Why Distribution Needs to Charge for Their Expertise
By John Sonnhalter, Rainmaker Journeyman at Sonnhalter
Distributors in general are their own worst enemies when it comes to the value they bring to the table and charging customers for it. As their customers are asking for more and are willing to pay less, the distributors’ margins are being reduced and they don’t know how to change the momentum.
If you’re a general line distributor, I wish you the best of luck as you are destined to go out of business if you continue to follow this path. Most distributors who have a specialty like cutting tools/abrasives, power transmissions, bearings, etc. have a distinct value to the proposition, but many aren’t taking advantage of it.
Traditional brick and mortar distributors can’t compete with online catalog sites on price, but what if there’s an on-site production problem? Over the years, I’ve been on several joint end-user calls where the distributor and manufacturer are going in to solve a production problem.
Long ago, the distributors just solved the problems and didn’t charge for it (by the way, it wasn’t usually the product the distributor sold them; it was how the customer was or was not using it correctly).
I recently read an article in Industrial Distribution by Bill Moore from SKF on how distributors can put a dollar sign on the valuable services they offer. Here are some highlights:
- Understand your value stream – Are you taking advantage of all the support your manufacturing partners are offering such as training or engineering assistance? All can contribute to a cash value at the customers.
- Understand the customers’ challenges – Instead of selling him cutting tools, find out what type of production issues they’re having using the tools. Help him solve that. Add value they can’t get somewhere else.
- Valuate your services – What do you bring to the table that they’d have to hire an outside consultant to do? What price can they put on not having to shut down a production line?
Bottom line is, take advantage of what your supplier partners have to offer. They can help you improve your value and add $ to your bottom line.