What manufacturers want

The three most highly rated marketing and distribution issues facing today's manufacturers

by Robert L. Segal

Partnerships rarely run smoothly. Despite shared goals, many factors – money, ego, differing perceptions of risk/return – can cloud the original reasons for forming a partnership.

One of the best ways to work through these issues is to develop a deeper understanding of your partner’s needs. In that spirit, we decided to get inside the heads of industrial manufacturers.

We surveyed 70 industrial manufacturers that produce a diverse array of products, including abrasives and cutting tools, chemicals, hand tools, lubricants, test and measurement equipment, fasteners/workholding devices, and electrical products. Respondents were typically sales and marketing managers responsible for the company’s relationships with distributors. We asked manufacturers to review a comprehensive list of distribution topics of potential concern to manufacturers. Then we asked them to rate which topics were most important to their company’s 2007 distribution or channel strategy.

The results are shown in Exhibit I. This article discusses the three most highly rated marketing and distribution issues for manufacturers.

Building mindshare
The most important topic to manufacturers is “building mindshare with distributors,” often referred to as distributor loyalty. Speaking face-to-face with manufacturers at the recent ISA conference in Las Vegas reinforced the survey findings in my mind. Of course manufacturers want distributors to spend a disproportionate amount of sales time focused on the suppliers’ products. However, mindshare goes much further than this. Manufacturers spend a significant amount of money on both “pull” marketing efforts to educate end-customers and “push” programs to assist distributors. Manufacturers want assurances that these investments in lead generation, training, new product development and branding are not ignored or misunderstood by distributors that have not dedicated sufficient time.

However, mathematically, distributors cannot give a “disproportionate” amount of mindshare to every supplier. The crush of competing suppliers and other, complementary product categories place distributors between a rock and a hard place.

Industrial manufacturers may complain about the lack of mindshare, but ultimately most treat all distributors somewhat alike. This isn’t the case in other industries. In the computer industry, for example, manufacturers track distributors’ mindshare, using proxies such as the number of trained personnel, customer satisfaction scores, and point-of-sale data. Manufacturers use the resulting scores to assign distributors to Gold, Silver or Bronze status. Gold distributors receive more and better benefits, which may include deeper discounts or rebates.

While only some industrial manufacturers have the clout to demand exclusivity, manufacturers are increasingly using a combination of “carrots and sticks” to motivate distributors to pick “one horse to ride” in key product categories.

A better understanding of end-user customers
The second most important issue to industrial manufacturers is gaining a better understanding of the end-users of their products. This can be a highly contentious issue between manufacturers and distributors. Distributors feel they own the end-user. I’ve heard numerous distributors say a stronger relationship between end-users and manufacturers is the first domino to fall in a path leading to direct sales, eliminating the role of the distributor. In fact, many distributors insist they are the manufacturers’ customers, and jealously guard all their end-user information.

While some manufacturers do envision selling directly (direct contact/sales was the fifth most important issue in our survey), their focus is on large accounts – those that have, or may be contemplating, integrated supply relationships, for example. Most manufacturers don’t have the interest, skills, or infrastructure to deal with hundreds of thousands of small and mid-size end-users, the core of the distribution market. However, these same manufacturers want more information about these users in order to design better products, lead-generation campaigns, training, and services.

To bust this logjam of distrust, manufacturers need to do a better job of explaining their sales strategies to distributors. They also need to show distributors that their need for distributors is a widely held philosophy within the company, its parent corporation (if there is one) and among the board of advisors. Distributors, rightly so, have concerns that a single executive might leave the company and the two-step sales philosophy could change overnight.

Again, looking at other industries might provide some vision of the future of the industrial market. Several of our manufacturer clients from the food equipment industry to the agricultural market have begun to look at using end-user information in a new way. First, they recognize the cost and value of gathering end-user information, and provide various forms of compensation to distributors in exchange for collecting and sharing that information. In some cases, they pay a specific rebate tied to sharing point-of-sales data. In other cases, they make sharing end-user information one of several requirements to achieve Gold status, which brings numerous financial and non-financial advantages.

Perhaps more importantly, these manufacturers collect end-user information from distributors in a standardized format and aggregate it into a single database or data warehouse. The manufacturer can then show each distributor how it compares to a national or regional average, or an average of similarly sized distributors. The data can be sliced and diced in numerous ways – by totals, by product category, by end-user industry or size, or other criteria. This is invaluable information to a distributor (and a manufacturer), most of which don’t have the marketing staff to conduct this type of analysis, let alone have access to such a national database. Obviously, manufacturers will need to establish data confidentiality agreements and processes. But, with the explosion of all kinds of data recently, many manufacturers already have these systems in place.

The key aspect of this data-sharing arrangement is that it creates a “virtuous cycle.” The more information distributors and manufacturers share with each other, the more tightly they weave their marketing and sales efforts, the more profits increase and the more they build trust. In turn, this leads to sharing and analyzing of deeper and richer types of customer information.

Improving the technical selling skills of distributors
Over the last decade, anecdotal evidence suggests that, on average, technical selling skills of distributor sales personnel have decreased. The culprits might be a decline in science education in the U.S., the commoditization of many MRO product categories, the pricing pressure on industrial manufacturers or other factors.

While some may dispute the claim, our survey indicates manufacturers strongly hold onto that belief.

Increasing technical selling skills is not simply a matter of making more training available, although this is certainly one aspect of the challenge. Training must also be more accessible, and the results more measurable. Again, looking at other industries, we see manufacturers developing more detailed curricula, creating online studying and testing processes, and issuing formal technical certifications. As in the earlier examples, distributors seeking Gold status often must employ a minimum number of certified sales and/or support personnel.

Even with a more robust training environment, distributors must perceive the value of time spent in technical training. Distributors often complain that they invest time and money in training, and work long and hard to make a technical sale, only to lose the deal at the last moment to a less-trained distributor utilizing its lower-cost model.

The solution to this problem is two-fold. First, manufacturers and technically trained distributors must both make a concerted effort to sell higher and wider in their industrial customers. Sure, purchasing agents are going to look for the lowest priced alternative. But, they can and will be overruled by plant managers, quality engineers, safety engineers and even CFOs who believe the higher priced brand is also the lowest total-cost brand over a lifetime of use (or it results in higher worker productivity, creates a safer work environment, or one of the many other variables beyond price that a technically qualified sales rep can explain).

Part of the burden of this strategy falls on the manufacturer’s marketing team to create what we call a unique, compelling and credible (UCC) brand message. The marketing team needs to find ways to take this message beyond the immediate user of the product to the broader constituency within an industrial customer. The manufacturer also needs to support the technical distributor that opened the customer door. One way is to provide better discounts/rebates to Gold distributors, those that invest to achieve the required technical proficiencies. An additional approach, for larger deals, is to allow distributors to register these deals. Distributors whose technical skills allowed them to find, create, and therefore register these deals would have a specific portion of the discount available only to them, providing some measure of protection against lower-cost Johnny-come-lately competitors.

Distributors, of course, need to invest money and time in training their people. They would also have to increase their selling efforts to cover a broader audience of buyers within the industrial customer base.

Food for thought
Exhibit I provides a more complete list of issues rated by manufacturers in our survey. Distributors should review these ratings and discuss them with suppliers. The discussions will help distributors decide which manufacturers are good fits and, more importantly, will help the distributor influence the programs and policies of their existing suppliers. Obviously, a companion survey of distributor needs would be required reading for the manufacturers.

The key finding from this survey is that manufacturers and distributors still need each other. Partnerships are always somewhat contentious, but by understanding each other’s positions, the partnerships can be continuously improved. The process of jointly working on solutions makes the partnership stronger.

One final point: the lowest-rated item on the list we provided to the manufacturers was terminating distributors. As I said, manufacturers and distributors need each other.

Robert L. Segal is a principal with the Chicago-based consulting firm of Frank Lynn & Associates. Reach him at (800) 245-LYNN or bobsegal@franklynn.com.

This article originally appeared in the July/August 2007 issue of Progressive Distributor. Copyright 2007.

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