Distributors Bring Value To The Table

July 11, 2011
  Paul Burk, vice president of marketing for Steven Engineering, surveys his customer base quarterly to get the pulse of the marketplace and garner feedback on key issues. He recently asked customers about Steven Engineering’s value-added services package.

Paul Burk, vice president of marketing for Steven Engineering, surveys his customer base quarterly to get the pulse of the marketplace and garner feedback on key issues. He recently asked customers about Steven Engineering’s value-added services package.

Specifically, he asked which services they use and value most and what capabilities the distributor of electronic components and industrial automation and controls may want to consider adding in the future. Burk was surprised to learn that 60% of customer contacts who responded to the survey were unaware of 40% of Steven Engineering’s value-added capabilities.

“These are people we already have a relationship with, who opt in to participate in this survey, and 60% were not aware of 40% of the services we already provide,” Burk explains. “This tells me from the marketing side that I have not done a good job getting [our value-added] message out there.”

This is not an uncommon predicament for distributors, according to sales consultant and value-added expert Tom Reilly, author of the book Value-Added Selling and a frequent speaker and sales coach to distributors in a variety of industries.

Reilly says distributors are often so caught up in the day-to-day that they don’t think strategically enough about their value proposition and how they can best deliver their value-added message to customers. He says it all comes down to communication—having the right story to tell and telling it well.

“And that isn’t easy,” Reilly says. “To get your message across requires a lot of hard work.”

Steven Engineering already does much of the heavy lifting associated with selling its value-added capabilities, but Burk says there’s more work to be done. The California-based distributor specializes in pneumatics, electronic components, electric parts, and industrial automation and controls, and it counts services such as kitting, special packaging, design assistance, bin stocking, training, and light contract manufacturing among its key value-added offerings.

The company gets the message out about these services in five key ways: through detailed descriptions on its on-hold phone messaging system, via its Web site, with direct mail pieces, e-campaigns, and, finally, through its salespeople.

Since receiving the most recent customer survey results, Burk is rethinking the company’s marketing message and how it delivers that message to customers. Like other distributors caught in an increasingly competitive market, he is looking for ways to differentiate his message and educate customers on everything Steven Engineering has to offer.

“We’re figuring out where the emphasis of the message will go,” he says. “We have a strong value proposition that separates us [from the competition]. But how strong do we push it?”

What Is A Value-Added Service?

Burk has initiated a new campaign to update Steven Engineering’s key marketing pieces more frequently, from once a year to quarterly. But he says he’s also thinking a lot about the last piece of the puzzle—Steven Engineering’s salespeople.

“We are 95% OEM, so our strategy is to not talk about the cost of the product, but to talk about taking product cost out of the equation. That’s where we deploy those value-added conversations,” Burk explains. “So, our salespeople need to focus on being proactive about it. For me, it’s more of an educational issue right now.”

Educating the customer on added value is no easy task, and it often begins with determining what exactly a value-added service is. For Burk, “value-added” describes anything that goes above and beyond the normal, day-to-day requirements of doing business. Special packaging, kitting of products, light manufacturing, supply-chain management programs, vendor-managed inventory, and engineering/technical assistance are at the top of the list.

“From my perspective, anything that is above and beyond the standard business requirements becomes a value-added service,” Burk explains. “For instance, we used to tout everywhere the fact that we did same-day shipments. It was a value-added service, but to me it is standard now.”

For others, value is in the eye of the beholder. Scott McLendon, vice president of product management and marketing for Allied Electronics, suggests that the terms “distributor” and “added value” are synonymous for many customers, and he emphasizes the many levels of added value a distributor provides.

“A lot of what we do as ‘business as usual,’ customers consider value-added service. For example, our entire portfolio is available in one piece. If you want one piece of a resistor or capacitor, we’ll sell it to you,” McLendon says.

“Not only will we sell it to you, but if you place an order up to 9 p.m. tonight, we’ll ship it today,” he adds. “It’s a huge value to customers to be able to buy small quantities and have it shipped the next day.”

McLendon also points out the “above and beyond” services that Burk identifies as key customer benefits, including kitting, repackaging, and inventory management. In addition, he says supply-chain continuity guidance or end-of-life management for certain products is an example of enhanced service customers find especially valuable.

“When we’re designing product in, we make sure the customer understands how long they will be able to get that product and so forth,” McLendon says.

As customers demand more of these services, distributors want to comply—hence Burk’s survey aimed at getting to the bottom of what customers really want these days. But these things come with a price, and Burk says he sees the practice of “unbundling” on the horizon.

“There are a lot of things we are doing that are taken for granted. We are going to have to break those out for the people who want them,” he explains, pointing to the many customers who barcode their own products and therefore don’t need a distributor to provide that service as one example.

“People are asking for a lot more cost reduction and they expect you to be able to provide them the same things you’ve built up over time,” Burk says. “So, I think it’s time to break some of these things out. We have to say, ‘We’re already doing A, B, C, D, E, F, and G. Now you’re asking for H. Which services do you really need?”

Burk says this opens up a whole new discussion area with customers surrounding the cost of doing business—a familiar topic among the OEMs that Steven Engineering deals with regularly.

Telling The Story

In the end, it all comes back to communication and developing the right narrative to tell your story.

As consultant Tom Reilly explains, businesses bring value to customers in three key ways: with their products, with their resources and assets, and with their people. Reilly makes people a focus of his work, coaching salespeople in manufacturing, distribution, and other, similar industries about value-added selling.

People are important, Reilly says, because who can better tell the company’s story? Who is in a better place to explain the company’s definable and defendable differences? In this way, salespeople are especially vital to growing a business by delivering the company’s message to customers—telling the company’s story in a way that resonates with customers and convinces them of the value the company brings to the table.

As Burk suggests, it comes down to education and communication.

Reilly adds that many companies understate their case—the net effect of which is that many of their services and solutions go unnoticed.

“You need to point it out to people,” Reilly explains. “Promote all you do, no matter what it is.”

There is a key reason behind his advice. According to Reilly’s research, customers will pay a premium for better quality and service—about 10% more. But they won’t do it unless they understand what they are getting and appreciate the value behind it.

“The guts of a sales presentation are: Why this product? Why this company? Why me?” adds Reilly. “Sales reps in all lines of trade need to be able to answer these questions and present those answers in a compelling way to their customers.”

Reilly says now is a good time for all businesses to start thinking about the value they provide and how they can use it to their advantage for future success. And as many business leaders predict a slowdown on the horizon, he says businesses should also start thinking about adaptability—how they are going to change with the times and adapt their value capabilities for success down the road.

“I think this is a very good time in business to revisit the lessons of the past recession,” he explains. “Companies need to go back and challenge their own relevance. Right now is a good time for businesses to think in terms of adaptability. For so many companies the view is day to day. They’re not looking far enough down the road.”

Distributors Work To Define Value

The problem with defining the word “value” is that everyone has particular ideas about what it means and what they expect to get for their money. For that matter, opinions differ about what the word “distributor” means and what the distributor’s role is in the marketplace.

Paul Burk, vice president of marketing at Steven Engineering, was recently giving a presentation to a manufacturer’s sales force about the criteria the distributor uses when bringing on new manufacturers. The group quickly got off topic, he says, exploring questions about distribution and its core purpose. Burk found himself defining distribution and explaining the value distributors bring to the supply channel.

“The main purpose [of distribution] is to carry inventory at a local level in the marketplace,” Burk says. “Anything above and beyond that that the customer is requiring becomes a value-added service. That’s how we think about it.”

Indeed, that’s where many distributors begin their discussion about adding value and the resources, benefits, and many special services they bring to the marketplace. With that, here’s a look at some of the most common value-added services electronic components distributors offer today:

  • Design assistance
  • Technical support
  • Field service engineers
  • Custom design/assembly work
  • Light manufacturing
  • Inventory management (bin stocking programs, vendor-managed inventory, point-of-sale replenishment systems, and the like)
  • Scheduled orders
  • Kitting, packaging, and labeling of products
  • System design
  • Training/workshops
  • Electronic data interchange (EDI), e-procurement, and other Internet-based supply chain services
  • Product obsolescence guidance/management
About the Author

Victoria Fraza Kickham | Distribution Editor

Victoria Kickham is the distribution editor for Electronic Design magazine, SourceESB and GlobalPurchasing.com, where she covers issues related to the electronics supply chain. Victoria started out as a general assignment reporter for several Boston-area newspapers before joining Industrial Distribution magazine, where she spent 14 years covering industrial markets. She served as ID’s managing editor from 2000 to 2010. Victoria has a bachelor’s degree in English from the University of New Hampshire and a master’s degree in English from Northeastern University.

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