In a recent presentation
to a Top 20 PHCP wholesaler on pricing, I was asked by the reigning CEO, the
second generation patriarch, about my background. Consulting fees are expensive
and, to fork over a lot of money, this owner/operator rightly asked about my
credentials. Along with the usual discussion of degrees, consulting projects
and work history, I mentioned that my work centered around many areas including
sales, operations and marketing. My first love, however, has always been
marketing and specifically marketing strategy as it relates to profitable,
consistent growth. After citing this, the patriarch was confused.
“Marketing?” he muttered with a sour look,
“what does a wholesaler need with marketing?”
Of course, with
this statement, I didn’t get the work and left shaking my head with the only
satisfaction being that this industry stalwart would be left in his current soup
of poor earnings and tepid sales because he wouldn’t force himself to
understand what marketing really is and how it is indispensable to profitable
growth. After a decade of field consulting, I can honestly say that far too
many wholesalers don’t really get marketing and, because of it, they needlessly
suffer low returns and slow growth.
Marketing is not simply sales promotion
Most wholesalers
confuse marketing with sales promotion. What is sales promotion? It is what I
call “buy this, get that,” or the trip programs, spiffs and gifts, given to
customers or sellers as reward when hitting a sales goal. Sales promotion is a
useful discipline but it is only a small part of marketing. Sales promotion is
tactical, not strategic, which means it is short-term and you can win some
skirmishes with it, maybe a few battles, but almost never a war.
I’ve done plenty
of sales promotion over the years and it can be successful if targeted
correctly, planned, measured and followed up on. But sales promotion in distribution
is too-often poorly done. I am reminded of a comment from a rare and brilliant
wholesaling marketer who was forced by the son of the boss into doing a spate
of buying group sales promotions for vendors. He rightly called the exercise
“
bull_ _ _t because the products are commodities!” This statement gave me a
glimmer of hope as that there was at least one person who was thinking before
they spent marketing funds.
In case you
don’t follow the logic, the definition of a commodity is that it is differentiated
by price. Hence, anything other than becoming a low cost producer really doesn’t
work and realizing one has to become a low cost producer to sell commodities is
thinking like a marketer.
Good marketing is process and great marketing is a creative act
Marketing, done
well, is a process. In essence, marketing’s role is to have the product(s),
pricing, segmentation, service and sales promotion lined up before the seller
hits the street. Qualified marketers should understand product management,
product development, proper segmentation, service measurement, service quality,
new service development, pricing strategy and sales promotion. These
disciplines should be planned and integrated to drive the sales effort toward higher
profits.
Most wholesalers
eschew marketing and charge their sellers up with rah, rah seminars and
negotiating skills and send them out to drum up orders. Over the course of
years, this results in a sales driven marketing strategy where there are few
ways to coherently plan the business since the served segments are all over the
place, the majority of customers cost more to serve than they generate in
margin dollars, and pricing is like a gazillion rats’ nests where three equally
sized customers can call in for a quote on a given day for the same product and
same quantity and get five different prices.
Once you load up
a thin margin business with a bunch of sellers, pay them on margin dollars and
have them pulling in a bunch of orders from all over the place with little to no
preceding direction on product, channel, price, service and promotion, it is not
long before the business platform becomes screwed up. And, once this platform
becomes the norm, the firm is locked in a quagmire of low earnings and fleeting
sales successes. Furthermore, unscrewing this mess takes a tremendous amount of
effort and is akin to unscrewing a 10 penny nail from a 50-year-old block of
Southern Yellow Pine with a pair of hand pliers.
Good marketing
is best started early but this is rare in distribution and explains why many
wholesalers, when they get over 100 million dollars, tend to become a mess fairly
quickly. If you don’t get marketing right and early in your growth, it is very
difficult, but not impossible, to get it right when you get mega-sized.
Marketing
process can be taught and good students, with experience, can become competent
marketers. Most wholesalers have competent marketers somewhere in the
organization but marketers aren’t given the clout of sellers and they have to
be subservient to the class who would rather be gunslingers and fly boys
winning solo combats,
mano a mano, than part of an
orchestrated game of marketing warfare where wars are won and competitors dominated.
Most sellers don’t believe the preceding statement but it’s my experience that
the best sellers come from the best marketing firms. In short, they know their
limits and they welcome expertise that targets the customer, plans the product,
and helps with setting the price.
Great marketing
is a creative act where one actually creates value. In essence, the firm,
guided by marketing, creates a product or service that customers willingly pay
a profit to secure. The creative process is made better by coursework and an
understanding of the marketing basics but there are instances where marketing
is innate and the growth strategy of the firm is set by a gifted marketer who
may not be able to spell the word but understands the discipline because it’s
deep to the marrow and given at birth. Many wholesale firms don’t use good
marketing to help create value and, consequently, their growth is ugly,
marginally profitable, and difficult to plan with any accuracy. To see if you
create value with good marketing, ask yourself these questions?
- When did we last introduce a new product or service with success? What
is our product launch process? What is our service development process? When is
the last time we developed a unique, profitable and replicable solution to a
customer need?
- What
segments are most profitable and contribute the most to operating profit of the firm?
How does our marketing and sales investment align with our segmentation?
- What
are the key components of our pricing system? How do we price consistently,
commensurate with our value and maximize profitability? Do we have anyone in
the organization who can trace the pricing system architecture and how it fits
with good marketing practice?
-
What channels do we market through and how do we manage channel partners? What
makes a good channel partner and when should we change them? Are there
alternate channels where we can add value?
-
What are our best uses of co-op funds for sales promotion? Do we have a sales
promotion plan and can we accurately measure the financial progress of the
promotion?
-
How does service quality translate into marketing success and financial success?
How do we measure and improve service quality while getting paid for it?
If you have trouble
answering questions, then you likely have trouble creating new and unique value
streams and don’t adequately capture the value in good pricing practice. It
doesn’t mean you can’t become a top notch marketer; it simply means you have an
opportunity to learn and get better.
Why marketing keeps getting discovered and the time is nigh
In recent blogs and my
newsletter, I’ve come out against the rampant buying and selling of wholesale
firms in an attempt to create value. Whether the buyers are the ailing Wolseley
PLC or the hemorrhaging Private Equity firms, the idea that we can consolidate
our businesses into prosperity is mostly bunk. Why?
Countless studies have found that the long
run success for mergers and acquisitions in adding to shareholder value is a
mere 25%. Looking at this another way, 75% of acquisitions fail
to add shareholder value in the long run.
In today’s and tomorrow’s
forecasted environment of slow growth and limited lending, wholesalers will
have to grow, if they want to grow profitably, by creating value with good
marketing and capturing it with good pricing. There are many that will read
this piece and place it in the round file as they believe that the buying and
selling of businesses and wheeling and dealing of super-sellers is the way to a
profitable future. I don’t see any of that kind of growth for a long time. Too
many have tried to super-sell and finance their way into prosperity and we are
enduring a Great Recession because of it.
Solid marketing strategy
undergirded with good operations is the way to create lasting value streams. It’s
not sexy but it works and it’s the kind of growth and management that is sorely
needed in wholesale distribution. I am optimistic that wholesalers, who want to
grow a business over time and are tired of super-selling and acquisition will
rediscover marketing and begin to create and capture value for lasting and
consistent profitability.
Links
