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The Value-Added Distributor Series: Reversing the Trend

By Bridget McCrea

 

From the way Rick Freebery sees it, the act of charging fees for value-added services for customers that are used to getting such add-ons for “free” shouldn’t happen overnight. “This is not a light switch,” says Freebery, vice president of vendor and new services development at United Electric Supply in New Castle, Del., “but more of a dimmer. It’s a paradigm shift that takes time for everyone involved to adjust to.”

 

Freebery, who prefers the phrase “selling services” over valued-added, says electrical distributors who adopt an abrupt approach to the shift will surely face backlash from their sales departments and their customers. Rather than risk it all to earn a few extra bucks on that kitting job or vendor-managed inventory project, Freebery says companies should take an internal look at how such options were dispensed in the past and come up with a win-win strategy for selling services.

 

“This is a process,” says Freebery, “so changing the view of selling services within your own organization is the first step to success.” United Electric, for example, has developed a number of information pamphlets and brochures that sales reps use to educate themselves and their customers on the services that the company offers. “Remember that any existing salesperson with tenure in our business has been most likely giving these services away for free,” says Freebery, “and doesn’t necessarily understand the changing model that is taking place.”

 

It’s a Challenge  
When introducing new value-added services and/or changing the existing cost structure for such offerings, it’s important to get the sales team onboard and involved early. “Nothing will ever happen properly at the customer level if the rep believes in the product and the related pricing structure – and the reasons behind it,” says Freebery. At present, for example, he says United Electric is in the process of training its sales reps on exactly what the company offers and how to articulate those messages to the user. “It’s definitely a challenge,” he adds.

 

Regardless of the roadblocks that lie in the electrical distributor’s way, being able to charge for services – and getting customers to accept this as a standard – is a critical attribute in today’s business world. Competition from web-based operations, shrinking margins, and pressure to cut costs can all take their toll on a distributor’s profits. To offset these and other issues, companies are taking a harder look at the product-related services that they’re giving away and coming up with ways to either make those losses up on future orders or charge outright for the value-added options.

 

“Based on our industry’s history and how things have evolved, every electrical distributor should be offering and/or focusing on selling services at this point,” Freebery points out. “Many manufacturers over the past 10 years have dimensioned their assets and provided knowledge-based services to the marketplace. Electrical distributors have viewed this as a business opportunity.”

 

Unfortunately, that business opportunity hasn’t necessarily translated into higher sales and/or profits. That’s because while distributors were focused on adding value in order to differentiate themselves in the marketplace, Freebery explains, the economic model developed around such offerings turned out “uneven” at best. So as distributors moved from providing inventory, credit, quotations, and general product knowledge to serving up information, expertise, and training, they’ve found themselves more and more filling the role of unpaid (in many cases) solutions provider.

 

“Manufacturers started providing less knowledge-based services,” says Freebery, “and as distributors stepped in to fill in that void, they wound up costing themselves more and more money as a result.”

 

It’s never too late
It’s not too late for distributors to reverse the trend and begin reaping the rewards of their value-added efforts. United Electric – which Freebery fully admits ‘is also struggling with the issue of charging for services’ – for example, employs three certified lighting designers who provide detailed lighting design and systems auditing (for energy efficiency) support to customers. Those end users pay either by the hour or the job for the lighting designers’ services. High-value customers get a slightly different treatment, according to Freebery, and are often credited back for the added services. “We basically make the services a part of the value proposition that we offer our high-value customers,” he adds.

 

For its customers, United Electric also provides control systems design, programming, and product configurations. “We are also heavily involved and have stepped up our game with formal, professionally conducted training that provides CEU to our customers,” says Freebery. By charging customers for those training sessions the distributor has actually been able to boost attendance and participation. “We’ve learned that even a minimal charge for training dramatically increases attendance rates,” says Freebery, “thanks to the newly-perceived value of the formal training.”

 

United Electric has also put elbow grease into customer education around its service offerings. Using informational “sell sheets,” for example, the company has outlined its core and premium services across numerous product groups. In reviewing these documents, customers can wrap their minds around the special offerings that the distributor provides and the fees that are attached to such services. “These sheets help support our ongoing goal of developing a knowledge- and service-based distribution approach,” says Freebery.

 

The four pillars
Getting customers to pay for something they’ve been getting for free is no easy task. To NAED members looking to eke more profits out of their own value-added programs, Freebery says the key is to clearly quantify the benefits that the customer gains from the services. Involve both the sales and customer service departments in this discussion, he says, and focus tightly on the value that’s being provided in exchange for the additional services, technical support, or training. Key questions to ask during this exercise are:

 

  • Does the service lower the customer’s risk?
  • Will it make the customer’s life or work easier?
  • Will it lower the customer’s cost and/or increase its profitability?
  • Will it increase the customer’s competitive advantage?

 

“Be prepared to explain the premise behind the change to the customer and to the sales rep that handles that customer,” Freebery advises, “knowing that everything you do must address at least one of these questions. Those are the four pillars that we live by when developing and selling services.”

 

 

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.

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