The days of product-push marketing are over. Progressive distributors must learn to be service-focused to succeed in the new millennium.

by Richard Vurva

The tide is turning.

Distributors are finally beginning to recognize the need to promote their unique service capabilities rather than continue to identify themselves merely as product providers. The question is, how smoothly can distributors turn the tide? Can they identify unique service offerings that customers value? If so, are they capable of promoting and marketing those services?

How well distributors answer those questions may determine if they can survive in a supply chain that increasingly places less emphasis on product knowledge and more on service.

A new book published by the National Association of Wholesaler-Distributors addresses the crucial topic of how distributors can grow their businesses by creating and marketing value-added services. Services That Sell: Capturing New Customers and Profits With New Value-Added Services is written by Scott Benfield and Jane Baynard.

Benfield and Baynard believe that outside sellers and their yesteryear push of product are slowly dying. While product knowledge is still important, it is better served by inside technical specialists than outside sellers.

Why do we load our sellers with product knowledge (not service knowledge), let them peddle line cards for intensively distributed products, and base their compensation plans on products instead of service improvement? Benfield asks.

He says distributors, in part, have wrongly identified what they are selling. They think theyre selling product when theyre really selling services.

Benfield says most distributors focus their advertising, promotion, training and sales efforts around commodity products they cant differentiate. They ignore services over which they have control and can differentiate and define their unique value to customers.

He believes distributors have been led astray by product-centric vendors into believing commodities are worthy of marketing effort and spend countless hours and dollars confusing the issue by bundling differentiable services with commodity products. They then price the commodity product and not the unique service and wonder why the customer beats them down on price.

Even integrated supply accounts, which rely heavily on distributor-provided services such as inventory management, plant audits and on-site storeroom operations, are often measured according to the integrators ability to reduce costs.

Benfield says distributors have taken the managed inventory agreement process and reduced it to a cost-decreasing instrument instead of a service product platform worthy of innovation and good marketing.

Selling service
Distributors must begin to break free from the product-centric mold. Doing so requires an acute awareness of which services customers truly value.

Ask distributors to list the services they provide customers and most will tout on-time delivery, order entry, technical support, inventory availability, warranty service and credits. Benfield and Baynard consider these expected services. They are the ante to be in business and dont help differentiate one distributor from another.

For distributors to set themselves apart, they must devise and promote augmented services. Such services might include quick-ship programs, preferred customer processes, inventory management programs and Internet information services.

As an example of a service innovation, Benfield points to Columbia Pipe and Supply Company of Chicago, where he is director of marketing.

Columbia is a supplier of pipe, valves, fittings, plumbing, HVAC supplies and pumps. Like many distributors, it offers a will-call counter where customers can pick up orders. Columbia recognized that will-call sales offered higher margins, but also had enormous costs associated with it.

Columbias solution was a new trademarked service called Columbia Express. The service promises one- to two-hour parts delivery within a 30-mile radius. Customers pay between $10 and $25 for the service, depending on shipment size and distance.

The company developed an alliance with an outside service provider to make the deliveries and hired an advertising firm to develop an advertising campaign promoting the service.

Columbia Express is an example of one distributors ability to take a common offering (a quick delivery messenger service), pinpoint it to a segment problem (contractor cost for counter pick-ups) and tailor an effective message to deliver the benefits.

Through good marketing practice including segmentation, pricing, communication and needs analysis Columbia Pipe and Supply has developed a service product that is unique in the companys marketplace.

You dont have to be big
Big companies arent the only distributors that can benefit from displacing a product emphasis with a service emphasis. Even small distributors provide valued service products.

Take, for example, Atwood Industries, a $7.3 million cutting tool and abrasives specialist in Cleveland. While lacking the marketing expertise of national powerhouses, Atwood offers what company president Ron Meisinger calls a true turnkey solution for machine shops and other metalworking customers.

When a customer is buying a new tooling machine, we come in and offer to take their parts drawings and help them figure out the tooling required to make those parts, he says.

Its rare for Atwood salespeople to simply ship products at a customers request without knowing how those products will be used. Rather, Atwood salespeople are trained to follow a lengthy needs-identification process before making a recommendation.

Say, for example, a customer wants to switch brands because theyre experiencing excessive wear with existing milling inserts. Instead of simply locating an equivalent product from a catalog, Atwood salespeople ask a series of questions to determine how the insert is used, the material being milled, the type of machine performing the work, its horsepower and other setup parameters. The process may take days to complete.

Then we offer to do a trial for the customer, Meisinger says. At the end of the trial, we document the entire process and have the customer sign it.

Salespeople are paid a modest kicker as an incentive to complete a successful test. The testing and documentation have boosted customer loyalty. In one recent case, Atwood saw a dramatic increase in business from a local machine shop. The increase came after the machine shops customer showed up one day to audit the companys processes.

What are you doing toward cost savings? the customer asked.

The machine shops purchasing agent pulled out a binder that detailed Atwoods test findings, which showed the cost to machine the customers part prior to the test and the lower production cost after following Atwoods recommendations. The customer was thrilled with the results. Since that time, the machine shop went from doing an average of $2,000 to $3,000 of business per month with Atwood to $6,000 to $8,000.

Even though customers offer to pay consulting fees to Meisinger, Atwood has not yet charged for the service. But its something hes considering in the future. For now, he prefers to be paid on product throughput.

Service marketing
Meisinger has done an admirable job of identifying a service that customers value. Going forward, he may need to become more adept at marketing that service.

Distributors often fall short in advertising and marketing their services. They fail to clearly identify the service in the customers mind. Then they wonder why customers are unwilling to pay for services.

Services are foremost intangible elements, write Benfield and Baynard. Unless they are named, given a message, a buyer feature/benefit and a value-added position, they are quickly forgotten.

To help them become better service marketers, distributors may want to learn more about service marketing tools such as customer satisfaction or loyalty measurement, service process flows and process improvements, ISO certification and audits, complaint measurement, service offering segmentation, economic value pricing of services and service product development.

Two books that may help include Service Marketing by Roland Rust from Vanderbilt University, and Business Market Management by James Anderson of Northwestern University and James Narus of Wake Forest University.

The new knowledge doesnt come easy and it isnt cheap, Benfield says. You probably will have to hire professional marketers with advanced degrees. You will have to conduct, understand and act upon service research. You will need to document flows of major processes, and you will need to capture, trend and use customer complaints to validate process errors.

If youre really good, you can begin to develop service products that solve problems of unique segments. And, if you want to leap light years ahead of the competition, you will begin experimenting with pricing services instead of physical products to give your customers meaningful choices about unique offerings.

Or, if that sounds too daunting, distributors may choose to continue in their product-centric ways.

Of course, you can pooh-pooh the new knowledge and imprison yourself with undifferentiated commodities and the inevitable falling margins they allow, Benfield says. You can beat up vendors for a few points, auction-price every little order, and live off rebate income instead of being profitably paid for the service value you add. The choice to be different is a conscious one, a marketing one with operations at its center and managed service as its output. Its a path I recommend.

This article originally appeared in the September/October 1999 issue of Progressive Distributor. Copyright 1999.

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