Many suppliers and distributors are being told that if they cannot, or will not, offer bigger discounts, their business will be at risk. Today that threat is very real, particularly with so many low-cost producers in China and India seeking to grow their share of the U.S. market.
The current situation presents a host of challenges, particularly for the distributor and dealer sales rep, but they are challenges that can be overcome. What is required is a fundamentally different sales approach and set of skills.
Distributors and dealers used to rely on a sales approach based on "relationship building." Ply the customer with food and wine, green fees, tickets to the football game - whatever it took. Keep your customer happy and pricing never became a big issue. This was certainly the case when I ran Michelin's heavy-duty and commercial business in North America during the mid to late 1990s. We sold the highest quality tires on the market and were able to command a premium price; in part because of the quality, but also because we had good relationships with our customers.
Over time, however, this sales approach has been put to the test, as customers discover how easy it is to pit suppliers against one another and negotiate them down on price.
Jose Ignacio Lopez was one of the first and most famous examples. As the newly installed head of purchasing at GM in 1992 and seeking to help manage GM's costs during a recession, he tore up existing contracts and demanded that suppliers agree to immediate price cuts of up to 20 percent. Suppliers protested, but many ultimately submitted to his demands. Lopez's early success delivered a windfall for GM. Emboldened, Lopez began to craft a new aggressive standard for purchasing operations - a standard that was to be copied not only by Ford and Chrysler, but also at many Tier I suppliers and other large players in the supply chain.
In the 15 years since then, this "low price" purchasing philosophy has found its way into many other industries, including the commercial vehicle aftermarket.
The good news is there is a way to counter customers' demands for lower prices and discounts. To do so, sales reps will need to focus less on golf outings and more on understanding, creating and delivering customer value.
A product or service is a commodity when customers perceive no difference between it and competitive offerings. In such a situation, the only basis for choosing between them, and hence the only basis for competition, is price. In any mature market, there is a tendency for products and services to become commoditized. As most of us are aware, this tendency exists in the commercial aftermarket. It need not be inevitable.
Many distributors and dealers have worked very hard to differentiate their offerings, and the fact is they are not all the same. Some offer a higher quality product line; others provide JIT delivery and services that improve inventory management and fleet maintenance; and still others provide superior customer service and faster problem resolution; all of which create value for fleets, primarily by reducing their costs or by enabling them to better serve their customers.
Slight variations in specific products and services, how they are delivered and how they are ultimately used can often dramatically impact fleets' costs. Yet most sales reps are stuck in a sales model and approach that emphasizes features and benefits, but leaves the customer guessing about the bottom-line impact of these products on their business.
In the current environment, it is becoming more and more critical for companies to translate the features and benefits of their technology, products and services into language customers can understand - the language of dollars and cents.
The business case
Most sales reps have learned to translate product features into benefits (higher quality parts = less unplanned downtime for fleets). Now, they must help customers understand what the benefits are worth in monetary terms (what is a 5 percent improvement in fleet uptime worth?).
Take lower quality parts. There are very real costs that fleets take on when they trade down and purchase the cheapest parts they can find. Oftentimes, these turn out to be copied, non-OEM certified parts, which can pose significant safety risks and increase exposure to liability. Fleets who economize in this fashion will have more road failures and irregular maintenance procedures. All of which increase the downtime of the truck, reducing efficiency and adding to costs.
Presenting this type of "business case" to fleets is both challenging and rewarding. It is challenging because it involves quantifying benefit claims - claims that can touch on complex processes such as those involved in the fleet maintenance and productivity. But it is rewarding for the same reason. Meeting the challenges that come with documenting value will give sales reps a powerful competitive advantage over their rivals, as well as allow the company to extract more value from customers - by capturing higher prices, reducing the amount and frequency of discounts, and by gaining a greater share of accounts from customers that are more profitable to serve.
Learning from the best
Research conducted by our firm earlier this year, in conjunction with the Heavy Duty Manufacturers Association, indicates that there is a segment of suppliers that are able to consistently get paid for the innovations and advantages that they offer to buyers, with some even winning price premiums 75 percent to 100 percent of the time. These suppliers have found ways to break out of the cost-focused, purchasing-driven, paradigm that is increasingly taking hold of the commercial vehicle industry.
How were they able to do this?
Interestingly, pricing strength correlated as much or more with effective sales strategies and tactics as they did with product / service advantages. For instance, the study found that perceived technology or service advantages do not correlate with winning premium prices.
It turns out what matters most is equipping reps with the right sales tools and collateral and making sure they are trained in the right skills. What tools and training are particularly effective? Many of these tools and training techniques can be adapted in your business, as well.
One area where our research found best-practice supplier salespeople differ the most from their peers is in the sales tools they use.
While every supplier provides customers with product brochures and data sheets, best practice suppliers are more likely to offer sales tools that document value to the customer. These fall into three categories:
* Anecdotal information regarding benefits to the customer
* Detailed analysis of lowering a customer's costs (i.e. improving fleet uptime)
* Case studies documenting and quantifying the value delivered to other fleets
The most successful suppliers differentiate themselves in their use of in-depth case studies documenting total value to customers. With their direct knowledge and experience of total-cost issues, fleets are a particularly important audience for these types of detailed, quantitative collateral.
Study participants were asked about the types of sales training programs they had taken in the past five years. The survey covered a range of training programs, falling into two basic categories:
Negotiations Training - these courses address topics such as competitive bidding strateg