Vol. 1 No. 4 Is Your Profit Stream Shifting? Julie Clark, Vice President jclark@growwithbmg.com
Over the last several years, many manufacturers like Ingersoll-Rand, Volvo, Atlas Copco, Godwin Pumps, Metso Minerals, Komatsu and Sandvik Mining & Construction have taken a real hard look at their channels to market and are choosing to establish company-owned stores to offset some of this profit shrink from weak or underperforming market areas. The results of establishing company-owned stores are mixed to date. Ingersoll-Rand has not found them to be profitable. Volvo continues to acquire and/or set up its own company-owned sales offices and rental stores. And many others are still making decisions or waiting to better analyze their profitability. Success depends on how committed the manufacturer is to absorbing the normal operating costs a distributor typically covers while supporting the product. Identify All Business Costs Before a decision to open a company-owned store can be fully implemented, a manufacturer needs to understand the value and cost of their existing channel partners. A good first step is to force rank your distributors utilizing a Value Stream Cost Analysis process. From the manufacturing cost to the end customer, what truly makes up the value of a product? Identifying and understanding all of the costs associated with taking on the responsibility of servicing a local market is critical before an informed business plan can be developed and a definitive decision made. Some obvious infrastructure expenses include:
Some less obvious expenses that are often forgotten include:
Once you have identified the operating costs, the next critical step is to assess the reaction of your existing channel partners—even if your plan is to open company-owned stores in non-competing territories. If you currently deal with exclusive dealers, do you risk them picking up your competitors’ products, will they shift their sales forces mindshare to selling other non-competitive products, or will they walk away from you entirely? Losing successful dealers could have an adverse effect on what you are trying to accomplish with company-owned stores. Maintaining a distributor network has a lot of intrinsic value over operating company-owned stores. Distributors, for the most part, give the manufacturer an expanded reach into the markets they service. They act as ambassadors, establishing relationships with a far greater number of end customers than a manufacturer can expect to reach on its own. They provide local inventory support and service for the products they sell and become the manufacturer’s face to the customer. All of these values must be considered before selecting a model that includes company-owned stores. Perform A Value Stream Cost Analysis Some other things to keep in mind when considering a company-owned store:
The manufacturer must be prepared to support a company-owned store like it would a distributor and either share or absorb these costs with continuous product training and technical support to stay current with the needs of the market. The cost of training, including time, materials and travel—depending on the complexity of the product—is normally absorbed by both the manufacturer and distributor. Define & Maintain Your Great Brand Finally, the manufacturer must be prepared to define the parameters of the market and territory coverage whether they choose to go through a distributor or company-owned store. As with a distributor, company-owned stores should have a clear agreement that defines the market, territory, sales quotas, inventory requirements, aftermarket support and promotional advertising expectations. This agreement, when structured properly, will avoid future conflicts or misunderstandings between the manufacturer and an existing dealer network if a company-owned store is selected. Keeping the peace is a critical aspect in a healthy manufacturer/distributor relationship. So when considering company-owned stores, carefully evaluate all of your costs from a financial, customer and dealer relationship view before changing your business model. Choosing the wrong channel model could create serious problems for years to come.Private Equity Firms Can Help Grow Sales
Now, in addition to some of the large national companies like Hertz, RSC, United Rental’s Traffic Control Division, HD Supply and Neff, it is becoming popular for private equity firms to purchase leading local and regional crane, lift and traditional equipment dealers and rental companies. Some that have switched hands in North America in recent years include: One Source Rentals, Essex Crane Rental, Maxim Crane, Old Country Rental, Deerfoot Rentals and AirWorx. A Change In The Weather To retain and grow this business, your company needs to change from relationship selling to value-added selling. It is important to sell the benefit of doing business with your company, not just the products you offer. The definition of value-added selling may vary depending on your business, but it should include some of the following items:
The people who run private equity firms generally focus on what is best for business and make decisions based on short-term returns and bottom-line results. They are mainly interested in a three-to-five-year investment that allows them to grow the business and sell it for a profit. One of the common ways for private equity firms to grow a company fast is to expand into new product lines or to offer products at different price points. Another way to build the business is by adding locations and/or through acquisitions of competitors—turning a local company into a regional company. All of these will help expand the potential target audience of the dealer or rental company. During this growth, products and brands may get displaced by others that offer higher profit, more territory and add greater value to the bottom line. By adding value, your company will be seen as an asset and can benefit from this growth. One pitfall manufacturers need to be careful of is not letting its desire to work with a dealer or rental company affect the company’s core values and bottom line. Private equity firms can be hard business partners and may demand more territory, special pricing or limit when you can implement price increases. It’s better to walk away from a channel partner that is hurting your profitability or that is threatening your relationship with your other channel partners. This decision may hurt your short-term business, but in the long run it will make your business stronger. Change Yield Opportunity Step Outside The Sales Comfort Zone Brian Barlow, President/CEO bbarlow@growwithbmg.com
So, how do you motivate your sales force to go after new niche markets?
A combination of both reward and recognition is probably the most effective approach as sales people love to be recognized and expect to be rewarded when they go above and beyond. Prepare The Sales Message OK, you have the products, your price is right and availability is strong. The next step is to develop a message that your sales force can deliver consistently and effectively to your new potential customers. There are a multitude of ways to get this message out to assist your sales force, including:
In most cases, the choice of communication will depend on how specialized your niche market is and how readily available the customer database can be obtained. You’re ready now, right? Not quite, how are you going to convince your sales force to pursue an unfamiliar market, industry or group of customers? Just pointing to a new niche opportunity and telling your sales force to go get it will not work. Investment in Sales Training and Education Find Qualified Sales Leads Creating the right message, developing the right sales tools and making sure you establish a consistent reward and recognition program are all part of making sure your sales team can find a new comfort zone in the new market niche your competitors are also looking for. This same approach could also prove highly successful in other countries as well. With the state of the industry today, it’s important to take advantage of every profitable new opportunity. Some industry segments that are still strong today include: mining minerals, coal, underground utility, public works and pipeline (gas and oil). The export business also remains strong. Taking the right steps, you can effectively create opportunity to make up for slumping areas of your business. |
More and more today, construction equipment manufacturers are faced with ever shrinking profits as global competition, rising material costs and unstable energy prices take a bite out of bottom line profits. Unfortunately, manufacturers have not been able to absorb or pass all of these increases along to its channel partners or end customers.
depending on the complexity of the products and the selling cycle needed to close a sale. Operating expenses, including payroll, facilities, inventory and taxes in many cases leave earnings in the single digits for most distributors. Understanding the entire value stream is an important element in defining whether taking on channel partners or opening company-owned stores is right for a manufacturer. 
Business is all about producing a profit, but how a dealer or rental company defines profitability can have an effect on your bottom line. Private equity ownership is having a growing effect on manufacturers since a greater percent of large dealers, rental companies and national rental companies are being purchased by these firms. Dealer and rental companies that are owned by private equity firms generally look at the business from more of a financial point of view. It is beneficial for manufacturers to adapt their business style since these firms are willing to invest in growing the company. As a manufacturer, you can no longer only rely on relationship selling and must provide added-value techniques or services if you want to continue to be successful in these companies.
Dealer forums
If the economy is impacting your sales effort, you are probably asking yourself, "What can I do differently?" Most sales organizations fall into the same old routine, calling on the same old customers, dwelling in a comfort zone that will not challenge them to change their approach to selling. And of course, this generally leads to the same dwindling sales results.
products benefit the end customer and tying those benefits to your customers’ ROI is an important aspect of your sales team’s education. By utilizing Web-based technology, training your sales team goes beyond the traditional hands-on, onsite methods to Web-based programs that have built-in interactive modules. These cost-effective methods allow a manufacturer to respond quickly and more efficiently to an ever changing competitive landscape. Educating your sales team with continuous ongoing training programs is an investment you can’t afford to overlook.