Distributors can compete with ESCOs if they stop focusing on filling orders and start creating demand for energy-efficent products.
The traditional channels of distribution in the electrical industry satisfy demand very well. If the customer can identify or specify the electrical product for his or her new construction or replacement needs, that product is available on the distributor's shelf or can easily be obtained by that distributor. The channels usually compete very well, and the market determines the successful supplier based on price, service and delivery. Some opportunity to upsell exists, but all too often distributors just service demand by providing what the customer orders.
Satisfying demand is and certainly will be an ongoing business need of the ultimate consumer. But savvy distributors are now recreating themselves to better serve their customers, given the many dynamic changes in the industry, such as electronic commerce, integrated supply and national-account contracts and consolidation.
When a distributor just focuses on the sale of commodity products already in the system to maintain the business he or she is doing with a customer, it doesn't require the skills of an outside salesperson and certainly cannot justify the cost. If existing channels of distribution don't deal with this phenomenon, new channels of distribution will pick up the slack with more competitive ways to satisfy the demand of existing and new customers.
What can outside salespeople do? Simply making the rounds to pick up orders just doesn't cut it anymore. Salespeople are expected to make things happen by creating demand. With energy-efficient electrical products, creating demand requires educating and convincing customers to buy when the need to upgrade is clearly identified and satisfied.
This isn't a commodity sell. The strongest players are able to convince end users that their electrical systems are wrong and must be changed, and that today's technological advances provide not only superior quality but also significant savings in energy usage and replacement cost. I call it "create-demand selling." Let's take a look at how the skills to do it effectively differ from those required with the more traditional sales, which I call "satisfy-demand selling."
With satisfy-demand selling, a salesperson focuses on maintaining the business his or her company has with a customer. The customer specifies the product and the salesperson just services the demand for what are most often commodity products. The sale revolves around the end user's job cost and its relationship with material and labor. The salesperson provides a quote that includes price and delivery of the products that interest the customer, but little else.
In contrast, a distributor salesperson committed to "create-demand selling" in the energy market focuses on improving a customer's business. They do this with life-cycle costing to illustrate how energy-efficient electrical products pay for themselves, and by teaching customers about the savings these products offer in energy and maintenance, and how they contribute toward increases in productivity and a cleaner environment.
Salespeople can't just focus on price and delivery. They need to be able to explain options in the purchasing, financing or leasing of the equipment. They must also know how to do a full-scale energy audit of the customer's facility. This audit may require an inventory of the customer's existing electrical,HVAC and other building systems and then developing cost-saving alternatives. On the competitive front, salespeople must evaluate their own strengths and weaknesses, as well as those of key players such as independent ESCOs, utility-owned ESCOs and HVAC/controls distributors.
Historically, the most important advantages that distributors offer to manufacturers, customers and other industry personnel is credit, their close relationships with many customers on a local level, competitive pricing, delivery and their ability to provide customers with unique packages of value-added services.
On the flip side, many observers question the distributor's role in the energy market because of what they perceive as the following weaknesses:
*Lack of control of the energy sale; *Bad habit of just satisfying demand instead of creating demand; *Failure to call on key buying influences; *Commodity orientation; *Lack of value-added services.
One of the reasons that ESCOs have become such important players in the energy market is their ability to proactively create demand for energy products; perform energy audits; explain various financing options to key financial and facility personnel; and track energy-retrofit projects from inception through the installation, maintenance and system monitoring.
They have also capitalized on the fact that many distributors have not attacked this market aggressively.
The ESCO mind-set is also more proactive than that of many distributors. These companies strive to create demand through improving the end user's business by showing them how they can invest in energy-efficient electrical, HVAC and other building systems that can slash their operating costs and thereby improve their bottom line.
But ESCOs have some shortcomings, too. Ten manufacturers that I spoke with listed these disadvantages:
Business relationships. Some ESCOs have trouble developing new business, in part because they are in the early stages of business relationships with most customers and are busy earning their trust. In contrast, a well-established distributor will usually have dozens of solid business relationships with customers in his or her market. Also, many ESCOs don't have much direct manufacturer contact.
Small business blues. Many ESCOs are smaller companies with typical small company challenges, such as cash-flow problems, lack of sales and marketing skills and a still-developing company infrastructure.
Personnel. Like many companies in the electrical market, ESCOs compete hard for employees who understand the products.
The ESCO channel of distribution has emerged and grown over the last 10 years for the same reason as any new channel of distribution: The existing channels do not or are not capable of serving the new needs of their customers. In the final analysis, the end user will determine with whom he does business and will switch from ineffective channels of distribution to those channels that take care of his needs best.