LED lighting is one of the few growth segments of today's electrical market. The energy efficiency and maintenance savings derived from this technology are driving interest from end-users looking for cost savings. While the initial investment can be higher than conventional lighting technologies, the adoption rate is growing.
Many electrical and lighting distributors are tentative about the LED opportunity, and much of this can be attributed to the growing number of lighting manufacturers who offer LED fixtures. Most LED manufacturers now focus mostly on getting their marketing messages to end-users, and telling them about the energy savings, aesthetics or technological capabilities of their LED products. Right now many of them are overlooking the critical role distribution is playing in the adoption of LED lighting.
To better understand the challenges that electrical and lighting distributors are facing in serving the LED needs of their customers, as well as the challenges in working with LED manufacturers, Channel Marketing Group, Raleigh, N.C., recently surveyed the channel. The findings were illuminating. From what we learned through the survey, many manufacturers are apparently convinced that to be successful in the LED market, it's necessary to break out of traditional sales and marketing patterns and find new and innovative ways to reach end-customers. While it's true that today's economy requires such thinking, it's becoming clear that to reach the true influencers in the solid-state (LED) lighting market, they also need to get back to basics.
These basics include building a proper distribution network. Our survey results highlight the impact distributors have in recommending and specifying LED lighting fixture products. To become their brand of choice, LED manufacturers should be working with electrical distributors and providing them with face-to-face training, product sample, warranties, return policies, promotions, special pricing and the like. Many full-line electrical and lighting specialty distributors are recommending LED lighting to their customers, but rather than focusing on a select group of fixture manufacturers, most of them work with an average of 10 suppliers. This lack of brand preference is most likely attributable to the ongoing misconceptions and need for education in the marketplace.
Cost, quality and technology issues now hinder widespread adoption of LED lighting. LED manufacturers also need to do a better job educating end-consumers about the energy and cost issues surrounding traditional lighting and the inherent, long-term benefits and savings of LED lighting. LED fixture manufacturers need to reach out to all elements of the channel to make residential and commercial adoption a reality — the distributors, contractors, architects and engineers who play a primary or support role in the design of lighting systems for new construction, and who are consulted in retrofitting existing structures with new LED systems.
LED manufacturers also really need to study where end-customers get their information about LED lighting systems. In our recent survey, almost 90 percent of respondents said reps made them aware of LED fixture companies. More than half of those surveyed said they also learned about LED lighting from distributor trade magazines, architects, engineers and consultants who are specifying products, and through customer requests. Manufacturers are receiving their return on investment through marketing and selling to the end-user. However, by avoiding contractors and distributors, they risk “value-engineering” due to the high cost of LEDs and may not be maximizing their return on this investment.
It's challenging for LED manufacturers to gain access to these markets. End-users may be interested, but they must decide which is the best channel to reach these customers to grow business and gain market share. They need to ask themselves, “How can we grow our LED lighting business when other influencers — contractors, architects, engineers, distributors, sales reps — impact the decision and ultimately the sale of these products?”
Distributors are an LED manufacturer's direct line to customers, and if the suppliers do not educate distributors and invest in these relationships, they may limit their sales growth. A lighting manufacturer needs to ensure that distributors are recommending its products rather than those of its competitors, and that can only be done by a targeted outreach to the channel.
Nearly half of respondents in the survey identified a limited distribution policy, customer acceptance and a return policy as the most important issues LED manufacturers need to address. An overwhelming majority of respondents stressed the need for customer training and product/sales training. More than half expressed interest in rebates and promotions. Not surprisingly, nearly all felt customer acceptance was a key issue. So although the distributors want buy-in from their customers on the benefits and payback of LED lighting, they require greater support and outreach from the manufacturers before they will promote widespread acceptance of the technology.
It's clear that a necessary step to accelerate sales growth and technology adoption is for LED lighting suppliers to focus on developing distribution channel programs, especially if they compete with the established fixture manufacturers that already understand the channel. Building successful relationships with distributors and contractors requires commitment and dedication to providing the right products, promotions, training, education and support. Combining this with end-user initiatives can accelerate end-customer relations.
First and foremost, distributors are looking for a quality product with documentation of payback and cost-effective pricing. Once that is established, however, distributors will distinguish one brand from another based on the channel programs manufacturers are willing to develop and put in place. They want the manufacturer's support in advertising/promoting to end-customers. They want line exclusivity, or at least selectivity. They want product and sales training. They want collateral and samples that potential customers can evaluate. Distributors want evidence that a market for these products exists and that its needs can be met through their sales channels. In short, they want old-school promotion, marketing and education campaigns to make the market more knowledgeable about the technology and products and to help them drive demand.
Almost all of the distributors surveyed believe their LED sales will significantly increase over the next three years. It's clear that the electrical and lighting markets are embracing solid-state lighting. The question is which companies will become the brands of choice for distributors and their customers?
Distributors want to be familiar with a LED manufacturer to be sure of the quality of product before they recommend it to customers. The distributors surveyed said the majority of their LED sales result from products being specified by the architect, engineer or contractor, or simply because they (the distributor) recommended a specific LED product to a buyer. The manufacturers who come out on top in the next few years will be those who do the best job training and supporting their distributors, who in turn will educate and make recommendations to the end-customers.
To achieve widespread adoption of LED lighting, LED component and fixture manufacturers need to develop comprehensive distributor programs to support sales. Those that have documented plans that cover return policies, inventory commitment, sales/product training, pricing and marketing support will solidify their relationships with the electrical and lighting distributors, and in turn will not only define the market, but own it.
George Bournazian is vice president of account services of BtB Marketing Communications, Raleigh, N.C. BtB is a business-to-business marketing communications firm that helps technology-oriented companies build their brand, and communicate to increase sales. He can be reached at (919) 872-8172 or email@example.com. David Gordon is the principal of Channel Marketing Group, also of Raleigh. Channel Marketing Group conducts market research and develops market share and growth strategies for manufacturers and distributors. He can be reached at (919) 488-8635 or firstname.lastname@example.org. Visit CMG's blog at www.electricaltrends.com for more insights into growing your business profitably.