By Bridget McCrea
Five ways electrical distributors can ferret out new or previously overlooked market opportunities in 2016.
In his 2016 outlook call, Wesco’s CEO John Engel shared his insights on how the year ahead might play out for the electrical distributor. Sales within the industrial end-market (which comprises 40% of the firm’s sales) were expected to dip due to issues like the oversupply of oil, for example, and at the time that was dampening energy production and investment expectations.
“I think what we are facing now is just is a mixed, low-growth environment with some areas that are experiencing some pockets of growth and other areas that are flattish. Then there are some particular verticals [where] we’re seeing some pretty significant traction,” Engel pointed out in the December report.
With 2016 well underway and the second quarter just around the corner, the question now is: How can distributors exploit those “pockets of growth” Engel mentioned without wasting time and effort on the segments that will remain persistently flat this year? It’s a question that Doug Dobie, CEO and founder of growth strategy consultancy Delvantage, Inc., in Long Beach, Calif., gets a lot in the current business environment.
In the end, Dobie says it comes to down to this: What worked last year or the year before will not necessarily work again in 2016. With this in mind, electrical distributors need to be constantly innovating, seeking new market opportunities, and going after smaller, more promising market niches that they may not have previously considered. “The business climate has changed quite a bit in the last five to seven years,” says Dobie. “To compete effectively, distributors should be pursuing new opportunities, looking for untapped growth markets, and hitting fresh customer segments.”
5 Ways to Leverage New Opportunities
While the national economy is undoubtedly in better shape than it was five years ago, the rising tide hasn’t necessarily lifted all of the boats. Where electrical contractors in the Northwest may be overwhelmed with an onslaught of new commercial and industrial projects, those in the oil-producing states have seen significant drop-offs in new project opportunities.
Here, our experts discuss five different ways companies can offset these issues and do a better job of maximizing smaller, more promising pockets of opportunity in the current environment:
- Drill down a lot deeper. Break larger geographic regions down into smaller chunks and then divide and conquer, Dobie advises. “If you’ve been broad-brushing geographic regions and customer segments, take the time to really drill down and figure out where you can add value in new, less obvious areas,” says Dobie. The technology sector may look promising from the outside, for example, but in reality only two of three segments within technology may be worth pursuing. By dissecting sectors down into specific regions, lines of business, and activities, distributors can more accurately pinpoint—and go after—untapped opportunities. “It’s not always easy to identify specific segments and micro-segments,” says Dobie, “but this exercise will pay off in terms of providing growth opportunities in areas that no one else is paying attention to.”
- Utilize customer segmentation strategies. If you’re unsure how to go about dissecting potential market opportunities, try using a customer segmentation strategy. Defined as the practice of dividing a company’s customers into groups relevant to a particular business, customer segmentation helps you decide how to correlate customers within each segment in order to maximize the value of each customer to the business. “Customer segmentation is most effective when a company tailors offerings to segments that are the most profitable and serves them with distinct competitive advantages,” according to research firm Bain & Company. “This prioritization can help companies develop marketing campaigns and pricing strategies to extract maximum value from both high- and low-profit customers.”
- Don’t try to be the low-cost leader. Most business owners refer to this as the “race to the bottom,” yet many distributors still insist on signing up for—and participating in—this race. “This is a pretty dangerous strategy to pursue because it’s extremely difficult to maintain a cost advantage over time,” says John Dinsmore, assistant professor of marketing at Wright State University’s Raj Soin College of Business in Dayton, Oh. A better approach, says Dinsmore, is to develop a “niche” strategy by finding one or more customer segments where you can really shine. When selecting niches, Dinsmore says distributors should take the time to identify, size up, and research potential opportunities before allocating money, time, and manpower to the effort. “Quantify the niche, determine its size, and look not only at the number of players that are in it—but also how much each one of them is spending,” he advises. “Then, put together a plan of attack for the niches that show the most potential.”
- Maximize current opportunities. One of the easiest and fastest ways to tap into small growth pockets is by simply selling more to the customers that you’re already working with. In a recent interview with tED Magazine, for example, one contractor complained that while his distributors carried the lighting fixtures that he used on a regular basis, they didn’t carry the kits needed to install those fixtures. This seemingly small oversight can wind up costing distributors money as their customers turn to other sources for their materials, supplies, and equipment. “Look at all of the possible product and service extensions, and talk to your customers about their day-to-day needs,” says Dinsmore. “You may be surprised to learn that someone you’re working with could actually be buying a lot more from your distributorship.”
- Focus on building customer engagement. The strategies covered in this article are proactive in nature and require distributors to actively seek out new opportunities past the obvious, low-hanging fruit. Another way to achieve similar results—but without having to allocate as much time and effort to the cause—is by simply “being out there and in front of the customer or prospect all the time,” says Dobie. This could mean making phone calls and sending out direct mail, but in today’s digital age it also means having a solid web presence that customers can use to find the information, research, products, pricing, and everything else they need to be able to make a purchase decision. “Own and control the customer experience,” Dobie advises, “so that the customer comes back and chooses you as the channel.” Ignore this step and it won’t take long for sales to flatten out and opportunities to wane. “The companies that are building customer engagement and selling to them the way they want to be sold to,” says Dobie, “are the ones that will prevail in any business conditions.”
McCrea is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at email@example.com or visit her website at www.expertghostwriter.net.
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