By Bridget McCrea
How to take your company’s value-added services off the back burner and turn them into profitable offerings that your customers will love.
It’s a familiar refrain among electrical distributors that know that their customers need more than just products, yet haven’t quite found a way to make money from the “value-added” services that they provide on a daily basis. Even just a few “free” hours spent advising a contractor on a jobsite, assembling products into kits, or providing technical and product expertise can add up quickly and wind up costing the distributor in the long run.
The fact is, in today’s business world, customers have come to expect that their best suppliers will go the extra mile to help their clients gain their own competitive advantages in the marketplace. This reality puts distributors in the interesting position of having to do what they can to keep their customers loyal and onboard while also shoring up their own bottom lines and remaining healthy and solvent.
Former NAED Board Chairman Glenn Goedecke knows firsthand the struggles that today’s electrical distributors are facing in the changing marketplace. As executive vice president of business development for Mayer Electric Supply Co., Inc., in Birmingham, Ala., Goedecke says his stint as president revealed a clear need for market differentiation on the part of the electrical distributor.
“My theme as president was ‘protecting the channel,’ and to do that distributors really need to look at their people, their inventory, and their processes,” says Goedecke, who sees significant change ahead for the channel over the next five years. “Then, they need to invest in these elements while doing what they can to differentiate themselves in the market. The distributors that don’t take these steps aren’t protecting the channel and, as a result, they won’t be here in the future.”
Walking the Tightrope
One way distributors can stand out in the marketplace is by providing value-added services that customers need on a daily basis, and then learning how to charge appropriately for those services without alienating clients that are used to getting those “extras” for free. At Mayer Electric, for example, Goedecke says the company offers vendor-managed inventory (VMI), assemble-hold services (for customers that want the distributor to assemble and then hold products that they need for jobs at a later date), and other value-added offerings.
“Assemble-hold costs us money, but we have learned how to charge the customer for this option,” Goedecke explains. “We’ve learned how to say, ‘We have to assemble and hold your products for a period of time and that [impacts] our inventory, so here’s your price.'”
Acknowledging that every distributor’s definition of value-added is slightly different, Goedecke sums it up as “what differentiates you from your competitor”—plain and simple. With that in mind, he says Mayer Electric has put a strategic focus on processes that not only differentiate it, but that concurrently meet its customers’ needs for more than just electrical products.
“Everyone provides product, everyone delivers materials, and a lot of companies even cut wire for free,” says Goedecke. “These are basically all commodity services that don’t really help to differentiate a distributor in the marketplace.” To truly go above and beyond, he says companies need to ask themselves one very important question, which is: What can we do different for customers that, in the end, saves them money?
Goedecke says Mayer Electric’s management team began taking a harder look at this question about three years ago. At the time, roughly 74% of the firm’s business involved contractors—a point that pushed the distributor to start diversifying its customer base a bit (it has since been reduced to about 71%). “We invested about $3 million in people and inventory in an effort to diversify our business,” says Goedecke, “with the goal of making ourselves less apt to be subject to economic [swings].”
As part of its mission to align itself more closely with its customers, Mayer Electric also started a customer integration initiative. Headed up by Customer Business Analyst David Goedecke (Glenn’s son), this division focuses on customer discovery, needs determination (based on visits to customer sites), and technology like enterprise resource planning (ERP). “Focusing on our top 30 customers, we’ll go in and see what we can do to help them save money on inventory management, job quoting, accounts payables, and other processes,” says Goedecke. “We then create a needs determination that our IT group uses to build a model within our ERP.”
From there, Mayer Electric goes back to the customer, and sells and implements the system. “We then give those customers a cost-savings report based on our success with the [implementation],” Goedecke explains. So far, the distributor has worked with about 15-20 different customers in this manner. He says the effort has been worthwhile. “We’ve seen instances where our competitors’ salespeople have offered our customers 10% lower product prices, compared to ours,” says Goedecke, “The customer said, ‘No thanks, I like what Mayer Electric is doing. They’re bringing me value so I’m going to stick with them.”
Promoting the Game-Changers
Mayer Electric’s commitment to becoming a more integral part of its customers’ success—and not sacrifice profits to do so—also included an innovative way of introducing new products to the marketplace. “Distributors do a terrible job of bringing new products to the industry,” Goedecke says. In bucking this trend, he says the company teamed up with 15-20 of its top suppliers (“not everyone,” he points out), and figured out a way to more efficiently bring new products to market.
Now, instead of having a supplier visit 54 Mayer Electric locations to do lunch-and-learns about new products, those vendors work with the distributor to develop marketing plans on a corporate-wide basis. “Then, we deliver training through our Google training mechanism,” Goedecke says. In most cases, the distributor focuses on “game-changers” (innovations that could change the industry) and “refreshers” (commodities with a new twist, like the current LEDs).
“We have three different teams of people—contractor, industrial, and commercial—that identify the products and that start asking suppliers to fill out templates about 120 to 160 days before the new goods are introduced,” says Goedecke. “We evaluate the products, create the training, develop the marketing plan, and identify the verticals that we’ll be selling into. This approach has helped us put a laser focus on new product introduction.”
Stand out and Differentiate
Having headed up NAED’s board and also accumulated decades of experience working in the electrical distribution industry, Goedecke says he understands how difficult it can be to get a grasp on the current market just as it starts to shift into a new direction. Staying on course can be tough during these swings, but he says companies that focus on differentiation—be it through value-added or some other advantage—and that continually invest in their business will be the ones that are still thriving five to 10 years from now.
“If distributors don’t invest in their businesses, they will stop growing and they will die,” says Goedecke. “Ten years from now we’re all going to be selling differently in that we’re no longer going to be selling a product. We’ll be looking at industrial plants and selling solutions and software. Now is the time to start thinking about how to adapt, and about what you can do to stand out and differentiate in that type of environment.”
SIDEBAR: INTRODUCING: DIGITAL PROJECT MANAGEMENT FOR CONTRACTORS—MAYER ELECTRIC REVEALS HOW THEY’RE CATERING TO THE NEEDS OF THEIR EVOLVING CUSTOMER BASE.
—
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 bridgetmc@earthlink.net or visit her website at www.expertghostwriter.net.
Tagged with customer service, customers, services, tED, value-added