I have been absent for the last few weeks and missed some of the things I enjoy doing, including writing the articles which we are now calling “Ken’s Corner” (here’s a link to my first Ken’s Corner). I am happy to be back and active with Channel Marketing Group.
In the last couple of months, I have stayed in touch with several of my friends in the distribution industry, especially the electrical distribution channel. Thinking about some of the more important things I might address in this article, I settled on the measurement of what I would call manufacturer back-end financial support programs available to distributors.
I have had more than one distributor, in and outside of the electrical channel, make what seems to be more of an issue of these programs now than before we hit this wall called COVID 19. My suspicion is that COVID, to some extent, gave management time to do a deep dive into the effect of these programs on their companies.
The concern has been said to me, and I am of course paraphrasing, is “do we in distribution need to closely track programs like rebates, growth incentives, and marketing fundin?” From a larger distributor, I got a comment that” we have a pretty good handle on the ones that matter, and after all the manufacturers do a pretty good job of reporting back to us on how we are doing.”
From a much smaller distributor, I would guess under $5 million, I learned that they are relying on the manufacturer to make sure they get paid everything they are entitled to, regardless of the program. Believe it or not, another distributor told me they were not taking advantage of manufacturer promotional funding opportunities at all.
And yes, I understand that marketing groups like AD and IMARK manage this for many independent distributors for a number of their lines, but this is typically only about 33-50% of the business. What about the remainder? And is this all that is available to the distributor?
I don’t know that I have a blanket response for any company, because one of the things I have learned, and yes sometimes it takes me a long time to learn, is that no two companies, including their approach to financial management, are the same. As a side note that holds with their approach to almost anything else as well. Part of this is reflective of the history of the company and the culture that has developed over the years. No matter what their approach, or opinion, that does not make them bad companies or poorly managed.
So, since I don’t have a blanket response, let me offer a few “bullet points”. I understand that many companies, if not all, will be way ahead of my thought process on a number of these. But maybe I can give one or two that might be of value to at least some of the readership.
- I have heard from more than one CEO of a major electrical distributor, in the top 10, that at the end of the day, if that EBIT number is where it should be, you can discuss anything you want as it relates to your future. As one of them put it, “now you can place your bets”. If the numbers are not there, nobody wants to discuss anything other than the survival of the company and those are usually short-term reactionary policies and actions. These programs can play a significant role in helping you meet those objectives.
- Are our manufacturers honest? I believe, based on my experience, they are. That does not mean that, like distributors, we don’t occasionally have an issue with one of our own.
- Are our manufacturers responsible to guide us through these various financial programs? If you’re asking that they bear the responsibility to coach you, track the process, and make sure you get across the finish line, the answer is, at least in theory, yes, but only to a limited degree. Remember, this is “theory”. Many have gotten better about tracking rebates and advising distributors in the fourth quarter, but not all. And few do it relating to marketing dollars.
- Are you saying the distributors own 100% of these responsibilities? Not in theory, but most of the time you end up largely that way. After all, who is earning the money? Who generates the most benefit?
I’m going to try to take this from the manufacturer’s point of view stating that, in full disclosure, I have never worked for a manufacturer except in an unpaid advisory capacity. The manufacturer’s job is to represent their products and company’s best interest to their distributors and end-users. The level of that support is going to be based on a lot of factors and I can’t cover them all here, but I’ll touch on one or two of what I think are the most important ones.
Just like distributors establish sales goals for each account that their salespeople are assigned, the manufacturer does the same with their representatives. So that manufacturer salesperson, or agency, needs to get all its accounts, in this case, distributors, across the finish line. That means they need to achieve the financial objectives assigned to them for each account. They are going to spend the time necessary with each of these to make that happen. And, quite frankly, they spend more time with those who will make, or exceed, their goals. They don’t have time, or interest, in laggards.
Do they prioritize based on relationship, what they see in the distributor, and what they see is obtainable? Yes, they do, and again distributors do the same with their customers. That means they may steer business to a distributor that is in their best interest to do so at that time. And yes, they may ask the prospective end-user what distributor they would like to put this order through, but it doesn’t always work out exactly that way. Distributors do the same, or should, when they steer customers to specific manufacturers to meet their business interests.
Distributors – Track Your Earned Manufacturer Funds
Now I’m going to move on to my true love, Electrical Distribution. First, every time an electrical distributor says to me, they just had a great day because they got a credit memo or check from a manufacturer that they weren’t expecting I get concerned. At that point, they may remember some conversation when their “lightbulb that comes on”, but that doesn’t change the fact they weren’t expecting the money. What that means to me is if the credit memo or check never shows up, the distributor isn’t going to know the difference.
Now there are all sorts of thoughts about how you best track all these programs. Regardless of how you intend to do the tracking, the first step is to try to put down on paper what programs you are aware of and your current quantifiable participation.
Do or Don’t Do, There is No Try
Okay, now I must correct myself. I’m a big fan of the Star Wars character called Yoda. Yoda was a 900-year Jedi Master. When mentoring a young Jedi, a kid called Luke Skywalker, he gave him a task. Luke responded by saying something like “I’m going to try hard” Yoda looked at him and in a very blunt way said, “try you must not, do you must”. If you don’t get these programs down on a piece of paper, or Excel spreadsheet, or write it on the bathroom wall, and work from that document, you can stop reading at this point. No disrespect here, just what is in my opinion a fact. Whether you somehow import this into your legacy system or work with anything from Excel to One Note, if it’s not in writing you have no chance of maximizing these programs’ potential.
The basics would be all the manufacturers you represent, and then the programs you feel you need to monitor. And this may change based upon your role.
Other than the bread-and-butter rebate programs, you might want to make sure you have an additional growth incentive program, and possibly look at a dozen other issues such as return policies and educational allowances. Don’t forget marketing funds, sample programs, EDI rebates, eCommerce rebates, price protection policies and more. Most sales books will point out a basic fact. You don’t get it unless you ask. Most salespeople wait for the customer to offer up the order and most distributors never read their manufacturer’s programs or ask!
It is not a cardinal rule that you must have all of these programs with every manufacturer. At the end of the day, you need to say to yourself “I’ve done the due diligence and I understand why this manufacturer does or does not offer these programs.”
One more comment, I’ve been told by some over the last 30 years, as a matter of fact, that they think they are not important to some of their manufacturers. “We don’t buy enough, we are not big enough, were not organized right for them” etc and I could go on for about 10 more of these but you get the point.
Conversely, and this is the important part, I’ve had an equal number of manufacturers sit down with me and after I broach that issue on the part of the distributor, they look right at me and say they don’t think they are important to that distributor. You must send a message to all your manufacturers, not just the ones you think are important, that they are all important. You must engage them because you don’t know what happened last week that creates an opportunity for you. Many manufacturers may never call you about that opportunity if they think you don’t care about the relationship you have with them.
Develop Opportunities with Your Manufacturers
I would like to offer two basic recommendations to help enhance the manufacturer’s ability to be of value to you.
- Develop a written boilerplate document that outlines 10 or more opportunities that might be available to them. Tell them you’re interested in partnering with them, where appropriate, such as joint calls, promotional programs (yours and theirs), trade shows, customer and employee education, and all the others. Disseminate that widely but give yourself plenty of wiggle room. Leave the details for follow-up dialogue.
- Schedule formal planning meetings in 45 minutes sessions, or longer, with your manufacturers and have a range of frequency. That might involve meeting with the manufacturers that have future potential more often than in some cases you meet with the big guys. In-person is best. Virtual will work.
In closing, I apologize if I’ve rambled a bit, I’m a bit passionate about this issue. If your backend arrangements in dollars aren’t a significant amount of your EBIT, you might want to take a closer look at this whole subject. No, make that you had better take another look at all these programs.
And if your EBIT consists only of your rebate income, you need to look at your sales organization, pricing and operations as we’re supposed to be in business to make money.
Now some housekeeping issues, first I again apologize for my temporary absence, and I want to take the opportunity to publicly thank David Gordon and his team for their understanding and support.
Secondly, everything in everything I write is my own opinion. I have a large ego, but over the years I have come to terms with the fact that I am not always right.
And finally, I have given you just enough information to garner your potential interest. Many of you may already know a great deal about the subject and are doing an outstanding job of managing these opportunities. For those of you that are not quite sure, I encourage you to reach out to the Channel Marketing Group. A short conversation is all it takes. And no, you will not be needing to spend a fortune on consulting, but you might want to spend a little bit. You will be surprised at the ROI.
This is a lot of text and I know your time is valuable, so if you’ve elected to read this and not just skim over it, you have my sincere gratitude.
PS: I appreciate anyone who takes the time to take issue with anything I have said. There is a very slight, albeit remote, possibility that I could be wrong. So, if you have something to say, be it critical or supportive, please reach out to me (240.682.3660. I really would like to hear from you