The Future of Knowledge-based Distribution

Posted on Updated on

Read excerpts of an article that highlights how important it is for distributors to be “knowledge-based” and implement proven scientific pricing and sales negotiations process that will stop unnecessary discounting by sales people and empower them to negotiate with confidence when providing complex customer solutions.

“The members of FPDA tend to be deeply involved in providing customer solutions”

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.

“How can the distributor ensure they will be paid for the value they provide?”

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. And, this puts the group in a dangerous position.

“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 factor 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.

Training focused on understanding customer economic value is critical. But, 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.

“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. And, many have 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 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.

Click here to read the complete article.

Follow SPA

To easily keep up with the latest SPA announcements, events and resources you can subscribe to our Strategic Pricing Pays blog or follow us on LinkedIn or on the following major social media channels and file sharing platforms: Twitter, Google+, Facebook, SlideShare, and YouTube.

We also encourage you to join the Strategic Pricing discussions in our LinkedIn group and to sign up to receive our Strategic Pricing Newsletter by clicking here.

Post a Comment

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s