The Future of Knowledge-based Distribution

Earlier this month I was asked to lead a discussion on the future of distribution.  In this case, we focused in on the future of members of the Fluid Power Distributors Association (FPDA).  Since many of our readers are not FPDA members, allow me to provide a bit of background.  The members of FPDA tend to be deeply involved in providing customer solutions.  In many ways they epitomize the knowledge-based distributor.  Their products are complex, sellers understand product technology and application nuances, customers lean on the distributors to provide technical support and most offer up additional fee based services.

Referring to the infographic below and the evolution of the distributor model, FPDA distributors are the poster perfect picture of the Knowledge-based distributor.  Deep product expertise, product specialists, customer centric engineering and solution selling is their mode of operation. 

  

While the argument for Amazon-like eCommerce may make great sense for the distributors falling into the “Logistics” side of the distribution industry, similar investment on the Knowledge-based side of the evolutionary line is likely to be poorly spent.

A quick survey of those attending the meeting revealed the following statistics:
• 38 percent of attendees’ companies did zero eCommerce
• 50 percent did less than 5% of their business via eCommerce
• Only 12 percent of attendees indicated eCommerce represented between 11-20% of their sales

Thinking about available resources like time, effort and money, knowledge-based distributors investing in eCommerce do so at the expense/neglect of other potentially more rewarding investment opportunities.  The pressing question is where should a knowledge-based distributor invest?

This question can be broken into four segments:
• What customers are best matched for the offering of products, service and knowledge provided by the distributor?
• How can the distributor better their ability to drive solutions to this group of customers?
• How might the distributor scale up their ability to provide the solutions?
And the most important question of all….
• How can the distributor ensure they will be paid for the value they provide?

With all of this in mind, let’s dwell on the critical topic of getting paid for the value provided. 

For this breed of distributor it’s not about value-added sales, instead the crux of the equation is value-metric selling.  Simply put, knowledge-based distributors provide value far above the logistically based guy whose “value-add claim to fame” comes by way of timely deliveries, consolidated invoicing and the occasional cross reference to a more conveniently purchased part.  Instead, knowledge-based distributors provide the stuff needed to help the customer develop better manufacturing processes, reduce costly downtime, reduce rejects and drive profitability.  

Strangely, only a few of the sellers in this high value world really understand the true worth of their actions.  Research indicates, their sellers go the other way, undervaluing what they do.  Instead of measuring the financial impact of their ideas in terms of impact to the customer’s business, they shrug off the economic benefit as part of their “service”; often struggling to justify a percent or two greater margin than the person who provides just products without much needed technical support.  This puts the group in a dangerous position.

As knowledge-based distributors move into the future, their reliance on technical advice, engineering support and turnkey engineered solutions as a competitive advantage deepens.  Demographic shifts point to escalation of human side and other associated costs for the distributor.   Without an understanding of the customer value they create, the distributors will see profitability sag.

Knowledge-based distributors need a different kind of training.  The selling advantage goes to the distributor salesperson who can explain the value of their proposed solution in real customer-centric terms.  It’s no longer acceptable to pepper the conversation in technical jargon and call it good.  Improved cycle times, communication speed, scan rates and other data may be factors for selecting components.  But when a solution is being discussed, the conversation must focus on advantage to the customer.  Going further, customer advantages are best described in financial terms.  For instance, the product feature of improved cycle times, translates into 10 percent more parts generated and that newly created production generates $500,000 additional revenue to the customer.  

While training focused on understanding customer economic value is critical, it must also be understood that rarely are solutions outlined in black and white.  To better understand the situation, let’s explore a hypothetical interaction with the customer.

Acme Manufacturing has an issue with a new machine design.  They would like to employ a robotic arm to properly

locate parts.  The distributor proposes a solution capable of reaching into the machine grabbing the part and properly aligning the part thus eliminating a great deal of human interaction and reducing scrap.  It’s a nice marriage of technology and customer need.  The economics justify the work and the purchase is given the green light.  However, midway through the design stage, the customer asks for a new feature.  Instead of only one positioning action, the robot will require an extra move in order to add a date stamp to the part.  

On the surface, the hardware required to complete the job remains about the same.  But additional engineering is required to make a software adjustment.  And the distributor seller is faced with a dilemma; eat the software cost, avoid conflict and keep the customer happy or negotiate a new price with the customer.

A study of distributors conducted earlier this year, points to a deficit in distributor negotiation skills.  Looking more closely, we have sales teams who constantly negotiate solution and system pricing yet have very little formal expertise in the practice.   

Anticipating questions, allow me to address a couple of points.
• Our customers see us a partners and don’t negotiate when dealing with us.  This misconception is rampant in the distributor landscape.  Customers certainly do negotiate as many have had formal negotiation skills training.  Have you ever formalized the technical side of a solution only to be handed off to a purchasing person to finalize the details?  This in itself is a negotiation tactic.
• Our sellers have been doing this for years and know how to negotiate.  Selling is typically about knocking down roadblocks to getting the order.  Giving away a little margin, or throwing in some added engineering time is an easy way to close the deal.  Further demonstrating the phenomenon, distributors who run engineering organizations report reoccurring conflicts between those required to generate profits in the technical operation and the salespeople.  Truth is, the sellers are better at negotiating with their co-workers than with customers.
• Since our sales team is paid on the gross margin they generate, it’s in their best interest to capture as much gross margin as possible.  From a purely cerebral standpoint, this makes good sense.   However, many salespeople reason that a commission on a small gross margin is better than “haggling over a few bucks” and possibly jeopardizing the order or customer relationship.  Pushing further, antiquated commission policies sometimes encourage sales types to capture less than optimal margins because giving away technical support or engineered services does not reflect on the gross margin number.  In this case, the salesperson gets a commission on bad business. 

What do I recommend for Negotiation Training? 
Over the years I have had the opportunity to sample a number of negotiation skills training packages.  Unfortunately, I have not been impressed.  The big names push tactics over substance.  Most fail to understand that our kind of selling is different.  Distributor-customer relationships are living breathing and ongoing bond.  Every interaction adds to (or subtracts from) the tie between companies.  Tragically, most sellers attending were turned off by the whole seller wins at buyer’s expense mentality.

Thankfully, someone recognized this issue and did something to change the landscape.  SPASigma sprang from

the work done by David Bauders and his Strategic Pricing Associates (SPA) team.  With nearly a quarter century of experience helping distributors apply scientific analytics to their pricing process, SPA has assisted nearly 500 distributors in their quest for developing fair and equitable system pricing.  SPA understands the how distributor business works.  SPASigma has taken a new approach to negotiation training.  Along the way, they have developed a whole system of in-person seminars backed up with online retention tools to assist in changing the outlook of sellers in this field.   You can access SPASigma here. 

Before we go,
We started off by saying, money spent on eCommerce could be better spent in other ways.  Following this path of skill development centered on understanding your value to the customer, understanding the cost of the services you bundle and negotiation for the best deal will position your company for immediate payback.   Payback capable of funding the future.

Sales Training for Distributors – Don’t forget Inside Sales

Last week I threw out some thoughts on sales training for distributors.  The response was great, but I received more than a half dozen challenges from inside sales groups.  The overall feedback could be summarized as: Don’t forget about Inside Sales. 

The comments reminded me of a couple of points:

• Outside Sale people may make the phone ring, but it is the service the customer receives when they call that keeps customers coming back (aka customer retention).
• Most customers gauge Distributor customer service by the quality of the Inside Sales team.

Historically, distributors have focused on outside sales improvement…

Experience shows when distributors invest in skills training (which is meager at best,) they tend to focus on the outside sales position.  A quick “Google Search” on the topic of “distributor sales training” brings up something like 28,600 results.  While I didn’t read all 28 thousand of them, I did look at the first twenty listings.  All were outside sales related.  Assuming that training organizations follow the money, we can assume there is darn little effort devoted to the team who keeps the customer calling and by which our customer service is often judged.  Houston, we have a problem...

Inside Sales was once a baby step in
the trail to Outside Sales

There are three potential reasons for this lack of investment in inside sales: 

1. Back in the good old days, inside sales was viewed as a stepping stone job for outside sales.  The career trajectory for most people looked something like this: start in the warehouse, move to the counter, go to inside sales and finally grab a company car and hit the road.  Compensation for inside sales people was meager and anyone who stayed in the department was viewed at lacking in personality, drive, motivation or intellect.  You might say the good old days were not so good for the inside team.
2. Most of the sales managers serving the distribution world grew up in the outside sales world and don’t understand the inside sales role well enough to realize what training should be focused toward.  They realize the need for training but tend to see it as a subset of the training they provide for outside sales people.
3. Again going to distributor sales managers, most grew up in a pre-internet environment.  Only the most progressive managers realize selling roles have shifted.  Customers no longer count on their outside sales person as the harbinger of information.  Research indicates customers review products, find information and make preliminary decisions without waiting for data sheets to be delivered by their friendly outside sales resource.

The job of inside sales is changing…

Just a decade ago the job of inside sales centered on transferring phone and fax orders to computer system (ERP) orders, answering questions on delivery and selecting the proper part number from a customer’s detailed description.  All good stuff for the time, but nothing like today.

The end of these activities is on the horizon.  New computer technology allows orders entered onto customer PO forms to be automatically entered into the system without human interface.  Further, some of the product selection criteria has been automated or moved to mobile apps allowing customers to better determine the proper catalog number (even in instances where complex part number strings are involved.)

Today customers look to inside sales for more.  For instance, for most distributors, the first line of price negotiations has been switched to the inside sales team.  Front line technical support falls on to inside sales to do some logistical matters like expedites, freight issues and invoice clarification. 

Provide world class technical support and you will attract customers.

How do we train for customer support?

If your companies sells highly technical products (Programmable Controllers, computerized operator interfaces, complex sensors, drives or irrigation controllers, programmable heating systems, etc.), we recommend establishing an inside specialist(s).  This person would be the phone resource for customers with urgent issues. 

The inside specialist need not be a new hire.  We have seen companies delegate slices of their technology to individuals with keen interest in the products.  This will work well assuming the person is not overloaded with other tasks. 

But product support can be taught.  First, let’s assume customers commonly ask the same set of questions.  Identifying these questions and training on the answers grows the overall support.  Rather than being tasked to learn everything, inside sales is taught to understand the 20 most commonly asked questions on the product. 

Further, inside sales is taught a plan for escalating the call to someone more knowledgeable.  Years ago, my own organization created a “who to call list” which allowed the inside team to access factory and internal experts on various topics – but not until the problem was qualified.

Train for add-on product sales…

The most powerful marketing tool in history is McDonald’s

own, “Would you like fries with that?”  Sure, everybody knows Mickey D’s has fries, but just prompting the customer with the question turns a five dollar order into a seven dollar ticket (a 40 percent sales boost not considering fries have a high gross margin for the company.) 

Many of our computer systems (ERPs) allow the addition of suggested sale or “goes with” products.  We need to reinforce the importance of both populating the system and training our people to remind customers of products they may have forgotten.

Proper pricing can improve the inside sales role.  First, without a well-developed pricing system, inside sales teams devote lots of time looking up last prices paid and checking on price levels with their outside sales counterparts.  Inside sales should be trained to spot poorly maintained price files and provide the feedback required to get these fixed.  Second, inside sales people should learn a few basic negotiating tricks to avoid being “duped” by procurement professionals who have been trained in the science of negotiation.  If you have not yet see the information provided by Strategic Pricing Associates or their sister company SPASigma, we recommend you check out this really funny video.  

Again a special offer…

Last time we offered a postcard from Iowa to everyone who shared their suggestions for sales training with a grand prize of a professionally developed training class set up to be shared with your team.  We are repeating the offer.  No obligation, no telesales calls, no nothing.  Everyone will be a winner. 

Postcards from Iowa for every entry.

Free Sales Program to the coolest suggested subject.

BTW –Sue from California was our winner last time.  Sue claims she had never received a genuine postcard from the Tall Corn State.  Sue, we expect more entries.  The USPS wants to bring you another card.  

Product Training or Sales Training?

When I ask the question “Do you have sales meetings?” most often the answer is to the

Without teaching about the
science of selling,
your meeting room
may as well be empty

affirmative.  Weekly, monthly, quarterly or something else is the standard answer.  But when it comes to content, a few follow up questions are often needed.  That’s when the truth comes out; distributor sales meetings are rarely about sales.  Oh, sometimes the numbers are reviewed.  Goals are generally discussed near the beginning and ending of each year.  And occasionally, distributors talk about the need for results on some supply-partner’s new product line.  Rarely, if ever, do distributor leaders actually talk about the science of selling.

Over the past few days, I have participated in over a half dozen conversations (phone, email and social media) on the topic of sales meetings.  Allow me to highlight.  In one conversation a manufacturer asked one of their top distributors if they did sales training.  Immediately and with great pride, the distributor manager launched into a conversation on the product technology training his team had covered over the past few months.  The manufacturer tried to steer the meeting back to selling skills with the mention of the Strategic Account course they recently put their team through, but the conversation immediately turned to product details. 

Just this morning I received the following message from a new LinkedIn.com connection: 

“I enjoyed the article you posted on selling.  I am always interested in what’s happening in distribution sales, as it is a pretty unique type of sales.  Most of the information I get is product based, so I always find it refreshing when I see something that addresses the type of selling I do.”

This is not an isolated situation.  Over the years I have heard this comment from distributors in the Industrial, Safety, Automation, Fluid Power, PT and Electrical markets, as well as the Irrigation, Automotive Parts, Sporting Goods and Motorcycle parts industries. 

Considering distribution is an industry which is primarily a “sales function” driven business, I believe this is both a threat and an opportunity. 

If you are a long-time reader, you probably realize we cater to distributors who are knowledge-based and solution selling organizations.  Most of us pride ourselves on our product and application skills.  We add massive amounts of value to our customers, but the customer has to get to know us first.  Further, our industry is ever being squeezed to be more efficient.  For distributors, 60 percent of our budget is spent on our people and salespeople represent a large share of the outlay.  Developing, refining and growing selling skills serves to address both the speed of relationship and sales efficiency issues.

Why do we continue to ignore the sales skill part of the equation? 
Here are some possible answers:

• Managers believe their sales teams are already seasoned veterans and training would be a waste.

• The manager’s mistaken belief that professional sellers devote time to improving themselves through books, tapes, podcasts and online programs.  (My apologies and best regards to the one percent who actually do this stuff.)

• Salespeople resist training especially if they believe management will require changes in activities

• The “salesmen are born not made” theory which still persists despite research to the contrary.

• Cultural tradition – they didn’t have sales training back when I was a “rookie” and I turned out all right.  (Maybe you’ve heard me reference “dinosaurs” in previous entries.)

• A belief that sales training doesn’t work for our industry

• Training is expensive

We wrote this in an article published by “The Distribution

Center Magazine” a publication dedicated to the HVAC/R distribution industry:

“… people are our greatest asset.” Yet, according to research conducted by Jonathan Bein, Ph.D., of Real Results Marketing, only 22 percent of distributors have a learning management system.  Sadly, distributors struggle to fund skills-based training for their organization during tough times. 

This will sound strange coming from a guy who offers training for a fee, but I would much rather see distributors spend 20 minutes a week reinforcing sales or leadership training than put their teams through a two-day session without follow-up.  Training can be part of your culture for next to nothing.

Sales meetings with selling skills content can be part of your culture. Every month, hundreds of great ideas are published in trade publications and in online blogs.”  

Why not take 20 minutes from your sales meeting to discuss one sales related topic?  The sales manager can provide personal examples and challenge the team to try something for the next couple of weeks and report back to the group.

Keeping with this theme and using “The Distributor Channel” blog as a reference, here are a few topics to explore:

What do you know about your account? 

To have a real strategic plan for our accounts we need to take inventory of what we know now and what we should learn in the future. Our plan must revolve around positioning ourselves to really be solution providers. In some instances, this means understanding that providing solutions to the customer is a poor use of our resources.

Sales Question: How Long Do I Chase an Account?

After nearly a year of calling on a couple of major accounts, orders still weren’t flowing.  As our day wound to an end, he asked me point blank, “How long should I pursue an account before I give up and move on?”  Here are some thoughts for you to consider.

A Pricing Tale: Old Joe

From where I sit, standardized pricing, or whatever you want to call it, is destined for failure in our business. Our customers are tight with their money. They don’t want to pay more, they want to pay less.  This is a great introduction to using a pricing process.

The Gross Margin Equation - For the Record

This seems a bit silly, but I keep running into people who talk Gross Margin without really knowing the formula.  If you’re anything like me, this is a huge pet peeve.  BTW: this one is great for your suppliers too.  They clearly don’t teach this equation in most MBA programs.

A Challenge for my Friends…

Spend a little time thinking about the half dozen issues you, your coworkers or maybe your team have in the selling process.  It might be setting appointments, breaking past voicemail, getting customer time, establishing new accounts or a rash of other topics.  Jot them down and determine how you could introduce the subject into your next sales meeting. 

A Post Card from Iowa

Send me the ideas for your next sales meeting along with your address and I will send you a genuine post card from Iowa.  For one lucky reader who sends an idea, I will provide a customized PowerPoint covering your selected topic along with discussion points.  That's a minimum of 15 minutes of sales training for your team…