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The Sales Process

Feb. 27, 2024

Driving Demand

April 1, 2005
For many in the industry, 2004 was a good year. Top-line revenues and bottom-line profits grew. Most companies are optimistic about 2005. Industrial growth

For many in the industry, 2004 was a good year. Top-line revenues and bottom-line profits grew. Most companies are optimistic about 2005. Industrial growth continues; residential construction remains strong; and the commercial market is making a comeback. Life is good.

But is it really? Many manufacturers are concerned because industry growth is limited. Dig into the numbers, and you begin to appreciate the concern. DISC Corp., Orange, Conn., forecasted a 5.9 percent increase in electrical sales for 2004; however, DISC Corp. also forecasted inflation for 2004 at 6.1 percent. Factor in inflation, and the industry's 5.9 percent increase turns into an ugly decrease of 0.2 percent. (See chart.)

Additionally, distributors play a market-share game, trying to get their customer — most often a contractor or MRO — to buy more “stuff” from them and less from their competitors. Few distributors try to grow the market by selling additional “stuff.” The same is true with most manufacturers. Their revenue growth is also a market-share game. More of their products are not bought and installed unless more buildings are built or retrofitted.

Why Customers Buy

“Buy” is an interesting word that suggests someone wants to purchase your product. But the actual sale depends upon who makes the buying decision, and that depends on the project and product. The buyer changes based upon project and product. Products can be grouped into three basic classifications: utilitarian, replacement and upgrade/up-sell.

  • Utilitarian: “It's required for the project.”

  • Replacement: “Something needs to be fixed.” Replacement products and utilitarian products can be the same.

  • Upgrade/Up-sell: “Another product would work, but I want this product (due to brand, product features/benefits),” or, “This product/project has a return on investment (ROI) for my company.”

True industry growth can only come from the “upgrade/up-sell” classification. Revenue growth from the other classifications comes from either more building (which the electrical industry cannot impact), equipment breaking or becoming obsolete, or changes in the National Electrical Code that require new wiring methods or new products. Parallels can be found in at least two other industries:

Apparel

Clothing goes to market through distributors, which in the retail business are called “retailers.” Retailers focus on share — how much they sell — while manufacturers drive demand. To do this, manufacturers build their brands to increase end-user awareness of their products.

Food

Demand is created in supermarkets, but manufacturers work together. For instance, orange growers band together to promote the benefits of orange juice, and the dairy industry developed the now famous “Got Milk?” advertising campaign to create demand for the entire industry.

What Distributors can Learn

You may say, “These are consumer industries. These ideas wouldn't work in the electrical business.”

I disagree. Consider the plumbing industry. If you look at any homebuilding publication, you will probably notice ads for plumbing products. These manufacturers are going direct to the buyer — in this case homebuilders, developers and general contractors — to create demand, build their brand and provide value to their channels.

Although some electrical manufacturers occasionally advertise in Builder magazine and some of home improvement publications, a recent multi-month review of Custom Home Builder, Commercial Building News and Buildings revealed zero electrical industry ads. The electrical industry (or manufacturers) has never advertised in publications like CFO to gain awareness of potential operational cost-savings.

What can be done? Distributors should continue to focus on market share. Many geographic market areas have too much distributor capacity, so share is diffused. However, opportunities still abound because most distributors are unwilling to invest in strategies that will “grow the pie” in their local markets.

They call on the same contractor/MRO accounts with the same time-worn sales pitches such as, “How can we better serve you?” or, “Here's why you should do business with us.”

More progressive distributors support their manufacturers' efforts to promote new and upgradable products because they have market-growth strategies focused on the individuals who make buying decisions such as homeowners, builders, engineers and architects. These people decide where money for a project gets invested. Manufacturers should support these more progressive marketing efforts with joint strategic planning and co-op/market development funds (MDFs).

Moves Manufacturers can Make

While distributors must create demand in local markets, manufacturers have a different marketing challenge. They need to review their product portfolio and consider which products are utilitarian, replacement or upgrades.

If the product is utilitarian or replacement, it's a market-share game. With these products, manufacturers must decide if they have the right distribution strategy, the right pricing, brand awareness and distributor support. Contractors and MROs buy these products based upon various preferential attributes. At times, preference has nothing to do with the manufacturer. It could be distributor location, the salesperson, convenience or such. For many contractors/MROs, brands are interchangeable.

Upgrade products require a different strategy. Few manufacturers do this well. They need to reach the decision maker — the person who will use the product for an end-user benefit. This means manufacturers must understand vertical markets where opportunities for their products exist, and convince end-users the features and benefits of those products will solve an issue for them (be it financial, emotional, aesthetic or other).

In most instances, the “issue” is a nonelectrical issue. Getting to end-users requires that manufacturers make strategic investments in their sales and marketing, as well as channels to market, as mentioned earlier in the plumbing industry. Here are some specific strategies that work:

Reach the ultimate customer

Manufacturers need to figure out how to earn a greater share of the ultimate consumer's wallet. The first step is rethinking who the customer really is and then reallocating marketing resources. They may have to consider promoting their products in publications read by those “ultimate” customers, instead of focusing entirely on electrical publications.

Reallocate co-op funding

Not all distributors effectively utilize their co-op funds. If manufacturers did a better job of managing this resource — and targeting their investments to distributors who are committed to them — they would either gain a greater return on investment (ROI) from these resources or spend less money, enabling funds to be reallocated.

Reducing rebates is heresy to many manufacturers and distributors. However, you must ask yourself, “Do they really drive growth?” Years ago, they did, because opportunities existed for shifts in share amongst manufacturers. Nowadays, many distributors are single line, so the opportunity for share change is reduced. How many distributors will change lines because of a 1 percent to 2 percent difference in rebates?

Consider joining forces with other manufacturers of the same products

Manufacturers can increase the visibility of their product line by working with a group of other manufacturers to jointly promote that segment. Be they producers of competing or complementary products, other industries have shown that by coordinating efforts, manufacturers can affect change. Manufacturers could pool resources, based upon appropriate markets (education, public works, health care, retail, quick-service restaurants) or applications (i.e. energy management) and develop marketing strategies to gain visibility for the “product category.” By growing the “pie,” there is more for everyone. Perhaps the dairy industry's “Got Milk?” advertising campaign would work in some electrical product segments.

The key is to do something. As an industry participant, do you want the pie to remain the same, or grow? Growing the pie requires a commitment to long-term strategies and cooperative marketing efforts.

David Gordon is a principal of Channel Marketing Group Inc. (CMG), which supports growth strategies for manufacturers and distributors. Gordon can be reached via e-mail at [email protected].

Points to Ponder

How can the electrical industry grow without being visible to the person that signs the specs or writes the check? Here are some strategies to consider:

  • Attend the “right” trade shows.
  • Work with manufacturers of complementary products.
  • Invest in industry-specific literature and promote the availability of the literature.
  • Increase the use of samples.
  • Launch a PR campaign that reaches ultimate consumers.
  • Redesign components of your Web site to address end-user markets.
  • Co-sponsor an electrical industry Web site that highlights product applications and joint manufacturer efforts.