A new point of view can help clarify a situation or give you a new perspective.
College professors tend to talk in theories and generalities. Sometimes, those theories and generalities seem to defy reality. But other times, they serve to clarify, or at least to add a new, edifying point of view. Sometimes, they paint the big picture-a perspective often obscured in the midst of the fray.
Such was the case at a recent industry gathering of electrical manufacturers, where Dr. Jagdish N. Sheth, professor of marketing at the Goizueta Business School of Emory University, Atlanta, Ga., talked about the changes taking place in the distribution of electrical products.
Addressing top executives of companies belonging to the National Electrical Manufacturers Association, he instructed them on the necessity of partnering to grow their channels' business. Wonder among wonders, the main channel he talked about was distributors.
Among Dr. Sheth's observations were that the electrical distribution industry is going to consolidate (well, we already knew that) and "de-mature" (now there's a surprising conclusion). The forces behind these shifts include:
1. The need by bigger players to get even bigger. "There is no way for a full-line generalist to make decent bottom-line growth with small gains in market share," Sheth pointed out. "They need to make a big acquisition to improve financial performance." 2. Family succession difficulties are making smaller companies available for acquisition. 3. Internet disintermediation. A huge market (and competition with traditional channels) that has been growing sight unseen, direct from seller to purchaser. The move to consolidate brings with it a shift in the balance of power. "With $1-billion distribution companies, manufacturers have to share the power with distributors," he pointed out.
He described the electrical distribution industry, using "the shopping mall model," as anchored by large full-line generalists (to fill in his diagram, Sheth chose Graybar and Grainger as examples) and, in-between, lots of small product and market specialists, which he sees as the two basic kinds of players in electrical distribution. He noted that research has shown that the smaller the niche player (the more focused the product or service), the better the financial performance.
Addressed to the manufacturer, but ultimately with impact on you, the distributor, Sheth noted the following: Across the industry, studies show manufacturing costs and management costs to be down, but marketing costs to have increased. "Marketing needs to find new ways to increase marketing efficiency," he said. The problem is distribution, he says, using that term in the broad sense to cover all aspects of moving the product out the door. To increase efficiency, retention of big customers will be important, and manufacturers need to concentrate resources there. The question then becomes how to sell without a sales forces in order to cut the cost of dealing with small customers.
He pointed to recent moves by Proctor & Gamble, which reportedly dropped 1,400 accounts to concentrate on 90 and asked former small customers to buy from the remaining big customers. P&G acknowledged customer loyalty to a supplier as a benefit, Sheth noted.
"The best way to make money in the future is to partner with the channel, instead of treating the channel as a pain," he says. With that idea in mind, he listed some ways manufacturers can motivate distributors to work in their suppliers', as well as their own, best interests:
*Get them to commit resources of their own; *Do joint marketing and branding; *Do continuous communication and coordination; *Share strategic plans; and *Grow existing distributors' business rather than adding more distributors.
Many distributors will recognize these strategies, because they have been confronted with them or eveninitiated them themselves already. It's enlightening to see how it all fits into the big picture.