Helping Manufacturers And Distributors
Improve Sales Performance And Profitability
Published by the Industrial
Performance Group, Inc.
No. 30

Doing Business the Customer's Way

Today's customers shop and buy very differently than ever before. With access to many different sources for information, products, and services, customers will use whatever channel – or combination of channels – best meets their needs.

To succeed in this new environment, you need to understand the paths your customers take to purchase the products you sell. Then you need to structure your channels so they fit with how your customers want to shop, rather than how you want to sell.

Traditional Channel Design

Have you ever asked your stock broker or travel agent for advice and then made your purchase on-line to get a better price? There is a 50/50 chance that your answer is yes.

Forrester Research has found that as many as half of all customers now seek information and support from one channel and then switch to a lower price channel when it comes time to purchase the product.

Of course, customers didn't always have this degree of flexibility. In the past there was an unwritten rule that customers would pay for the information and services they utilized as they moved along the path of determining which products to buy and then actually making the purchase.

Sales/distribution channels were originally designed around the fact that customers needed information to make purchasing decisions. The more complex the decision, the more information a customer needed.

The primary role of the channel was to provide customers with the information and support they needed. These traditional channels were also responsible for having products available for delivery.

Competition between these traditional channels was based on the balance between price and the level of information, service, and support provided to the customer. For example, customers knew that in order to get the pricing offered by low cost channels, they would have to accept lower levels of information, fewer frills, and a rather ordinary shopping experience.

Customers also knew that they would have to pay more for the higher level of information and support provided by a full service value-added supplier. And for the most part, customers would stay with the same channel, or path, from the beginning of the process to the actual purchase.

This approach to the market worked exceptionally well for a number of years. Customers were happy because they could manage the balance between the price they paid and the level of information and support they received.

Distributors and reps were happy because they were being fairly compensated for the services they were providing. And manufacturers were happy because they were getting the market coverage they needed to accomplish their sales goals.

However, things began to change during the 1980s, particularly across the retail landscape.

The New Customer Profile

The transition from locally owned retail stores to large national chains offered customers cost savings of up to 20%. However these cost saving came with substantial give-ups for customers such as a lack of knowledgeable sales people, fewer services, and a warehouse environment.

As competition between these mega retailers escalated, they responded by focusing even more intensely on price as a basis of differentiation. The continued practice of Every Day Low Pricing -- EDLP -- has gone a long way toward conditioning customers to aggressively seek the lowest price possible.

On the heels of these changes, the information revolution of the mid 1990s has forever changed the way products are taken to market.

Before the internet, customers had to schedule and spend time meeting with various suppliers to gain access to product performance and pricing information. The Web provided these customers access to this same information 24 hours a day at next to no cost with a minimal level of involvement.

This access to high-quality information combined with their heightened price sensitivity has created a customer that is more sophisticated, better informed, and often times more adversarial than customers of the past.

Today's customers are keenly aware that they have access to many different sources for information, products, and services. They also understand that they are empowered to use whichever channel -- or combination of channels -- best meets their needs.

Customers no longer play by the rules of traditional channels. They routinely unbundle the information -- product -- service offering of any channel and then cherry-pick what they want. They will also determine the information and/or services for which they are willing to pay -- if they are willing to pay for them at all.

Today's customers see nothing wrong with asking their local feet-on-the-street supplier to help them solve a problem or determine which product best meets their needs. After all, isn't that what full-service suppliers do? But once they’ve identified the best product for their needs, they will often purchase the product on-line or order it from a catalog.

When this happens, the feet-on-the-street supplier gets stuck with the costs of helping the customer determine what to purchase while the on-line supplier and/or catalog house gets all the economic value created by the transaction.

Have customers become more malicious in the way they shop? Not necessarily – they're just taking advantage of changes that have greatly increased their access to information and products.

As a result, manufacturers and distributors alike are being forced to rethink how they market and support the products they sell. But despite these radical changes in customer purchasing behavior, most products are being sold and distributed through channels that have changed very little during the past 10-20 years.

Building a New Channel Strategy

To adapt to this new reality, you must first understand the path your customers prefer to take as they move through the process of acquiring and using the products you sell.

You need answers to the following questions:

From which channels do our customers seek information prior to the purchase and why?

From which channel do they purchase the product and why?

From which channels do they seek post-sale support and why?

You will likely discover that your customers are using resources from various channels to meet their needs. You will also discover that some of these channels are being financially rewarded for supporting the customer and some are not.

Your goal is to structure your channels so that it's easy for your customers to move through the path they have chosen. In other words, you want to make it easy for customers to purchase your products.

You must also find a way to serve these customers in a manner that is profitable for everyone involved.

The first step is to accept that you can no longer force customers to play by your rules. Remember -- it is the customer who will determine how, when, and where they want to buy.

For additional information on determining your customers' preferred path to purchase, call 800.867.2778

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