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Distributors often talk to me about two key issues they face today. The first issue is service segmentation, which means aligning service offerings with specific customer segments in order to protect profitability while simultaneously satisfying an identified customer need.

The second issue that concerns distributors is their need to differentiate themselves in the marketplace. Progressive distributors realize that customers have many choices, and distribution firms traditionally have not done a very good job of explaining how their particular product and service capabilities differ from the competition.

Our cover story (page 14) is about a distribution company that has given serious thought to both of these issues. In the past two years,  J&L Industrial Supply has reinvented itself. The company segments customers into three primary categories so it can apply the appropriate sales and marketing resources. Customers with small sales potential do business by direct mail, the Internet and by phone. Medium-sized customers get assigned to outbound telemarketers and field salespeople handle large customers.

According to one company executive, this highly disciplined approach to customer segmentation has enabled J&L management to run the company today at 40 percent of the manpower levels of two years ago. Yet it still improved key customer service measurements such as fill rates, which went from 60 percent to 99 percent.

By identifying itself as “Metalworking’s First Choice” on its catalog, Web page and other promotional materials, the company also demonstrates how it wants to differentiate itself in the marketplace.

The J&L Industrial business model won’t work for every distributor. But other companies can benefit by mastering what J&L’s management team has done. First, they recognized the need to segment various customer types in order to lower their cost of sales and maximize profitability. Second, they developed a clear branding message to explain the company’s unique service offering to each customer segment.

This editorial appeared in the May/June 2003 issue of Progressive Distributor magazine. Copyright 2003.

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