Value-Added Distribution Services That Strengthen Customer Relations

Guest Post by Derek Singleton

Derek approached me after I reposted some of his very good content on adding value. After reading this, head over to his website and see his other good advice.  Reg

Distributors always have a host of pressures to contend with. For instance, the industry is constantly grappling with fierce competition and rising fuel prices. Under these conditions, it’s becoming more important than ever to maintain customer relationships. Like other industries, one of the ways that distributors can strengthen their customer relationships is by offering value-added services.

But what services should distributors offer? Customers have a whole laundry list of services they’d like to see added. These services range from providing consultations to managing customer inventory. Of course, distributors can’t provide all of these services. They have to pick and choose which they’ll provide. I’d like to highlight three value-added services the industry should consider providing their customers.

1. Vendor Managed Inventory

Vendor managed inventory (VMI) is a concept first popularized by Walmart. Under a VMI system, the distributor assumes responsibility for keeping their customer’s inventory levels stocked at optimal levels. While this is a complex undertaking, advancements in web-based software and mobile capabilities are making it easier to manage inventory on a customer’s behalf. As an example, a distributor at their customer’s location can access their their software with their smart phone and initiate a new purchase order to restock inventory levels.

2. Delayed Product Assembly

Distributors that work with manufacturers have an opportunity to increase customer satisfaction by delaying product assembly. Distributors get great discounts by purchasing component parts in bulk and assembling the product as orders come in. However,  managing product assembly can be tricky. To effectively manage delayed assembly, distributors should rely on the bill of materials (BOM) functionality in their wholesale distribution software. A bill of materials allows distributors to track the components parts, item numbers and proper packaging specification to ensure that final assembly is done correctly.

3. Improve e-Commerce Support

In the digital age, more and more retail are operations are asking distributors for help in fulfilling online orders. Supporting online sales distributors shifts the traditional dynamic of distribution operations by shortening delivery times and increasing the number of shipments. To handle the demand of fulfilling online sales, distributors need to focus on integrating their system with their customer’s. This allows distributors to receive orders instantaneously and to pick, pack and ship these orders in the most efficient way possible. Of course, it’s also possible to fulfill online orders through manual methods but these have a large efficiency gap compared to automated systems.

These are just a few of my ideas on how distributors can improve their customer relationships. If you’d like to see an expanded list of value-added services, please visit the Software Advice website to view the original article at: How Distributors Can Improve Relationships with Value–Added Services.

Related articles

• How Distributors Can Improve Relationships with Value-Added Services (rocketbuilders.blogspot.com)
• Calling all resellers, distributors and integrators (go.theregister.com)

Bottom-Line Selling. The sale’s professional’s guide to improving customer profits.  Jack Malcolm.  2011. Second Edition. ISBN 9781935961321. This was first published in 1999, but the story is is even more true today as then. If you want to sell in value, you need to prove it to  the client using their data. To be more than a discount salesperson this is the type of book you must devour on your way to the top 5%.

A long time ago I built and used a presentation,  “What Your  CFO Can Teach Your Sales Team”. In it I laid out the various simple quick ratios a salesman can use to analyze a prospects annual reports to see if they would qualify for terms, their profits and where they came  from , growth rates, and several others.

Malcolm’s book goes much further than that PowerPoint of mine in a a very readable and digestible manner.  Any solution seller will recognize the terms used and also learn many more.  I always ask clients, “Do your salespeople  deserve to take the client meeting?  Have they done their homework.? ”  Malcolm’s book has the right kind of homework here for all the value sellers. Excellent revision and a valuable addition to any sales managers/salesman’s library.

Paul McCord does a terrific review of this very valuable book.  See http://salesandmanagementblog.com/2011/12/05/book-review-bottom-line-selling-by-jack-malcolm/

Related articles

• Book Review: Bottom-Line Selling by Jack Malcolm (salesandmanagementblog.com)
• How to Become a Cash Flow Engineer for Your Customers (rocketbuilders.blogspot.com)
• Value-Added Selling. How to sell more profitably, confidently and professionally by competing on value not price. Tom Reilly (regnordman.com)
• Accelerate the sale. Kick start your personal selling style to close more sales, faster. Mark Roberts. (regnordman.com)
• Pricing and Profitability Management. A practical guide for business leaders. Meehan, Simonetto, Montan & Goodin. (regnordman.com)
• Zero-Time Selling. 10 Essential steps to accelerate every company’s sales. Andy Paul (regnordman.com)

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Some recent articles on value, pricing and sales came across my desk last week.

You”re pricing it wrong from SmashingMagazine .  You’re pricing it wrong is by Fran Galperin.  He presents some very compelling arguments making this a useful read for all.  I  I picked up on two definitions of value he used,  Perceived and Objective value.   In his words, “You can set a higher price without changing your product just by changing the potential customer’s perception of the product.”  Objective value is how much would people pay if they were indeed rational decision-making machines. “

He believes that buyers are not logical, rationale decision makers, but are much more emotional about decisions, giving the perceived value more importance in a sale. “Vendors can improve the perceived value through marketing with such things as copy, visual design, and demos.” In our research we have seen how marketing has just such an impact on presetting the reference price of a product and contributes to the the retention (or loss)  of value through the sales process.

The Sales Lead Black Hole ( download)  from Penn State Business school – marketing is a scholarly analysis of why 70% of marketing’s leads are not followed up by the sales team.  It is good research and could be one of a kind in this area.  In the summary they say,”

“We find that sales reps spend more time pursuing marketing leads if they

perceive their firm has an effective sales lead prequalification process.

We also find that as sales reps become more experienced, they are less likely to:

1. pursue marketing-generated leads,
2. respond positively to managerial tracking of marketing lead follow-up, or
3. respond positively to greater marketing-generated lead volume.

Our results also show that the better the sales reps’ past performance, the more likely they are to respond positively to

an increase in volume of marketing-generated leads and respond negatively to managerial tracking of marketing lead follow-up.”

This is material that gives good directions for how sales managers can make a greater impact on the team performance.  It is academic but is very direct in application and well worth the read.

Exploring Price Fairness Perceptions in China and U.S. by Lisa Bolton, associate professor of marketing at Penn State’s Smeal College of Business, along with Hean Tat Keh from Peking University and Joseph W. Alba from the University of Florida, Pennsylvania State Business School.   Fascinating bit of research.   E.g.

• Bolton, et al  find that both Chinese and American consumers judge it fair to pay a lower price but unfair to pay a higher price than paid by another customer. In other words, “what’s good for me is fair”—a kind of egocentric bias at work.  However, the Chinese are especially sensitive to the type of comparison. For example, Chinese consumers judge it unfair to pay a higher price than a friend but are indifferent to the price paid by a stranger. In contrast, Americans are indifferent to the friend-stranger distinction, judging it equally unfair to pay a higher price than paid by either a friend or a stranger.
• These findings reflect the tendency of Western cultures to possess an independent, individualistic identity, whereas Eastern cultures are interdependent or collectivist in nature. Bolton says the Chinese “view the world as a network of social relationships and are, as a result, strongly oriented toward the in-group (friends and loyal relationships).” In contrast, Americans see the world in terms of independent and autonomous individuals and are less sensitive to relational information.  For example, prior research shows that Americans perceive friends, coworkers, and business owners as equivalents, but such is not the case for the Chinese, who put greater emphasis on their personal social networks.
• Another concept that comes into play in the research conducted by Bolton and her colleagues is a culture’s sensitivity to mianzi or “face.”  Face is defined as status earned in a social network, and a person can either gain or lose face depending on the situation. Keeping in mind the difference between the collectivist Chinese consumer and the individualist American consumer, Chinese consumers typically experience a greater loss of face if they pay a higher price than a person in their in-group as opposed to someone in an out-group. For example, paying a higher price than a friend affects the Chinese consumer’s status or “face” within the social network and is experienced as a feeling of shame. In contrast, the American consumer tends to feel anger at paying a higher price than another consumer, friend, or stranger.
• Ultimately, consumer price fairness response and emotional reactions affect customers’ interactions with the firm in regards to purchase intent. For example, American consumers report lower intentions to re-purchase after paying a higher price than another consumer, whether friend or stranger. Chinese consumers are less likely to re-purchase after paying a higher price than a friend, but are unaffected by what a stranger paid.
• Interestingly, the cultural differences in sensitivity to relationships among consumers also extend to relationships between consumers and firms. The researchers find that “Chinese consumers judge it unfair to pay a higher price than another customer when in a loyal relationship with a firm but are relatively indifferent when in a first-time buyer situation. In contrast, Americans judge paying a higher price than another customer as unfair regardless of past loyalty to the firm.” Again, the results appear to be driven by face:  Chinese consumers experience a greater loss of face when they pay a higher price to a vendor with whom they have a long relationship as opposed to a new vendor.

These findings by Bolton and her colleagues suggest that price perceptions are more a matter of psychology than economics—with many implications for marketers, particularly in the areas of dynamic pricing and relationship marketing. If consumers feel that dynamic pricing is unfair, marketers can defend themselves against consumer backlash by using differentiation to reduce the impact of the price comparison. Doing so may be especially important with American consumers, who will resist paying a higher price regardless of the identity of the other consumer.

In terms of relationship marketing, conventional wisdom states that loyal consumers are less price sensitive, so they’re willing to pay a higher price. According to Bolton, “Our research suggests that, if anything, loyal consumers are more price sensitive.” Americans are equally sensitive regardless of whether they’re loyal or first-time buyers, and Chinese consumers are more price sensitive when loyal. As a result, marketers need to take into account the importance of culture, and the role of social networks and personal relationships, in order to effectively market their products in the United States and China.

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Rusher’s Gap and its implications on pricing.  (Thanks to David Moulton for pointing this out to me.)  Rusher’s Gap is named for the former magazine publisher William Rusher. Rusher’s Gap is the difference between the extra amount you figured something would cost and what it actually did cost.  Here is an example common today in software sales.

One of the unplanned outcomes of the hey days of big , costly ERP software implementations is that savvy CFOs and procurement officers who have gone through the process now believe that if the software is quoted at  say $350 000, the true cost of deploying, and implementing it will be another $350 000, a Rusher’s gap. making  the total is twice as much.   Thus sometimes when buyers receive quotes  for software now, they do not believe the number but automatically double the amount, causing them to push back.  As Bob  Artner says  on TechRepublic, this is different from sticker shock . The price oriented  salesperson  goes back to his manager and negotiates a hefty $50 000 discount (14%). The purchaser sees a $ new quote for $300 000 and in his mind makes that a $600 000 total purchase.

Artner goes on to say”

Rather than spending your time defending the cost you quoted or speculating how you can save money at the margins by cutting out features, what you need to do is convince the would-be client that the number you quoted, no matter how high, isn’t going to go significantly higher.  In other words, instead of trying to defend x, you need to explain why it’s going to cost x, and not 1.4*x, and then some.

How do you do that? Well, here are some suggestions (and there are plenty more):

1. 1. Make sure that your numbers are right before you walk into the room.
   2. Provide milestones on the project path that break down the expenses by project phase.
   3. Perhaps most importantly, provide references that can attest to your firm’s ability to accurately forecast project costs.

Thus if  a sales force is working from a value based pricing model, when faced with what could be a Rushers’ Gap, they need to be prepared with the above proof and activities.  Better yet, the value based pricing model includes a response to Rushers Gap. For any selling organization, on budget execution after the sale is paramount to providing proof needed in the next presale in order to get to the value based pricing.

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Value-Based Pricing. Harry MacDivitt & Mike Wilkinson.2012. ISBN 9780071761680.  This is one of the best texts on this topic I have run up against so far.  First the descriptions of pricing and how it is arrived at is succinct, clear and bang on the money.  Second this is the first pricing book that really identifies how many objections that sale can find with changing the pricing strategy  as well as the huge obstacle that sales is to implementation.  Then they do show you how to capture customer value in order to extract the price you deserve. The case studies at the end of the book are a bonus for those serious about implementing value based pricing. This is a must have reference for sales and marketing organizations as well as CEO’s.  Plus with both authors from the UK, they do not waste a word- it is all clear and valuable.

Related articles

• LinkedIn Poll – Where does pricing have the most impact in the sales funnel? (leveragepoint.com)
• Webinar – Improving the Value Proposition for New Products with Dick Braun of Parker Hannifin (leveragepoint.com)
• Implementing a Value Based Sales Approach. Part 2 of 4. Marketing (regnordman.com)
• The Art of Pricing: How to find the hidden profits in your business. Rafi Mohammed. (regnordman.com)

Image by Getty Images via @daylife

The Art of Pricing: How to find the hidden profits in your business. Rafi Mohammed. 2005. ISBN 1400080932.  Out of print but still available on a Kindle this is a book by the author of the 1% Solution. It has a slight B2C slant but the basics of effective pricing are there. I especially appreciated the description of the ground breaking work done at Ford on pricing.  The idea of setting margin as the sales goal versus volume has been set out before, but Ford exposed the profit margins on all products to the sales team with very profitable results.  Mohammed asks the practitioner to determine the naked net price of an item.  He is a fan of differential pricing – are the right customers paying the right prices?  He spends a good amount of ink on what is the value and  stresses that you can not assume that all players have the same definition of value.  In setting pricing he says you must temper your pricing objectives with a sense of fair pricing, company strategy, and the competition.  He has a useful template that asks you a lot of questions about pricing, which help lead you to better decision making.  This is a foundational book, which focuses on setting prices.

Related articles

• How to Play Marco Polo When Setting Prices (blogs.hbr.org)
• No B.S. Price Strategy. The ultimate no holds barred kick butt take no prisoners guide to profits, power and prosperity. Dan S. Kennedy & Jason Marrs. (regnordman.com)
• Smart Pricing. How Google, Priceline, and leading businesses use pricing. Kagmohan Raju & Z. John Zhang. (regnordman.com)

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Building Business Value. How to command a premium price for your midsized company. Martin O”Neill.2009. ISBN 978098205056905.  As part of my ongoing pricing research I was lead to this book.  It does exactly what it says it does.  In a well thought out style the author leads you through the internal and external drivers that determine the value of your company. Very telling advice was , ” If you drive to increasing company value, you can exit at any time”.  Any business owner will benefit from going through this book and answering the questions the author asks.  We see too many companies who would be rockets if they just asked themselves a few simple questions.  Well written, good notes and through bibliography make this a long term reference book for the business owner. I especially liked his way for describing what good was , then pointing out how to measure how good your company was, the major ways that people fail and how to prevent that.

Related articles

• Pricing for Profit. How to command higher prices for your products and services. Dale Furtwengler. (regnordman.com)

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How to Sell at Margins Higher Than Your Competitors: Winning every sale at full price, rate or fee. Lawrence L. Steinmetz & William T. Brooks. 2006. ISBN 978-0471744832.  (also Kindle).  This is a small but detailed book and one I recommend to any sales manager charged with getting margins up.  A bonus with the book is a complete addenda that lists all the ways professional buyers will mistreat (beat up ) a seller in order to get him to crack on price. if you have been there as a sales man you will recognize some of these immediately!  Buyers lie in order to get you to lower price.  If they could get it from someone else at a better price, why are they still talking to you  (unless they can’t get delivery, quality, service or they are not allowed).  The authors discussion of the price buyer is excellent and thorough.  What I appreciate about the book is that it is more than a list of what happens, they then give you tactics that are useful in the sale.  I have been at this a long time, and never knew the breadth of tactics in this book. I have already been able to use a few in the last few days to great results. (What do they say about the old dog, new tricks?)  Their one chapter analysis on setting prices gives the practitioner immediate tools to help decide where you should stand.  They are dead set against letting the market determine price – you have to.  An essential book for your sales library.

Related articles

• You’re Working Too Hard To Make the Sale. More than 100 insider tools to sell faster and easier . William T. Brooks & Tom Tavisano. 2nd Ed (regnordman.com)
• Consultative Selling. The Hanan formula for high-margin sales at high levels. 8th Ed. Mack Hanan (regnordman.com)
• With sales vs. profits, listen to your market, not your ego. (vailchris1.wordpress.com)

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Killing Giants. 10 strategies to topple the Goliath in your industry. Stephen Denny. 2011. ISBN 9781591843832.  The author has put down 33 first hand stories  ( Eg Vibram barefoot runners, Dunking Donuts taste test,  Jetblue) organized under ten different strategies.   This is a book that should be in hands of every small business owner or small division owner. The stories are compelling, recognizable and very well organized  (The author has a strategy for that as well)  Smaller companies should be more nimble and market responsive than the giants.   Great line that I extracted, over time incumbent companies grow to resemble their markets ( like owners look like their dogs) .  Large companies acquire habits that smaller firms can get around and find opportunities.  Good read and well put together.

Related articles

• Guerrilla marketing can be like warfare (theglobeandmail.com)
• Killing Giants is a Way of Doing (and a Book) (conversationagent.com)
• How to Take on a Giant (ducttapemarketing.com)
• Viva the underdog! (drewsmarketingminute.com)
• How to Build a Speed Culture for Your Business [Infodoodle] (mpdailyfix.com)
• Valeria Maltoni: How Barnes & Noble’s Nook Just Shifted the Playing Field: a Giant Killer In The Making? (stephendenny.com)
• Killing Giants, a video review (jeffesposito.com)

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Pricing with Confidence. 10 ways to stop leaving money on the table by Reed Holden,Mark Burton . 2008. ISBN 0470197579.  This is a book for the practitioner, whether it is CEO, CFO, VP Sales/marketing.   They do a very good job with strategy:

• set pricing and offerings
• establish list prices and base agenda

and tactics:

• actual transaction prices
• rules for negotiations
• holding to earned legitimate discounts, alignment with street price

They give you a model of change how to go in small steps from:

• cost plus
• value enhanced cost plus
• better market driven to
• value driven.

There is also lots  of meat there for the in-the-trenches salesperson with a surprising (to most sales managers ) metric showing that you can expect maybe 38% of your prospects to be price driven, with the rest being relationship or value driven. They also show you how to best deal effectively with all purchasers including the poker playing purchaser .  The case studies are good and easy to emulate.  This is an easy to read, easy to use book.  My only concern is that its been around for 3 years and I could have used it all the time.  Put it on your Kindle and keep reading it over and over.