Yesterday, a new manufacturer asked me a straightforward question, “Why should I use a distributor?” He bore no malice to the world of wholesale distribution, but, as he contemplated the company's future path to the market, he righteously wondered about the whole distributor model. Clearly, the question demanded an answer. Fortunately, there are a lot of answers.
The Old Answers
There are a ton of old-school distributor justifications which are still tossed out. For instance, I could have gone into the finances of the whole distributor thing. Distributors pay their bills and most pay them on time. This can be huge; however, in a world moving toward corporate credit cards and other financial instruments, the credit subject is getting a little worn out.
Local inventory used to be a big deal. Last week I blogged on the changing role of inventory in a world crowded with next day shipping capabilities. While I still believe inventory is important, for this manufacturer’s product it was viewed as only marginally interesting.
Customer Intimacy takes on a Different Meaning
Customer intimacy might be something we can still hang our hats on, if we actually possess a few basic components. Back in our fathers’ day, customer intimacy meant we knew the people, had personal relationships with them, and they liked us. Typically, this also meant business flowed our way. In our environment, customer intimacy translates into knowledge about the customer.
The following is a short list of points we should know about the customer:
- Specifically, how does the customer make money? For instance, a few weeks ago we wrote about OEM’s looking to spare parts as a profit center. If we instead referred to contractors, wouldn’t it be nice to know what kind of projects they found most profitable and understand why?
- What processes does the customer use in their business? How do materials flow? What portions of their business are highly automated? What are the training requirements for workers?
- Are there issues where the customer is in search of new technology to advance the way they provide products?
- Do certain components of the customer’s business create ongoing issues?
Simply stated, we know the inner workings of the customer well enough to provide “targeted opportunities” with a high probability of success. Distributors should be able to look at a new product and quickly rattle off the best candidates for the manufacturer’s product. This is something we need to be able to do more efficiently than a telemarketer working a list or script.
Product Expertise provided by the Distributor
Knowledge-based distributors bring product expertise to the customer. They help select the right product from a confusing catalog. Solution providing distributors work with their customers to design the customer’s future. They assist in developing specifications for products which will serve the customer well into the coming five years or more. These activities multiply the manufacturer’s time.
Think about the value brought to the manufacturer when a distributor does one of the following:
- Gets a product specified for a new application. The sale continues for years creating opportunities for more sales, repair part MRO sales and many others which bring value to the manufacture for years following the transaction.
- Serves as the first line of product support. New customers need hand holding. They have issues reading the user’s manual. They get stuck midway through the installation. A good distributor takes care of many of these calls and raises the customer perception of the product.
- Trains customer people on the product. Stating it once more for the record: For distributors, training is the new marketing. When distributors train customers on a manufacturer’s product they create a pool of workers ready to apply the product. With a highly mobile workforce, trained customers move to new organizations and bring along their application knowledge.
- Amalgamate products to provide a solution. Many new manufacturers cover a narrow band of the customer’s need. In the case of the guy who asked my original question "why should I use a distributor?", I wonder how many customers would even give him an appointment. His product was cool and neat, but alone it just didn’t solve that big of an issue for most customers. When a distributor adds his product to a total solution, he wins.
How do you stack up?
To answer the question about distributors in the channel, we need to think about where we fit into the equation. If you’re a distributor and all you really do is shuffle paper (as well as phone calls, emails, quotations and requests for support) back to the manufacturer, I can’t really think of many good reasons for you to survive in the future. If you provide the skills outlined above, I am fairly confident you will be around for the long haul.