A lack of value distinction can lead to customer migration.



Last month we discussed the marketplace realities and stresses that traditional wholesale distribution channels are encountering. Product distribution channels, if left stationary, are subject to life-cycle limitations. This is because business practices and processes are constantly evolving. As businesses and their customers discover better ways of operating, innovations become the new norm. Like it or not, it's an "adapt or die" world we live in!

A willingness to embrace change, even seek it out, is often the primary determining factor in whether a business flourishes or not.

"The devil is in the details," says David Hutchins, executive director of Specification Sales, a plumbing manufacturers rep agency located in Walnut, Calif. "When I consider the wholesale distributors I work with, the top performers are pretty much the guys who focus on the details and make certain that they're adding value for their customers. Today's customers are much more savvy. They want to make sure they're getting the best value possible. And, they know they have alternatives," he added.

So, where do we go from here? It's important to recognize the forces that have caused the current situation. Today's customers have seen the growth of alternate distribution channels in all facets of their lives. They shop at stores like Costco, where the environment has been purposely skewed to a warehouse-look that gives the impression of volume discounts and "direct buying." They also shop on the Internet, at a staggeringly increasing rate. The notion of "eliminating the middleman" is rampant. And, lessons learned in our personal lives are naturally applied to our businesses.

In the face of this "drive-costs-down by buying direct" mentality, we have traditional wholesale distribution channel businesses. Consider it from the customer's perspective: If you don't add value beyond other alternatives, the question of channel migration can become obvious.

A lack of value distinction, either because of minimal value-adds or lack of an exclusive brand (or both) often leads to customers migrating to other channels. Likewise, selling your products based on price alone is a slippery slope. Similar to the old-time western movie gunfighter, there's always a faster gun (or a lower price) around the next corner!

All roads seem to lead to the inevitable questions: Is distribution channel deterioration a life-cycle sequence or a function of the quality of customers' buying experiences? And, can traditional channels remain viable in the face of changing customer attitudes, cost-control pressures and growing channel alternatives? These are the $64,000 questions! While no one knows the ultimate answers yet, the businesses that are adding value and growing in these difficult times are definitely bucking the trend! The devil is in the details!

Best Practices

Each month, we provide several proven Best Practices. Readers are encouraged to send along any successful approaches they may be using to add value for their customers. We will feature the best of them in upcoming columns.

While some of these ideas may seem basic, you might be surprised at how often they are overlooked as the pressures of day-to-day business dominate our activities.

3. Take an inventory of your organization's "Value-Adds."

Consider the reasons why your customers do business with you. Are the reasons "real?" How difficult would it be for your competitors to duplicate or surpass them? Ask your staff, at all levels, to provide you with the reasons why people should do business with them. Also ask for the reasons why people would go to your competitors. Those negatives can give you good insight into possible operational changes you might consider.

Study the positive value-adds you've collected. Do they really add value? Do they add enough? Objectively assess whether those value-adds would motivate you as a customer.

Next, develop a "best practices" list of the value-adds and consider making them required standard operating procedures. Many of the value-adds you will hear will be more like what should be done, than what actually is done every time. A regular "out-of-body experience" (slow down and watch business happening) will allow you to inspect what you expect.

4. Make sure your "system" isn't a detriment to doing business with you.

Internal operating procedures and processes can be irritants to customers. Just remember your last trip to your local Department of Motor Vehicles or new car dealer. If your internal procedures become a burden to customers, you may be giving them a reason to seek out alternative channels. Your "out-of-body experience" can allow you to find these irritants and consider appropriate changes. Or, you can informally poll some longer-term customers. The DMV has no competition - you do!