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ElectricalTrends is a communications vehicle offered to the electrical distribution industry by Allen Ray Associates and Channel Marketing Group. The purpose of ElectricalTrends is to share Allen Ray Associates' and Channel Marketing Group's insights on industry trends, observations on industry activities and issues and offer ideas that may benefit industry participants in their endeavor to improve their businesses in the areas of growth and profitability.

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Monday, April 14, 2014

SupplyForce, AD, Border States, ElectricSmarts and DISC Deliver Sales & Marketing Tools

Over the past couple of weeks there have been some interesting industry announcements that either could represent interesting "tools" for companies or have longer term impact in the industry.  This is somewhat of an eclectic mix of topics. Please share your comments on one or all of these issues.

  • John Burke taking the reins of SupplyForce could make SupplyForce an offensive force for independent distributors.  John, who had been at Kirby Risk, has significant distributor experience (including at WESCO) and, perhaps more importantly, has been involved with national accounts as he was president of SourceAlliance (the Rockwell-backed .com in 2000 that was launched to support national accounts), has been active in VNA (which is now merged with SupplyForce) and with SupplyForce.  With his leadership expect new energy and vision.  It would not surprise to see SupplyForce become more aggressive in pursuing opportunities and becoming THE independent solution for national accounts, especially industrially-oriented national accounts.  The can now compete stronger at industrial installations with Rockwell and get the MRO business (whereas WESCO has gotten companies to segregate the Rockwell business from the MRO spend.  Given the merger with VNA, Rockwell will, in all probability, be much more supportive of SupplyForce.
  • AD announced an expansion into Latin America with a focus on selected countries.  Natural expansion ... plays into NAFTA agreements, where manufacturers have a number of facilities (Mexico), where companies have outsourced services (Central America, most notably Costa Rica, and the Caribbean), and then into South America where they have some experience, and revenue, in Brazil (where there is also much construction due to the World Cup and the Olympics) and Columbia (which was a target for an EDGE acquisition that didn't occur.)  It will be interesting what benefits accrue to US and Canadian members.  And it should be a good play to support national accounts (and eventually SupplyForce).
  • On a marketing front:
    • Check out Border States' blog. They have many in the company involved in developing content (13) and have a proactive tool for engaging with their customers.  Websites are brochureware unless there is a customer / prospect benefit.
    • DISC unveiled a new marketing research database.  It's called Market Track Ziplines.  Now you can identify the potential of a marketplace at the zip code level by individual SICs.  Good for developing territories, targeting market segments, developing account lists, sales goal setting and more.  Combining this with other tools can enable distributors and manufacturers to target individual companies. And it is very cost-effective.
      • For manufacturers who collect POS information, ideally by zip code, or distributors who aggregate their sales by zip code, this could be an interesting tool to calculate your market share.
    • ElectricSmarts has introduced a new tool this quarter that could be very effective for distributors. Distributors can now essentially aggregate the e-catalogs that are in ElectricSmarts' Smart eCat and then have the entire package branded for the distributor (and there are many features resident in the catalogs).  Now your salespeople can visit any customer and have many catalogs at the click of a button, all in the same format, many with additional marketing content linked in, and it can be set to link to pricing information. There is a nominal cost for distributors but it could be a marketplace differentiator.

For the right distributor, all of these can enhance sales as well as marketing capabilities.  How can these benefit you?

Sunday, April 6, 2014

Fishing with Silent Margin Killers....Part 2 of a series

What you did some years ago.
If you went to your favorite fishing hole in your business, it could be your Product Data and the way you priced product. Some are old enough to remember that when they set up their Bright shiny new ERP system software and computer, you were faced with loading product data and some type of cost, unit of measure, maybe a UPC # and maybe a price matrix for different customers. All felt well about their pricing.

Purchasing and Inventory
As many began to purchase product and began to try not to load up too big of an inventory, along came manufacturer price changes. Some went into a panic, while others viewed a price change as an opportunity to make more profit. All conquered the price change in different ways.

Inventory
In order to keep the right amount of inventory on the shelves, some elected to go the VMI route of Datalliance. Those were good choices for both the manufacturer and the distributor. Others used the math that came with their ERP system. But others still watched in horror as their physical inventory grew.

So some began to watch and control their special orders, non-stock orders and general ordering policies.

Rise of the SPA/Rebate
Manufacturers fielded request for special customer/political body pricing and thus came the horror of claims/rebates for the vast majority. For those that thought the SPA through, it turned out to be a loan to the manufacturer and then some distributors learned how to claim and get credit back in 72 hours or weekly. Others struggled.

But many distributors were stuck on 3% net at the end of the year ... and now their loaning money to manufacturers!.

Silent Margin Killers
There has always been a high cost to margin because of incorrect data. In fact there are distributors that cleaned their product databases and have seen an increase of 4% to as much as 8%.

But soon after attaining that increase in margins, distributors started reporting a decrease. Upon closer inspection of their transactions (down at the line level) it became obvious that some sales people were 'pounding in gibberish products' with some sort of price that only they knew about. The majority of these items had little or no profit. In some cases the product that was being shipped was a common everyday item and the sales person needed a better price to get the order. I could bore you with additional observations about price changes, but the keystrokes that your outside and inside sales people make could cut your margins by 4-8%.

How do you handle that?

Thursday, April 3, 2014

Is IT Core To Your Business?

The answer, obviously and increasingly, is yes.  Every department within your company is investing in technology.  Consider:

  • The network that is used for daily duties (i.e. Microsoft, Apple, Adobe, etc and the various hardware players)
  • Phones (VOIP networks as well as handhelds / smartphones)
  • The ERP system your company uses.  For distributors it could be Epicor / Eclipse, Infor, xTuple, and more. For manufacturers consider SAP, Oracle, Infor (yes, Infor offers manufacturing ERP systems) and others
  • and there are systems for dispatching, logistics, freight management, CRM, marketing automation, SFA, etc... (consider some of the software companies that attended the NAED regionals as an example.)

And now many are looking at e-commerce providers / web developers / storefronts.

The issue is that these are all software companies. An increasingly cloud-based services. And their pricing models typically have an implementation cost plus either services / support fees and/or monthly subscription fees.  The challenge is that the valuation of these businesses and their operating revenues need to come from monthly revenues as one-time implementation is, unfortunately, one-time.  So cash on hand becomes important to a sustainable business model.

What got me thinking about this?  One of the e-newsletters I received comes from Fortune.  It is written by Dan Primack from www.pehub.com.  Dan wrote:

Just asking: If and when America goes back into recession, how will it affect typical enterprise software companies? Particularly all of those unprofitable SaaS companies that have been going public? Will new orders stop as they did the last time around, with CTOs unable to convince boards to spend now to save later? Or will enterprise tech be fine, due to: (a) Giant corporate cash piles; (b) Lower prices/easier integration than in the past and (3) Fewer VC-backed customers as part of the TAM?

Now...

  • I'm not saying we're going into a recession, but the economy has been known to go in cycles ... so, perhaps someday.
  • I'm not referencing any specific company.
  • I am defining an "enterprise software company" as a company that offers software that is critical to the success of your business.  Obviously this is your overall network, your ERP provider, your website / storefront system, perhaps others.
But, I do think Dan has a very good point in the sense that
  • If a company isn't profitable and has a SaaS model, what is being used to fund development, support, and essentially ensure you that the y can provide the "infrastructure" to manage our enterprise.
  • If you're looking at companies for any of these functions, you may want to consider a financial due diligence, especially if you haven't heard of the company?  And how do you have access to your information, the system, etc
So, as you get involved with companies you haven't heard of, ask lot's of questions as IT is core to every aspect of your business.

Have you, or your finance department asked the financial questions as you've talked to software providers?

Wednesday, April 2, 2014

Virtual Quotes and Human Contact

Internet is Impersonal

With so many people growing up with astounding computer skills, a number of distributors are wondering how to utilize these skills in future business plans.

Most distributors got 'Pushed" into an ERP computer systems because they thought it was a good way to print invoices. Some loaded their product data from people that aggregate product such as Trade Service and some 'hand typed' the product descriptions, prices and unit of measures. Eventually some moved to IDEA in hopes of matching data with their manufacturers so they could order, receive advance shipping notices, invoices and eventually sought to reach for the brass ring of three way matching thus gaining productivity.

Many distributors built, or had built, a web storefront where they learned, to their horror, that all that gibberish product data they had in their ERP's was not readable by customers seeking to buy product through their storefront. 

So, many have worked like beavers to clean up their product data and add pictures and better descriptions so someone coming to their web storefront could actually order product without talking to anyone in that distributor's firm (or their subscribing to get attributed / catalog data from IDEA or Trade Service). The reward, for some, was that customers still price shopped the distributor.

Third parties sell electrical products.
Amazon (along with others) spent a boat load of money making it real easy for people to buy products and they did something else ... sell add on products through suggestions to the buyer. So Amazon made room for some of the larger electrical distributors to sell product and the vast majority of distributors thought they would see pouching across defined territories. That meant to some that distributors that they no longer had 'protected territories'. And this is becoming more of an issue with the launch of Amazon Supply.

Orders float in. Quotes quadrupled and more. 
Much to the surprise of some, Internet sales grew slowly and then began to pick up. Some orders were redirected from Amazon and the distributor took on another partner, shrinking their margins. Quotes abounded and even quadrupled or more in comparison to orders. But if the customer came through Amazon, many distributors were stuck with fees. Margins take another hit.
The question for many distributors was how to get rid of those fees.

"The Courtesy Quote"
A couple of electrical distributors I know, have started offering a 'courtesy quotes' with a time limit on it at their websites. Usually several hours. The potential customer is allowed to click on a button that makes them think that their order has been saved and is in a file to be regenerated, added to or for an order to be placed.
When the potential customer is unable to find the quote and only the header, they are directed to call the distributor's Web department. 

The customer is told that their quote was a 'virtual quote' and that they are sorry for any inconvenience that caused the customer. They direct the customer to go back to the distributor's site and give log in instructions. 

Human connection is established. And by the way, a chance to up sell.

The distributor's web department brings up the quote and in the background on the screen of the customer, suggested items appear that other people have purchased with their order. Obviously the web department's job is to add two or more highly priced items to the order, thus increasing the total profit on the order.

Does this work for you and your company?

Friday, March 28, 2014

Are LEDs Lighting Up Your Sales?

We're continuing to see a correlation between a distributor's focus on selling LED lighting and their sales performance.  Perhaps it creates an opportunity to get in front of a customer and eventually sell them additional products; perhaps it's solely to address their lighting needs; perhaps the customer just is willing to hear something new; perhaps because the typical LED sale is a higher dollar value, but, whatever the case, there is a correlation.

While this should not be construed that LEDs are the right lamp for every application, it is an indicator of consumer awareness (after all, commercial buyers are also consumers) and an interest in cost-effective energy efficiency initiatives (sometimes financed by rebates).

Over the past month we've observed a number of interesting LED-oriented activities / articles we felt worthy of mentioning:

  • It looks like Cree poked the proverbial bear. Philips' LEDs are now very prominent at Home Depot and, perhaps more importantly, Philips is now actively advertising their LEDs on television. Could this turn into "battle of the bulb"?  Can Cree financially compete? ... enough to win the awareness war (they've definitely earned a place at the table).
  • Speaking of Cree, there was an article in yesterday's WSJ entitled "An Incandescent Stock Darkens Cree's Bright Idea for LEDs".  Some interesting excerpts:
    • The article comments on its decline in gross margins as it transitions, somewhat, from a semiconductor line into what is termed a "commodity" business with "thin" margins. Its corporate margins have gone from 33.7% to 27.9% (sounds like 'welcome to Home Depot' and possibly the cost of continuous product research, development and new production methodologies whereas most in the electrical industry, and lighting, were used to longer product life cycles where they could recoup development costs).
    • According to Canaccord Genuity, 667 million LED bulbs will be sold worldwide ... almost a 100% increase over last year (correlation to distributor sales?)
    • It's felt that Cree's entry into Home Depot is essentially a marketing effort (my term) to gain increased awareness for the commercial market (which supposedly has better margins for them).
    • The article mentions that the commercial market has many more competitors and will take more time for Cree to develop.
    • Personally, I wouldn't be surprised to see LED prices at the consumer level drop further. As consumers we've been conditioned to purchase "inexpensive" lamps for our homes ... the incandescent lamp set the bar and eventually CFLs got close.  The initial cost to retrofit a home can be expensive (and consumers consider their out of pocket cost more than the lifetime value proposition) and then there is the issue of lamp compatibility and getting the same type of LED lamp for all socket sizes (consider different bases for candelabras, spots, A lamps, etc) ... some also consider this the "spouse test".
  • Speaking of LEDs financial costs, I received BriteSwitch's newsletter. BriteSwitch helps companies find lighting rebates. Some tidbits:
    • Here's a link to information on LED rebates
    • And here's information on lighting rebate trends for 2014
    • The question then becomes ... are you THE lighting rebate information source for your customers? for your marketplace?  Is your marketing department promoting this to your customers? How do your salespeople / branches become aware of this information?
  • NAILD (National Association of Independent Lighting Distributors) is holding their annual meeting next month in Florida. The agenda has a strong LED educational focus headlined by
    • Rogier Van der Heid from Philips speaking on The Future of the Distributor is Now with a highlight on how will distributors create value in a market where manufacturers increasingly reach out to the end user themselves.
    • Jack Curran on Lighting Has Arrived – Now What? (focused on LED as Jack is known for work at the Department of Energy).  He'll touch on the likely future of LED lighting, in residential and commercial / industrial market segments. He will discuss new skills and capabilities that distributors must master to succeed in this future LED world. Topics to be covered will include a vastly expanded lighting controls landscape; color and human factors; the concept of Personal Lighting; and the sensors that, by necessity, become an integral part of the future lighting marketplace.
    • Plus there will be workshops on LED standards, lighting controls and selling lighting services
    • NAILD is offering non-members "day passes" for only $350/day to attend the conference (and see many lighting manufacturers) or a non-member can attend the entire conference. If you attend the entire conference, a portion of the fee can be applied to membership if you decide to join.  If you are a distributor in the area or have a commitment to the LED market, I'd encourage you to attend. Contact Linda Daniels at NAILD for more information.
    • And click here for their archive of LED articles from their weekly newsletter. A quick compendium of useful information.

What are your observations regarding the LED market, Cree v Philips? Are you marketing rebates (and LED rebates) as a sales tool?

Channel Marketing Group | Allen Ray Associates