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By now every distributor and manufacturer has undertaken steps to improve their operations, reduce inefficiencies, minimize expenses, cull overhead, reduce inventory and protect cash flow. While pundits predict a recovery sometime this year, industry leaders continue to manage their business expecting the unexpected.
Ensuring operational and financial integrity are the first steps to preparing for tomorrow. Once achieved, identifying where and how to grow your business becomes integral to stabilizing your business, taking market share and positioning for tomorrow.
In fact, Mike Marks, in his presentation at the NAED National Electrical Leadership Summit, emphasized that sustainable profitability, selective investment and an offensive rather than defensive marketing focus are essential to success.
Marketing is a function that is frequently misunderstood within the electrical industry, especially among distributors.
Role of Marketing
The role of marketing changes based upon the type of distributor. In the current marketplace, we see three types of distributors:
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Smart-growth companies that have operational integrity, are fiscally prudent, have financial flexibility and intend to grow. They have a plan and follow it.
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Cash -flow companies that have improved operations and are content with their position in the marketplace and accepting what business comes to them. These companies do not have a plan and typically are marketplace followers.
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Reactor companies that are typically late in making changes and either react to events or wait for events to overtake them. When reactors explode, they can become toxic. For these companies, achieving operational and financial balance is critical to survival. Many of these companies view marketing as promotions and do not allocate resources to marketing.
Marketing, in its purest form, is about helping the organization create demand for its services and products (or essentially generating profitable revenue). Within distribution, this is accomplished through a number of functions.
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Understanding and communicating customer needs (market research).
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Communicating a value proposition to all stakeholders, including customers, to differentiate the organization (branding, marketing communications).
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Identifying market segments to pursue (research, strategy).
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Stimulating demand (lead generation, promotions / incentives, events).
Unfortunately, many distributors view marketing as promotions, events and marketing communications rather than considering an integrated marketing approach that begins with goal identification, customer input, strategy development and then tactical identification and execution.
Distributors who embrace marketing understand that a strong marketing focus and personnel add value to their business.
Marketing's Role in Pricing
The classic definition of marketing focuses on the Four Ps: product, price, place and promotion. For most distributors, however, pricing is a sales or purchasing function. We are not advocating that companies move this responsibility to marketing, but marketing should be a consideration in developing a pricing strategy. To achieve maximum profits, distributors (and manufacturers) should consider several points:
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Pricing strategies favored by the competition.
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Determining whether your prices need to be below or on-par with your competition, or if you can sell your value to support a premium price position. Do your salespeople and your customers know the value and the services you offer well enough to justify the price?
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Pricing theory and methodology, including pricing for profit, overhead maintenance or taking share through price.
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Who controls pricing and what are your sales organization's pricing parameters?
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Understanding the cost of each customer.
How you price directly affects the perception of your organization and your ability to take market share. Many companies seem to price products in a vacuum. Understanding your price competitiveness by product category can improve your ability to take profitable share.
Attributes of a Marketing Leader
The role of marketing for a distributor has changed. Some of the traditional values still hold true, but the skill sets of today's — and tomorrow's — marketing leader are far broader than in the past, when the ability to develop promotions and coordinate events was enough.
Creativity is still important, but defined as the ability to provide strategic input rather than solely design brochures and stage events. Attitude is still a key. The marketing team, like sales, needs to be the ever-vigilant optimist, endeavoring to see opportunities while at the same time building business cases to pursue growth areas.
To be a leader in marketing today, distributor marketing people must be able to coordinate more closely with suppliers. Attributes of this marketing leader, according to a manufacturer, include being creative enough to take an original idea that has worked and make it better. Marketing must know what will excite and focus both the customer and the distributor employee.
Marketing leaders must be proactive in generating ideas and seeking input from manufacturers. They must know how to focus market development funds (MDF) and co-op investments on growing business, providing regular communications with the manufacturer including required MDF investment and net sales growth objectives. When a promotion is underway they must provide ongoing updates and a wrapup ROI when the promotion is done.
It's also critical that marketing teams know the manufacturers' competition and how they are positioning their brands, and, when working on a multi-manufacturer promotion, must know which ones will work together and why.
From a broader perspective, the role of a marketing “guru,” according to a recent discussion on the subject conducted via LinkedIn, should include:
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Thought leadership
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Ability to demonstrate strategic thinking
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Great team builder
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Strong communicator
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A strong analytical and quantitative background
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Market analysis skills
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The ability to prioritize marketing opportunities
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Strong knowledge of enhancing internal and external customer communication
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Lead generation and account penetration experience
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Database and direct marketing experience
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Know how to measure results
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Knowledge of electronic marketing techniques
As distributors and manufacturers recognize that the economic recovery will be slow and take a number of years, marketing will become more of a differentiator for smart-growth distributors. The ability to contribute strategic input to organizational discussion; communicate a company's value proposition; motivate prospects, customers and employees to act; and identify market segment opportunities will raise the role of marketing within market leaders. Companies that consider marketing an after-thought will rely upon relationships and price to retain revenues, thereby relegating their companies to cash flow companies.
If you are seeking rationale for marketing during a recession, consider research that was conducted by McGraw-Hill Research's Laboratory of Advertising Performance. The 1981-1982 recession lasted 16 months and had unemployment as high as 10.8 percent. The researchers studied the 1981-1982 recession and analyzed the performance of 600 industrial companies. It found that “business-to-business firms that maintained or increased their marketing expenditures during the 1981-1982 recession averaged significantly higher sales growth both during the recession and for the following three years than those which eliminated or decreased marketing.”
So if you want to thrive, raise your expectations of marketing and go on the offensive.
Allen Ray is principal of Allen Ray Associates, www.allenray.com. Allen Ray Associates helps manufacturers and distributors improve profitability through effective pricing strategies for sustainable profits. Allen can be reached at 817-704-0068 or [email protected].
David Gordon is a principal of Channel Marketing Group. Channel Marketing Group develops market share and growth strategies for manufacturers and distributors. He can be reached at 919-488-8635 or [email protected].
Visit their industry blog at www.electricaltrends.com for more insights into growing your business profitably.
