- Increased competition, especially through alternative channels (non- full-line electrical distributors)
- Personnel, with much of it stemming from an aging workforce that has learned product, channel and customer idiosyncrasies “on the job” and companies challenged to find “experienced / knowledgeable” replacements (and challenged with doing the training as well as managing / mentoring), and
- Technology in all aspects of the business (product and processes)
It has been said that the “barrier to entry” and the “key to success” for distributors is focusing on more technically-oriented products, value-added services and solution selling. This will “create the moat” to ward off Amazon Business.
Preston Waters, who has been involved in the electrical industry for 28 years, recently shared some of his thoughts on LinkedIn. Given his passion, and industry dialogue regarding distributors needing to compete “differently” to succeed against Amazon and alternative channels, we reached out for his thoughts.
Should Electrical Distribution climb out of \”order-taking\” and financing with diversifying into Consultation? Not just recommending products, joint sales calls/lunch-trainings and diminished dollar negotiations, but providing a valuable service with a savvy individual that helps to assess, coordinate, purchase and co-manage a job/project with an EC?
An ED accepts a PO from the EC with the expectation of dependency under a business relationship; this is usually an emotionally fronted and mechanically (usually evaporated) ended process with little intimate involvement from the sales reps. What if the Electrical Distributor was brought in as a true partner with real visibility; a mutual engagement/understanding on all facets (materials, labor, logistics) to aid in maintaining profitability for both?
A couple weeks back, I posed a couple questions about Electrical Distribution incorporating holistic consultation into their sales practices; the response has been amazing!!! With dozens of emails and phone calls, the same question was generated: How?
A general assumption can be made about an Electrical Contractor and Electrical Distribution business responsibilities: Labor and Materials; this speaks to: P&L, Budgets and Forecasts, Metrics, Purchasing and Inventory Management, and Logistics. An ED branch manager could structure weekly classes/meetings teaching these constituents of Business Management to his/her sales staff. Once a solid understanding has been gained by an Outside Sales Representative (OSR), the responsibility for adopting a consultant/liaison mentality can begin with simple queries of foremen and project managers onsite or in the ED’s office with current projects. Initially, this should foster a few results for an OSR:
- Pursuit of a true and holistic ownership of their business
- A genuine empathy for their customer’s needs
- A real understanding of materials and services needed
- An open visibility operating on interdependency
The added benefit for training the OSR staff on Business Management is the creation of depth! With an OSR operating under a full understanding of an EC/ED’s business, not only does the branch garner a supportive team mindset, but the OSR can truly assess strengths and weaknesses for the project engagement to maximize profits for both the EC and ED.
I do believe a quality retention requires formal training with structure, rubrics, and practice. Under an open mindset with current sales representatives, an informal training could be used as well. However, there are two crucial elements to incorporating this practice to achieve success: internal assessment and progressive customer feedback. Granted, current OSRs may be “put-off” by accountability; therefore, branch/sales management is tasked with coaching under emotional resonance, gauged patience and constant communication. Once a practice has been implemented, tangible/reachable goals (margin, total sales, product targets) should be incorporated.
Many people are asking “Why?” Maybe I should have mentioned the motivation for these posts at the onset to qualify my questions, but if I had mentioned: Amazon, many may have moved on from reading further, due to the inundation of Amazon articles and marketing.
Electrical Distribution does have a threat in Amazon logistics. With huge distribution centers appearing virtually over night in many cities, Amazon is laying a landscape for ED market penetration. ED does not have the financial reserves or investment abilities to compete on that level of brick and mortar and vehicular logistics; however, ED does have the history, personnel engagement and relationships to maintain customer dependency through a far more modest, if not nominal investment: Education.
Traditionally, sales representatives function under an internal focus on product, which has been the expectation of the industry since its inception. That narrow mindset/practice offers up business to Amazon under ease of access, price, and delivery. How will ED compete? Educate ED’s salesforce on a new value-added service: Consultation. Amazon may employ a sales team to compete with ED, but Amazon will have to work hard at generating trusting, loyal clients already in place with ED. Therefore, ED needs to bolster their relationships and customer dependency through providing services of Human-to-Human and Face-to-Face support.
I do not believe that Amazon is the only threat; ED is a threat to itself! ED is highly competitive with hundreds, if not thousands of different distribution companies all competing for the same business space. In my experience, this competition has caused a dwindling in profit margins over the past 15-20 years. Granted, there are some long standing relationships and some value-added services affording many distributors a majority of their business with stable margins; but many, if not most, are quick to cut profits for the sake of achieving an order; where is the relationship/loyalty? What value does one distributor truly offer that another does not? I would like to think Natural Selection will eventually weed out the weak or unadaptable distributors. For now, the survival instincts of being credit institutions are keeping many ED’s afloat.
For the most important “Why”: Me.
I was born into this industry. My father was a sales executive for one ED; my uncle was a founder for another. Prior to their work in Electrical Distribution, both worked for Westinghouse as switchgear engineers and sales managers. Their combined knowledge was passed down to me at an early age, where I practiced directly and indirectly for almost 40 years. The most important statement ever given to me by either of them was this: “If you truly believe in working for your customer and not your employer, you will be successful in sales!” This has always resonated with me with requirements to do so: generating an active ear, an earnest need to problem solve, genuine empathy, and a selfless caring for the success of the customer. I would like to see these same virtues be implemented into a sales consultant training.
Yes, there are distributor salespeople who are consultative in nature. Much of this is based upon their personal sales philosophy and, in most cases, these are the “heavy hitters” within a distributor … the top performers, the sales and GP$ generators. They’ve built relationships, handle key / major accounts and are viewed as an asset by the customer.
However, many companies are also challenged in helping their salespeople, and customers, understand the array of value-added services that the distributorship offers as well as “solutions” that manufacturers may offer.
Some of the issue is lack of contractor engagement to understand needs. Some is lack of communication by the company. Much has to do with sales training and sales coaching.
So, questions become:
- What are you / your company doing to educate sales about contractors needs and business as well as providing the sales training necessary to help more salespeople become more consultative?
- What are you doing to learn more about the contractor business? (Some companies do this via one-on-one meetings … but the information doesn’t get aggregated and shared. Years ago, Capitol Light & Supply (now a part of Rexel) instituted a contractor focus group series … by branch and regularly. Much was learned, relationships strengthened, services improved.)
- What type of sales organization do you want (or want to be in)? What type of salesperson do you want to be (as the same also relates to manufacturers and reps)? Which type performs better in generating sales? In generating profits?