StrategiesThatWork.com

We hope you find the following information to be both useful and interesting.  At the bottom of this page you will find brief summaries of other articles that may also be useful to you....

Use our contact forms to let us know what you think, other topics we should include, and so forth...

True Story

We had been working with the new client for a couple of months. I was looking forward to this opportunity to "tag along" with their lead salesman on a visit to one of their best customers. The salesman had a reputation for identifying the buyer's needs and presenting the product features that met those needs.

When we got out of the truck I was surprised to see we were at one of his dealer locations. As we went inside he introduced me to the owner of the dealership and we then proceeded to solve a problem the dealer's technicians were having with installation of one of the units they had sold.

I had met the dealer, but I had never seen the end user. Neither had the salesman. As we drove away I tried to understand what had happened. This guy was a really good salesman. The service he had provided to the dealer was certainly valuable. The installation problem was solved, so the dealer was happy now. Although everyone seemed to be happy, nothing seemed right.

Dealers Are Not Customers

The problem was, that salesman was only an adequate technician, so while he had gotten the unit installed that afternoon, he was not the best person for that task. Unfortunately, such tasks made up the majority of his daily duties.  It turned out that he spent almost no time actually selling to end users, where his unique skills could be put to best use.

I began to see what was wrong…the company had forgotten the difference between dealers and customers.

Dealers can be a vital component of your sales and marketing program, but what your dealers need from you is different from what customers (end users) need, and companies that confuse the two are not going to do what is best for either their customers or their dealers.

Dealer, Customer, What's the Big Difference?

Dealers carry your product for resale.

Customers purchase your product to consume it, to use it up.

Dealers will not continue to carry a product that customers aren't buying.

To be effective through a dealer network you need someone on your team (your salesperson) who will recruit dealers who will do the best job for your company, selling them on the idea of carrying and promoting your product. It may be a different person on your team who will train those dealers to sell your product.

Remember, those dealers don't need to be sold your product, they need to know how to sell it to end users. Those dealers will also need someone who will provide them with support when they need a problem solved. Finally, you need someone to be your "cheerleader", to keep the dealers pumped about your product.

You Cannot "Sell" Product To Dealers

The most important thing you need to appreciate is that your dealers are not actually buying your product, they are reselling your product. Getting them to take more product now simply delays their next order until end users buy it from them!  They are only interested in your product to the extent that their customers are interested in buying it from them.

Your "sales" efforts are not properly directed at encouraging dealers to buy from you…those efforts should be spent showing them how to sell for you. Because of this not so subtle distinction, too many manufacturers have sales forces trying to accomplish the impossible task - selling to the dealers.

The only person actually purchasing your product is the customer, the end user. Features and benefits make a difference to your customers because they make your product more useful, better able to accomplish whatever they purchase it for.

Your dealers are also interested in your product features, but only because those features help them sell to the end user, your mutual customer.

Your Product Matters

If you want a pound of nails, you go to a hardware store and buy them. If you expect to use 10,000 pounds of nails, you may wonder whether you need to go through your local hardware store to acquire them.

A dealer is the only logical source for some products and some quantities of products. On the other hand, as the products become larger in quantity or more custom in nature, the dealer's role may become less important.

In fact, the dealer is sometimes viewed as an inconvenient buffer between the producer and the user. What determines whether a dealer is valuable or unnecessary? Value added.

What Is Your Product?

We all need to be reminded that the product is more than the contents of the box we ship out. The product is also the technical support your customer can reasonably expect, the warranty, the credit terms, and the host of other intangible and often unspecified (on the order form) features the customer expects to receive.

Dealers offering service and local parts availability may be adding value to that product, and a company able to offer those features may have a competitive advantage over a company that cannot. On the other hand, if your customer has to go to a dealer, have the dealer call your plant to order a replacement part, then later come back to the dealer, pick up the part, and self install it, what did the dealer contribute other than a layer of inconvenience that could have been avoided by calling you directly?

It is critical that you understand what your real customer (the end user) actually wants, and then strive to offer that product. If your dealer network is offering something that a significant portion of your market does not need, you may have to reevaluate your dealers' role.

You also need to be sure that your dealers are not preventing you from offering your market what it really needs.

Why Have a Dealer Network?

Dealers and distributors can benefit your company and your customers in several different ways.

1) Dealers are a fast and relatively inexpensive means to achieve wide distribution for your product.

2) Dealers permit you to focus more on product design and production, and concentrate less on developing and maintaining a sales organization.

3) Dealers may know their local market better than you do.

4) Dealers stock necessary parts and provide service for your product

5) Dealers can "demo" your product. There are some products that customers want to purchase in a "shopping" environment. They want to walk around and look at the selection, not call an 800 number and place an order.

In short, dealers can add value to your product.

What About "Going Direct"?

A paradigm shift is occurring with automobiles. Advertisements are beginning to promote automobiles that go 100,000 miles without any required dealer maintenance.

If that claim proves true, the customer's need for the dealer begins to shift. More reliable and service free automobiles lessen our dependency on the dealers. This opens up many new options to the traditional dealer network for automobile manufacturers.

It is interesting that the states all have laws to require auto manufacturers to sell through dealers - how long will it take them to change those protectionist laws when enough customers feel the dealership is "in the way"?

While some people will want to continue purchasing from a traditional showroom, some of us may choose to buy directly from the manufacturer over the Internet, especially if buying direct saves us some money.  Why might a manufacturer consider a direct channel? Let's consider some of the potential benefits....

1) Increased margins

Let's stop talking about cars and consider a relatively high end household product. You make the product and sell it through your dealer network. So does your competition. The product has a retail price of $500. Your dealers purchase your product at a 35% discount from retail ($325), and sell it for 10% off retail ($450).

Your production, marketing, and distribution costs are virtually identical to those of your competition. Your bottom line shows you making a net profit of 2% ($6.50) per unit. If you were to sell your product direct at 80% of retail, not only would you be the lowest priced competitor in the market, you would earn $81.50 profit per sale instead of $6.50 (over 1300% increase) - a difference worth considering.

Sure, your unit sales might drop a bit, but you can afford fewer units with margins like that. Remember, you aren't in business to make units, you're in business to make money. If you chose to lead the prices down, you could starve out your competition and their dealers while still making more profit than ever before.

If nobody's dealers are adding much value to the sale, your direct approach could make you the only survivor in the market. With luck, your competition would not be able to set up direct sales and distribution quickly enough, and your lower retail prices would not leave enough room for manufacturers and dealers to make adequate profits to justify staying in the game together. You win.

2) A chance to actually sell your product

Your product has a lot of characteristics, and some of those characteristics, properly presented by a good salesperson (or advertisement), are valid reasons for a customer to choose your product, even if it costs a little more.

Ask yourself the question, are your dealers actually selling your product or are they simply accepting orders for products your marketing efforts have pre-sold? What extra value has the dealer added to this transaction? Did you make the product, and then sell the product with your marketing efforts, only to then let a dealer take the lion's share of the profits?

Too many manufacturers are discovering that their dealers are simply taking orders for products their customers already wanted You may not need to lower your price or add features in order to dominate your market - in too many cases all you need is to start selling the features your product already has!

3) Better compete with small competitors

Your dealer margins may be providing an opportunity for small competitors to flourish.

Let's say a national producer establishes fair market value for a product, and sells through a dealer network. Local (less efficient) producers sell direct to the end users at a discount. In spite of their lower efficiency, the small producers maintain the same (or greater) margins as the larger organization. How? No dealer.

Plus, the local manufacturer has plenty of opportunity to actually sell his product's features, and in the process, obtain valuable customer feedback, helping him improve his product.

4) Better customer feedback

Your dealers tell you what you need to know about the market, right? Maybe. Some dealers will be totally honest with you, but they can't tell you what they don't know, and the end user isn't always honest with them. For example, an end user who is negotiating to get a better price on your product may make a big issue with your dealer of certain product "weaknesses" that are actually unimportant. Feedback from that dealer could cause you to fix something that isn't actually broken.

On the other hand, some dealers will send you off chasing your own tail as they blame their weak sales performance on imaginary product deficiencies when the real problem can be tracked down to their lack of skill (or effort) in promoting and selling your product.

5) Control of the customer relationship

The end user has the power because the end user is the only one putting money into the system. Whoever controls the end user controls the game.

If your marketing produces leads that result in dealer sales, you control the game until you turn those leads over to the dealer. You can stay in control if you follow up with the end user to make sure they were serviced properly.

If the dealers generate their own sales leads, you are simply a product manufacturer, they are in control, and those dealers can make you or any other manufacturer meet their product feature or pricing demands. Why? Because they control the customer.

Do you choose them to be your dealer, or do they choose you to be their manufacturer? Free enterprise is the economic version of survival of the fittest.

If your dealers are adding more to the value of your product than they cost, they are worth keeping. If not, you may have to consider other options.

Having it both ways

In too many cases manufacturers believe they have only two choices, go direct or sell through a dealer network.

In fact, many have succeeded in having both distribution channels. Needless to say, dealers are usually not too excited about competing with their supplier.

This means that you can either compete indirectly or present your intentions openly and "take the heat".

Going Direct, Indirectly

You have several ways to reach customers that may not unduly upset your dealer network.

1) You can direct market a rebranded version of your product line. This keeps you from competing directly with your dealers, but it also prevents you form taking advantage of your name recognition and product reputation.

2) You can sell direct to a market segment not being serviced by your dealer network. This is one reason some companies choose to enter new markets, finding that the cost of entering those markets is more than offset by the increased margins produced by the direct sales.

3) You can define a portion of your existing market as direct sales. This may be specific large accounts or OEM's. Although this might upset the few dealers actually affected, most will be unaffected, and they will generally continue with "business as usual". After all, selling your product is still making them money.

Going Direct, Directly

Sometimes you cannot accomplish your goal of direct sales without actually competing with at least some of your dealers.

1) You may open company stores in areas representing the greatest sales opportunity.

2) You may sell direct (perhaps using direct mail and the telephone) to consumers that do not need a dealer's value added services, and refer all sales that need those dealer services to your dealers. If this move is made as you increase your marketing efforts, dealers may experience no decrease in business.

3) If necessary, you may establish parts and service center "dealers" that do not sell your product at all, making all of your sales direct to the end user, eliminating the traditional dealer.

4) You may improve your product to reduce the need for dealer parts and service, selling this new consumer friendly product directly against your competition's maintenance intensive unit. If your competition is working through dealers and you are selling direct, you may be able to offer this superior product for less money, achieving market dominance by offering the end user more for less. Combine this new product with overnight parts delivery and you are a force to be reckoned with.

How to Decide, Dealer or Direct?

The decision is actually easy, it's the implementation that may be somewhat challenging. As previously mentioned, free enterprise is the economic version of "survival of the fittest". The question you have to answer is "Do my dealers make my product more or less "fit" in the marketplace?" You will have to know your customers, your product, and your competition intimately.

Would end user customers rather save some money and forego the services offered by the dealer? Is it possible that some of your dealers are only carrying your product in order to get your leads and establish a price point so that they can more easily sell a (higher margin) generic competitor?

The basic mission of any company that wants to win in a competitive environment is to sell the end users the products they want to buy, the way they want to buy them. If your customers want to purchase from a dealer, by all means, establish and maintain a strong dealer network.

If your customers would prefer to deal with the manufacturer directly, they will, because some manufacturer will eventually catch on and offer them what they want.

Can I Start Selling Direct?

What you want to avoid is a big drop in sales as you switch from dealers to direct sales. The first question you must ask is, how necessary is your product to your dealers? Even though they are not pleased to see their manufacturers start selling direct, many dealers continue to sell the product for one simple reason - they are in business to make a profit, and the product serves that purpose. True, they are generally displeased with your lack of loyalty to your dealer network, but manufacturers forget that most dealers are only loyal to product lines that are selling well!

How your dealers will respond to your new way of doing business will be determined by their other options and your market presence.

Disrupting your dealer network is a big step, one that should be based on a thorough analysis of the market. Moving from a dealer network to direct selling can take months (sometimes years) of preparation, sometimes making it impossible for sleepy competitors to respond before it is too late.

While it may be scary to contemplate such a bold move, it should be even scarier to contemplate the risk of letting your competition "get the jump" on you.

Best Picks...

....If you are in a hurry and can only read a few articles, the following five are the ones we hear the most about...

They are a bit longer than most of the others, but they will give you something to think about....

Could You Run A Winning Football Team Like You Run Your Company?

Teamwork - Coaches and players speak to business professionals, encouraging them to build teams that can win.  Let's compare your company to a professional football team....

Eating The Heart Of The Watermelon

The heart of the watermelon is the sweetest and lowest hassle part - so why bother with the rest?  You may not want to follow this thinking at your next picnic, but it sure works when making customer and product decisions!

Quit Your Company - An Exercise

This exercise will force you to see your company and the competitive landscape differently than ever before.  It will help you decide what needs to be done in order to stop the competition you don't even have yet...

Dealers And Distributors (Short Version)

You may need dealers and distributors- or not.  The real issue is whether your end users feel that they need your dealers and distributors!  Companies win when they offer end users what they want....

Dealers And Distributors - And "Going Direct"

If you have a dealer and distributor network, should you consider "going direct"?  Let me ask you this - if a major competitor did, what would happen to you?  That's your answer - this will help you see how to do it....

Management Theories

Not all management theories work - and this section discusses some theories that have problems

Reality Instead Of Theory

You can't believe everything you have been taught about business.  Most of it is true, good information - the trick lies in knowing which parts to believe, and which parts to reject.

Positive Reinforcement Myths

Positive reinforcement can result in training and motivational miracles - but there is one little catch...everyone in the "real world" seems too well fed for it to work!

Truth About Advertising - What Advertising Awards Mean To You

Advertising awards are something ad agencies love to display - perhaps it gives them a feeling of credibility.  It's a shame those awards don't reduce their client's advertising costs or increase their client's sales...

"One Size Fits All" Management Fads

Management fads do a lot of damage - they send companies off in wrong directions, and they erode the confidence of managers.  How?  Managers try the latest fad, and when it doesn't work, they assume it is because they were not good enough - it's a shame, because their instincts are almost always more effective than the fads...

TQM - The Quality Myth

TQM has been a major force for a number of years.  Although it has lost some of its luster in many circles, its proponents (consultants getting wealthy, perhaps) continue to re-invent it under a constant flow of new names....

Your Departments

The last group of articles in this section apply to sales and marketing.  The reason this area is receiving so much attention here is that there seems to be more confusion in that area.  Let's just take a quick look at some of your key departments...

Accounting Excitement

If business was a sport, the accounting department would be keeping score.  Unfortunately, the accounting department seldom provides the kind of information managers need in order to make good decisions....

Purchasing

Purchasing is more than "buying what you said you wanted", it is a proactive role that investigates better products and anticipates demand.

Engineering And R & D

Engineering creates your "new and improved" products - you need to make sure they know what your company and your customers want from them.

Manufacturing

Manufacturing - Manufacturing efficiencies largely determine your costs - and costs largely determine your competitive position!  Efficiency requires great management, management willing to do what it takes to attract and retain the very best people.

Entering New Markets - Then Closing The Door Behind You

Entering new markets - you couldn't do it if the companies already in those markets were staying in touch with their customers!  Remember that after you enter a market - or you may become someone else's "new market"!

Innovate, Renovate, But Satisfy Your Customers

Things have changed faster than most companies have changed - the web, overnight delivery, long distance charges, longer lasting products, direct (to consumer) sales - there are many ways to combine these things to satisfy your customers - and gain market share.

A Winning Marketing Campaign - Lousy Sales

Heartbeat Of America.  The ad campaign won awards, but market share slipped.  Winning companies match great marketing with great products - then the competition loses while consumers win.

Strong Companies Win In Efficient Markets

Marketing is not the art of lying without getting caught.  When your product is the best choice, there is no need to lie.

Applied Market Research - Satisfied Customers

Market research can come from a consultant, but it should also come from your own employees.  Having market research means nothing, however, if you don't use it to make customer driven decisions.

Selling To People - Not Markets

Sometimes we can forget that markets don't buy anything, people do.  Market research is valuable, but make sure it tells you about real people.  Nobody wants your product - they want a way to solve a problem or meet a need - perhaps your product can help them accomplish that.

Advertising For Sales, Not Awards

Advertising - why are you doing it?  If it is for sales, you may need to make sure your agency understands your priorities - instead of pursuing "awareness" and "impressions" - if you want sales, hold them accountable for sales!

The Rest Of It...

Not everything fits into a file, box, or compartment - this is the rest of it....

StrategiesThatWork.com Homepage

Marketing should not be a lie - build a company with productive labor, efficient purchasing, great design, accurate accounting, rational distribution - and the result is a truth you are proud to tell.  Marketing becomes a simple matter of telling the truth to people who are interested!

Eating The Heart Of The Watermelon

The heart of the watermelon is the sweetest and lowest hassle part - so why bother with the rest?  You may not want to follow this thinking at your next picnic, but it sure works when making customer and product decisions!

Dealers And Distributors - And "Going Direct"

If you have a dealer and distributor network, should you consider "going direct"?  Let me ask you this - if a major competitor did, what would happen to you?  That's your answer - this will help you see how to do it....

Dealers And Distributors (Short Version)

You may need dealers and distributors- or not.  The real issue is whether your end users feel that they need your dealers and distributors!  Companies win when they offer end users what they want....

Quit Your Company - An Exercise

This exercise will force you to see your company and the competitive landscape differently than ever before.  It will help you decide what needs to be done in order to stop the competition you don't even have yet...

Three Kinds Of Employees

The right employees are one of the most important resources a company has. Most employers are quite aware of how valuable a great employee can be, but have a difficult time figuring out who the great ones are.  It helps to divide the work force into three groups.... 

Your Mission Statement - What It Means

A mission statement is not something you can carve in a plaque next to your door, because it needs to change.  Mission statements establish priorities, and if customer satisfaction is not at the top of those priorities, you may have a problem.

Could You Run A Winning Football Team Like You Run Your Company?

Teamwork - Coaches and players speak to business professionals, encouraging them to build teams that can win.  Let's compare your company to a professional football team....

Performance Reviews

Performance reviews.  Yawn.  While performance reviews are not exciting, few things can do more to shape your company.  Done right, they can make a big difference...

"Honey, We Need To Talk"

"Honey, we need to talk" are terrifying words when they come from your spouse.  You may feel that you have an "open door policy", but walking in that door feels a lot like "Honey, we..." to most employees.  You need an easy way to stay in touch - like lunch!

Partnering And Sole Sourcing

Partnering - we hear a lot about it, but if you aren't willing to be a partner in your purchasing, you are not ready to ask your customers to trust you in that role....walk in their shoes for a moment.

Customer Focus

"Customer Focus" is something we hear a lot, but seldom results in much action.  Funny, isn't it, that customers are the only people who leave money in your company - everyone else is there to take some out....

Science Of Yourco

You don't have to look further than the nearest business magazine to find a few easy steps to management success - so why bother to develop a "Science Of Yourco"?