to know your customers. They typically follow this pattern. They have nice, well-maintained trucks; their people wear uniforms; and they’re professional about their business, meaning they have salespeople, a marketing plan and a reliable back-office process.”
Services focused on the right dealers
Progressive distributors have not only applied product selection to attracting customers with “the right stuff,” but many have tweaked their service offerings. Going well beyond the old fashioned “friendly service with a smile” provision, these distributors have embedded themselves into the customer’s business practices.
Heading upstream on Interstate 35 and traveling some 900 miles north from AC Supply’s Tarrant County, Texas, location to the Iowa-Illinois Quad Cities, we had the opportunity to speak with Mark Kilmer and Guy Pauley, president and vice president, respectively, of the 100-year-old Republic Companies.
“The leadership team at Republic made the conscious decision to support the full dealer concept,” said Kilmer. “We believe our business, interlinked with a strong and well-established dealer network, gives us a solid position into the future.”
Once identified, the Republic team sets off on a course of action designed to create symbiotic relationships with their target partners.
Pauley explained: “We had a clean-slate brainstorming session to develop a marketing plan aimed at the best and brightest dealers in our territory. The team developed a plan that covered marketing plans with incentives to support and encourage effective marketing at the dealer level. We employed our IT group with developing e-commerce programs and mobile apps to increase efficiency in the dealer’s interaction with our company.”
Republic has created the new position of director of dealer development, which focuses on continually identifying ways to make the dealers’ interaction with the company more effective. Kilmer explained how the organization has tailored delivery programs to the needs of the dealer network. “Our best dealers are rarely at the counter,” he said. “We work one-on-one with these companies to help them better understand and anticipate the inventory needs to move their business forward. This includes not only needs analysis but things like crib management, as well.”
What about the guy with the dirty shirt and rusty truck?
Solid distributors don’t disrespect the small guys or even the dirty shirts with worn-out trucks. Allow me a story. Years ago, a young branch manager friend, Mike, attended a meeting that centered on refocusing the distribution business. Being an aggressive, gung-ho guy, Mike decided to push this targeting thing to the limit. He set up a customer shindig just for the small guys, fed them a catered chicken dinner and then announced, “Even though I like you guys, I want you to know I am closing your account, recommending you move your business to a competitor.” This was dumb and not the point of this information.
We are not going to suggest you fire your non-targeted customers, treat them rudely or close their accounts. The small players will still receive courteous, competitive treatment as well as good service. What they won’t get are expanded service options, marketing incentives, access to internal expertise or other resources. In some instances, these folks will not qualify for the purchase of branded equipment.
You can’t assume your people will know what to do.
Let’s look into our employees’ minds. They are very likely to have several time-honored platitudes bumping and grinding through their consciousness, such as “the customer is always right” followed closely by Thomas Jefferson’s “all men are created equal.” Targeting the right customer subset and quietly providing that group with extra advantages doesn’t come naturally. As a matter of fact, I have had a few really good distributor salespeople tell me it wasn’t fair, wasn’t moral and probably wasn’t legal. You must reinforce this message.
Bill Bergamini, president of Aurora, Illinois-based ILLCO Inc., drove home this point. “We continuously revisit the concept of understanding our real customer partners,” he said. “If the customer doesn’t appreciate our value, they will not likely achieve anything resembling a partnership. While it’s difficult to put a mechanical definition around a partner, suffice it to say someone who buys from the competitor based exclusively on a couple of points difference in price most likely doesn’t understand the value of what we do.”
Distributors planning to target a customer subset to maximize their success need to understand a half dozen important points:
1. Get feedback from your team on which companies make good targets. While you have a good idea of the right contractors and dealers, your team may know something you don’t.
2. Without ongoing communications, a good portion of your team will extend new services and marketing plans to everyone. One by one, small contractors will receive the same prioritized and costly delivery as the best “A” level dealers.
3. Expect pushback. You will hear plenty of sob stories about how this will hurt good old Joe, who has brought his $10,000 worth of business to you for years.
4. If you limit sales of some products to dealers only, keep a close eye out for “exceptions.” Put someone in charge of signing off on these exceptions, make sure they know how to say “no” and hold them accountable.
5. Don’t forget to keep your trusted supply partners in the loop as to your activities. The good ones will encourage you and contribute great ideas. You will have to sell the not-so-good ones.
6. Find metrics to measure and build on employee participation in the targeting efforts.
Three final thoughts
Before we sign off, allow me to share two final thoughts. First, research work done back in 2005 and repeated in 2015 indicates companies who take the time to develop, implement and execute targeted customer plans were 42 percent more likely to reach their financial goals. That’s a pretty cool thought.
Second, establishing a partnership doesn’t happen overnight. Bill Bergamini compares partnering to successful marriages. “You meet one another and over time a relationship progresses when both people develop the commitment,” he said. “By the time you decide to tie the knot, it’s more like formalizing something that has already developed naturally.” Looking back at the author’s nearly four decades of marriage, I only wish I would have come up with a fitting analogy like this.
Finally, Edwards Deming, the father of modern business practices, said, “Innovation comes from the producer, not the customer.” In this case, distributors are the producer. We are innovating and bringing our expertise and leadership to a whole industry. That’s even cooler.