By Bridget McCrea
An inside look at what happens to your customers when your own supplier relationships are misaligned, poorly managed, and generally unhealthy.
To be effective, any relationship needs to be nurtured, fed, and cultivated. Without this level of care, even the best alliances can become thorns in the sides of both parties. As tED magazine has reported numerous times over the last few years, the distributor-manufacturer relationship needs an extra dose of loving care to ensure its longevity, success, and win-win opportunities for both parties.
But what about your customers? Where do they fit into the supplier-distributor relationship spectrum and how are they impacted when a relationship sours (or, when one works really, really well?). In Leaving Your Comfort Zone, New Insights to Strengthen the Critical Distributor-Manufacturer Partnership,the National Association of Wholesaler-Distributors (NAW), worked with Chicago Strategy Associates and the Kellogg Center for Global Marketing Practice of the Northwestern University’s Kellogg School of Management to develop a “fresh perspective on how manufacturer and distributor dynamics could be improved through broader adoption of forward-looking channel strategies, managerial policies, and best practices.”
What About the Customer?
A portion of NAW’s survey addresses the “customer” question, and explores how poor supplier-distributor alliances not only make things hard for the partners themselves, but also push customers to find other sources of products and services. With just 34% of distributors and 37% of manufacturers indicating that their business goals were “well aligned,” for example, NAW identified the “growing misalignment between distributors and their manufacturer partners to be pronounced.”
“Fully two-thirds of manufacturers said they already make significant investments in helping their distributors thrive and grow,” the report states. “And yet only 15% of the distributors agreed with that assessment. Likewise, while 50% of distributors felt they go the extra mile in making significant investments to help their manufacturers grow, only 17% of manufacturers agreed.”
“When you view [distribution] as a zero-sum game, and you basically say, ‘Either I win or you win,'” Rick Wilson, managing director at Chicago Strategy Associates, explains, “it’s usually a result of commoditization.” Left to their own devices in this situation, customers will make their decisions based on price—even if they need help solving problems, getting technical assistance, or obtaining integration support. “The customer suffers, the distributor and the manufacturer see thinner margins and declining differentiation and lower brand equity,” says Wilson. “No one’s winning.”
And when no one wins, the chance that a relationship will somehow be shored up, repaired, or set on the right track becomes even slimmer. “In the absence of tight collaboration, regular dialogue, and aligned business goals,” NAW states in its report, “it appears these companies are not realizing the coordination benefits they seek in their partnerships, and worse, they are failing to improve results for end customers.”
But there’s a silver lining on this cloud, according to NAW, and it’s that when distribution relationships are carefully coordinated, the profitability of the entire system of players is optimized. “End customers experience dramatically improved outcomes, differentiation increases, brand equity rises, and working relationships that become more durable and sustainable,” the group states. “The path forward is not complex or abstract, but it does take strong leadership, solid strategic thinking, and prudent risk taking to improve and strengthen these relationships.”
The question is, how can manufacturers and distributors align in a way that not only benefits the partners themselves, but that also behooves the customer and supports its ongoing goals, solves its pain points, and lends itself to a long-term relationship? Wilson, who has worked closely with many different electrical distributors and manufacturers over the years, says it should start with a conversation about commodity and differentiation.
“In my 30 years of working in the sector, I’ve found that the legacy vendors and distributors are the ones that have created a commodity industry,” says Wilson. “And what they created, they can un-create.” Reversing that trend isn’t easy, he admits, and it starts with policies, programs, procedures, relationships, and coordination mechanisms that are put in place jointly (i.e., by manufacturers and distributors), that either do or don’t create credible, differentiated alternatives for the end customer.
“When end customers review their various options not only for what they’re buying—but also how to get it, use it, acquire it, decide on it, install it, maintain it, replace it, upgrade it, etc.—it’s an entire lifecycle,” Wilson explains. “They want to know what their alternatives are and how the vendor can help solve key business problems.” But if that end user looks around and sees a homogeny in the marketplace, he or she will buy on price—plain and simple. And that’s where the road to poor customer service and frustrated buyers begins.
Of course, unhealthy relationships aren’t repaired overnight, nor do they fix themselves. This also holds true for distributor-supplier alliances. “This isn’t just something that you wake up one day and say, ‘Okay, no more of that,'” Wilson points out. For best results, Wilson says distributors should implement concrete policies about who they work with; what they expect of those partners; and how the entities will manage pricing, coverage, territories, and competition. Be disciplined about how you will work together to put content in front of your customers, he adds, and how you’ll collaborate and strategize together to solve problems and tackle issues like marketplace shifts.
“We’re in more of a (fingers-crossed) growth economy right now, and I’m hearing from many distributors and suppliers who are now hoping to get back to the kind of business they had pre-recession,” says Wilson, “when they were differentiated, their brands stood for something unique, and they had higher margins.”
Step by Step
Wilson says the first step to recovery—and about 60% of the total solution—is simply recognizing that there is a problem. “My sense is that distributors are recognizing the symptoms in that they don’t like the pricing, the commoditization, the declining margins, the warring relationships, and/or the zero sum gain,” says Wilson. “Instead, they need to look at the root causes. When that happens, you can all get on the same page with your goals and work harder to come up with those policies and disciplines. Then, the rest of it will flow more naturally.”
In the end, Wilson says righting the ship and ensuring a better customer experience comes down to a true mindset shift. “As I look around the industry right now,” he says, “there’s an escalating awareness that 60% of the problem is just agreeing that continually hammering away at relationship symptoms isn’t going to solve the real problem.”
McCrea is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at email@example.com or visit her website at www.expertghostwriter.net.
Tagged with business, Exclusive Feature, lighting, tED