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Top 5 Ways to Increase Revenue Without Raising Prices

by The Distributor Board

Most distributors we talk to are facing ever increasing downward pricing pressure. So the prospect of the market supporting increased prices is dismally low. When is it going to stop? The short answer is NEVER, as long as distributors have to use price as the way to increase revenue. Having a fear of losing business or feeling that business must be bought with low prices will not lead to profitable growth.

So how does a distributor increase revenues and more importantly, profits in the current environment? We believe that you need to focus on just a few core concepts. Here are five suggestions that we have used successfully across many different markets:

  • Referrals, referrals, referrals
  • Search for issues and solve them
  • Get involved with your customer's product development
  • Cross sell
  • Collaboration throughout the supply chain

REFERRALS
Distributors traditionally have not done a good job with obtaining referrals. Other industries have built the gathering, nurturing and converting of referrals into a core element of their sales process. If you've ever met with a financial planner, you know exactly what we are talking about. The good ones ALWAYS ask for referrals. And they ask all along the sales process - beginning, middle, end and post. So why don't distributor sales people consistently ask for referrals? There are a couple of key reasons.

  1. They just don't believe that their customers know others that can utilize the same products and value-add services that they provide.
  2. They are worried that their customers will be uncomfortable by being asked "Do you know anyone else that might benefit from the products and services that we provide?

In both cases, the sales person couldn't be more wrong! Your customers DO know others that would benefit from knowing your company. You know this is true when once in a long while you get a call from a company and they say, "I got your name from so and so, my neighbor, and he thought that you could help my company." The problem is that being this passive is not going to grow your business. Encourage your sales team to ask for referrals, teach the right way and the best time to ask for referrals. Reward them for their efforts even before they reap any real sales benefits. The benefits will come, but in the meantime you need to reinforce this tactic until it becomes a part of each member of your sales team process.

NO PAIN NO GAIN
If your sales team knows nothing about "solution selling," then either get rid of them or get them trained right away! Solution selling is not a new concept, but it is amazing how absent it is in the sales tool box for many distributor sales people. News flash - the days of route sales people bringing doughnuts to their best accounts is long gone. Everyone, including your customers is pressed for time. There is no time for shooting the !*/%. There is only time for solving problems.

If your team is not sure how to start, a good first step is to get copies of Escaping the Price-Driven Sale by Neil Rackham written in 2008. Click here to link to the author's Web site. It is critical that you are uncovering issues (pains) and ultimately providing solutions. This is the way to take price out of the equation or at least minimize the reliance on price to win the business. We know a distributor of maintenance, repair, and operational supplies that embraced this selling process and has seen double-digit growth even during economic downturns. It works!

PRODUCT DEVELOPMENT
Do you want to change the perception that your customers have of your organization from vendor to valued partner? If so, one of the ways to do it is through helping them with their product development efforts. You know the answer to the next question, "Do people buy more from others that they believe are 'partners' versus ones that are just vendors?" Of course, the partners!!

Here are some quick ideas that can help your distributorship move into the product development consulting realm.

  • Ask for introductions to the engineering people at some of your key accounts
  • Research your customers' industry for ideas that can be brought to your customer
  • Explore relationships with product design consulting firms
  • Engage with your supplier partners on your customers' application requirements

If you are listening carefully to the conversations with your customer, you will undoubtedly uncover opportunities in which you can help them from a product development perspective. Over time, you will become a trusted advisor and not just a vendor found in their database.

CROSS SELL
If you've ever been to a McDonalds you know that they teach their front line people to cross sell. "Would you like fries with your order?" Distributors can do that and more if you are willing to dive into your customer data. Most modern systems today allow you to store a wealth of data about your customers. The next step is getting into your data and slicing and dicing it to make logical sense out of it. You should take a look at historical information on the specific customer placing a current order. This will provide you with information about their purchasing pattern and the ability to "remind" them about other items that have commonly been purchased at the same time. Another key piece of information can be derived from your data if you can categorize your customers by type of industry, size, and other key attributes. This will provide you with the ability to suggest something that your current customer has not purchased, but another similar customer has.

This is exactly what Amazon, another famous distributor, does with its customer data. Its ability to suggest book titles to you while you are shopping is derived squarely from their database of all customers with similar interests as your own.

SUPPLY CHAIN COLLABORATION
It is coming, if you are not doing it already. The notion that a distributor can keep secret the information related to inventory is quickly disappearing. We recently spoke to a group of distributors about the increased transparency that is occurring in the supply chain. They all agreed that information must be shared between suppliers, distributors, customers, and most likely, end-users. Collaboration leads to taking cost out of the process. The challenge that was expressed by many was how do they get to that point? Distributors may need to reevaluate their current technology to determine whether it will lead them toward this collaborative state. Many legacy systems will not be capable of doing this without a significant investment in technology that bridges disparate systems. This could be a logical time to explore new technology that can take the distributor to the next level in collaboration and overall business processes.

We have seen distributors that make the right decisions regarding their technology achieve a rapid ROI. Additionally, the business process improvement that can come with the implementation of new technology can help the distributor reach new levels of customer satisfaction and improved efficiency. Areas that have typically seen excellent improvements are:

  • Inventory Management
  • Customer Relationship Management
  • Customer Satisfaction
  • Sales Growth
  • Cash Flow

We encourage you to try some or all of these concepts. We believe that you will see great results if they are implemented properly. If you need some additional guidance related to these concepts or any others that ultimately help to grow the value of your distributorship, please contact us. We would be happy to have an initial consultation regarding your pressing issues.

The Distributor Board provides Advisory Board and Consultative services to wholesale distribution companies. The Distributor Principles have owned, run, managed, and advised successful distribution companies for many years. Areas of particular specialization include Strategic Planning, Mergers & Acquisitions, Technology, Operations and Sourcing.Visit www.TheDistributorBoard.com or e-mail Info@TheDistributorBoard.com.

COMMENTS: 1
A Pricing Strategy is Critical
Posted from: Frank Hurtte, 9/22/11 at 8:42 AM CDT
I agree with your comments. All of these are important contributors to a distributor's profitability. However, without a pricing process any gains will soon be lost. Distributor management must take charge of the overall pricing strategy, and sometimes that means raising prices.

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