QDI Strategies: Channel Strategy and Management Project Example

COPYRIGHT 2015 QDI STRATEGIES, INC.
QDI: Channel Strategy and
Management
Project Example

Identifying Opportunities to Increase Value to and from
Distribution
One of our clients believed that he needed to improve the performance of
his distribution network. To do this, he asked QDI to help him develop a
better understanding of how his products fit into his distributors’
businesses and to benchmark his performance versus their other
suppliers.
This report shows some of the high level findings in terms of our client’s fit
with the distributor’s business. We then show the benchmark results,
including a few of the detailed comments on performance on specific
criteria.
Finally, we provided a strategic perspective on our client’s business with
recommendations that would improve the performance of his distributors.
Channel Strategy and Management

Objectives for the Project
• There were several objectives for this work:
– To benchmark Client’s performance in areas viewed as
important to the distributors so Client can reallocate resources
– To develop strategy and tactics based on the voice of the
market
• Assignment of customer service rep, sales reps etc.
– To provide institutionalized learning for each distributor so
that Client can take appropriate action
– To relay problem areas right away to Client management for
immediate action
Methodology:
Project
Objectives

Methodology
• Contacts were selected by Client management
• In-depth telephone interviews were conducted with 33 locations
using the discussion guide in the appendix
• Letters from Client were mailed and faxed out requesting
cooperation
• 90% of the interviews lasted 45 minutes or more
– Several lasted 90 minutes
• Some of these had several people at the other end of the phone
Methodology:
Understand
Customer
Behavior

Profile of Distributors
Product Line Importance
25%
14%
61%
Fiber Products
Erosion Control
Other
Fiber Products: Growing 10%
Erosion Control: Growing 36%
Client’s product lines
are important to
distributors!
Methodology:
Understand
Distributor’s
Business

Comments on Growth Rates
• Fiber Products
– 50% of the market saw an impact from TEA 21 funding, but could not
estimate the amount of growth
• 50% have not see the dollars trickle down yet
– 70% indicated meeting expectations
– Complaints on lack of growth ranged from competition to many
distributors giving the stuff away, to competition from Client distributors
and not having an exclusive territory
• Erosion Control
– Growing 36% a year
– Margins (22%) supporting infrastructure for growth
– Regulations supporting higher growth in permanent
– Complaints about lack of delivery for ProductLine 1
Methodology:
Understand
Distributor’s
Business

Client Fiber Product Share
• On average, Client has 68% share
– When in an Competitor A distributor, get between 0% and 5% share of
their business
• Frequency of competitors
– Competitor A: 9%
– Competitor B: 21%
– Competitor C :12%
• How to increase sales
– Call on DOT to convince them
– Be more price competitive as products are viewed as a commodity
– Get price quotes to them quicker
• Distributors loyal to Competitor A--difficult to make inroads
Methodology:
Understand
Distributor’s
Business

Comments on Fiber Products Products
• These products are viewed as a commodity
– Estimated that 80% to 90% of Client’s Fiber Products are
commodities
• Price and stock for smaller orders
– Average 15% gross margin vs. 22% for erosion control
• 5% to 6% for large jobs
– One penny can switch
– Worse for highly visible jobs like DOT
– One distributor quoting in tenths of a cent
• 20% to 25% for small walk-in jobs
– Distributors do not need help to sell
Methodology:
Understand
Distributor’s
Business

Specifiers for Fiber Products
• 94% call on specifiers
– 91% of engineers either civil, DOT, Geotechnical
• Civil Engineers more comfortable, DOT less comfortable
– Distributor 1 has sales engineers across the country—unique
• Specs written
– Brand or equal: 55%
• Competitor A mentioned in specs: 45%
• Competitor C mentioned in specs: 50%
• Client mentioned in specs: 19%
– Generic: 45%
• Generic DOT spec
• No problem in proving Client as performance equivalent when
other brands mentioned in specs
Methodology:
Understand
Distributor’s
Business

Fiber Products Sales by Customer
82%
12%
6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Contractors Owners Distributors
Contractors:
22% General
78% Installation (excavating)
Owners:
70% Government
30% Private
Methodology:
Understand
Distributor’s
Business

Fiber Products Market Segments
50%
29%
9%
8%
4%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Highway Parking Lots Haul Rd Landfills Other
Methodology:
Understand
Distributor’s
Business

How Often Compete with Other Client
Distributors
75%
25%
70%
30%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Fiber Products Erosion Control
Yes
No
For those that compete, they compete
43% of the time for Fiber Products and
31% for erosion control
Distributor 1 &
Distributor 2
Methodology:
Understand
Distributor’s
Business

Channel Conflict
• Normal rule of thumb for allowable conflict is 10% to 15%
• Distributors do not understand why there are so many Client
distributors
– Competitor A and Competitor E give exclusive territory
– Some understand Distributor 1, no one understands selling to
small distributors or selling into Competitor A distributors
• Distributor 1 thinks it sees 40% to 50% of the market
• Distributor 1 states 40% to 50% of fabric dollars on same purchase
order as their pipe, one source bidding and shopping
• Past efforts to open up distribution have hurt Client’s image in the
marketplace
Methodology:
Understand
Distributor’s
Business

Purchasing of Products in Mixed Truckloads
24
2
19
8
19
6
21
4
0
5
10
15
20
25
Fiber
Products
Erosion TRM Mixed
Yes
No
Methodology:
Understand
Distributor’s
Business

Benchmarking
Methodology:
Benchmark
Performance

Benchmarking
• Respondents were asked to rate on a 1 to 5 scale of importance
– 1 Not important at all
– 3 Average
– 4 Above average
– 5 Critical or an ante
• Respondents were then asked to rate the performance of the
major vendors they carried on a 1 to 5 scale:
– 1 Extremely poor
– 3 Average
– 4 Above average but room to grow
– 5 The very best (i.e. cannot improve)
• This exercise took 10 to 20 minutes
Methodology:
Benchmark
Performance

Importance of Criteria
4.94
4.84 4.8
4.73
4.35
3.85 3.83 3.81 3.81 3.76 3.75 3.72 3.71
3.61 3.6 3.55 3.52
3
3.5
4
4.5
5
Availability
Pricing
R
esponsiveness
C
onsistentQ
uality
Easy
To
D
o
Busines
Partner
C
om
petentTechnical
Accurate
Shipm
ent
Availability
ofCust.Service
M
arketing
Support
Availability
ofTech.Support
Packaging
&
Labeling
C
reditD
ept.&
CreditTerm
s
C
onsigned
Inventory
/Dating
Proactive
C
om
m
unications
Training
/JointC
alls
Sales
Leads
Methodology:
Benchmark
Performance

Performance Ratings of Vendors
2.5
3
3.5
4
4.5
5
Availability
PricingR
esponsiveness
Q
uality
Ease
ofBusiness
Client
Competitor A
Competitor B
Competitor C
Competitor E
Methodology:
Benchmark
Performance

Comments on Client
• Availability & Delivery
– Several comments on inability to get Product Line 1
– Fiber Product delivery stretch out in season
– Don’t substitute products without notifying distributor in
advance
– Wrong shipments and shipments to wrong locations
• Two distributors got order mixed up
– Load truck in order of how they want
– When LTL and when give Client authority to fill truck, things
get messed up (several comments)
– Trucks are not full versus Competitor A
• They generally don’t care, you are paying for the freight
Methodology:
Benchmark
Performance

1.5
2
2.5
3
3.5
4
4.5
5
Partner Competent
Technical
Accurate
Shipments
Customer
Sevice
Availability
Marketing
Support
Client
Competitor A
Competitor B
Competitor C
Competitor E
Methodology:
Benchmark
Performance

Comments on Client
• Partner
– Hard to partner when you are competing with other Client distributors
– Would like regional meetings
– Client does things unilaterally
– “Client not does really want to listen; I have been telling them this for years”
– “I think the Client representative would turn around and give our lead to
Distributor 1.”
• Competency of technical support
– Good technical support, better on erosion control than Fiber Products
• Accurate shipments
– Client shouldn’t substitute without prior authorization
– Shipping wrong products, and to wrong locations
– LTL a problem
Methodology:
Benchmark
Performance

2
2.5
3
3.5
4
4.5
5
Avail of
Tech
Support
Packaging
& Labeling
Credit Dept
& Terms
Consigned
Inventory &
Dating
Client
Competitor A
Competitor B
Competitor C
Competitor E
Methodology:
Benchmark
Performance

Comments on Client
• Credit department and billing terms
– Amount of billing errors does not appear to be a huge
issue
– Some invoicing does not reflect price concessions
– Not like 30 day terms when contractors average 60 to
75 days-have to finance from bank (3 comments)
– Invoicing must match purchase order, not what Client
substituted
– “One out of ten orders for special pricing are wrong.”
Methodology:
Benchmark
Performance

Other Issues
Methodology:
Strategy
Implications

Marketing Products Across
the Life Cycle
Low-cost supplier
blank
Service Power
Ease of doing business
One source shopping
Requires customer intimacy –
close to contractors
Product Power
Get brand in specifications
Good channel margins to
support distributor salespeople
Methodology:
Strategy
Implications
Fiber ProductsErosion Control

Best Practices of Business-to-Business
Marketing on the Web
• Lower Costs
– Order processing -- 75% reduction in costs
– Literature distribution -- 50% reduction in costs
– Distributor support -- technical and transactions
• Share Gain
– New customers -- 35% new contacts & 30% new firms
– Customer service --100% more information exchanged
– Lead management -- track 90% to resolution
– Distributor web integration -- 5 times as many SKUs
Leading firms are creating
significant competitive
advantages
Methodology:
Strategy
Implications

Value Proposition
One-To-One
• Build brand preference
• Cross-selling
• Purchasing history
• Personalization
• Customer profile
e-Commerce
• Electronic catalog
• Order placement
• Order process
• Electronic payments
Extended e-Commerce
• Pricing administration
• On-line order status
• Customer service
• Product availability
• Quotation administration
Methodology:
Strategy
Implications

Recommendations
• Form a task force to assess how to correct these issues
– Three distributors should be on the task force
– Cross-functional team
– Top management commitment
• Assign one sales rep who handles erosion control and textiles to
distributors
– Give some decentralized pricing latitude
• Form a National Account Sales team for Distributor 1
• Assign one customer service representative
Methodology:
Action
Steps

Recommendations
• Need to reduce complexity and cycle time of communications
with Client
– Push decision making from the top management to middle management to
local reps in the field
• Make Client easy to do business with
• Shipping
– Load products in trucks more effectively
– Load the trucks according to distributors instructions
• Would like to unload product in a certain way
– If substituting a product notify the distributor before the truck leaves the
warehouse
– Send confirmation order
Methodology:
Action
Steps

Recommendations
• Look at these costs to determine sales gained for $ spent
– Volume rebates for the product
• End of the year or quarter by quarter
• Distributor cannot give away extra profit
• Co-op advertising dollars -- a small percent of sales to pay 50/50
for ads
– Need proof but don’t be excessive about this
• Increase payment terms from 30 to 45 or 60 days
– Contractor receivables are 60 to 75 days
• Match Competitor A's dating programs
• Consigned inventory for specialty items.
Methodology:
Action
Steps

Recommendations
• Prune number of distributors
– Small distributors causing too much conflict
• Selective not exclusive
– 80/20 rule costs Client profits
• Whenever possible go full line fiber and erosion control
– There may be some large Competitor E distributors who might be a target
for Fiber Products
– Offer mixed truck loads of products
• Send thank you letter for participating in this endeavor
• Present modified findings to distributors
– We are listening and we are taking corrective actions
Methodology:
Action
Steps

Get To Know Us
• Exploratory Meeting
- No-cost discussion of the issues you are facing and our perspective
• Customized research
- Have us design a study for you
• Strategy project
- Have us design a project to address your strategic issues
Contact Information
QDI Strategies, Inc.
1580 S. Milwaukee Avenue, Suite 620
Libertyville, IL 60606
847-566-2020
www.qdistrategies.com
Steve Bassill
President
sbassill@qdistrategies.com

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