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!


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


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


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


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


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


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


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


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


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


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


Performance


Importance of Criteria

4.944.84 4.8

4.73

4.35

3.85 3.83 3.81 3.81 3.76 3.75 3.72 3.713.61 3.6 3.55 3.52

3

3.5

4

4.5

5

Ava

ilability

Pric

ing

Res

pons

iven

ess

Con

sisten

t Qua

lity

Eas

y To

Do

Bus

ines

Par

tner

Com

pete

nt T

echn

ical

Acc

urat

e Shi

pmen

t

Ava

ilability of

Cus

t. Ser

vice

Mar

ketin

g Sup

port

Ava

ilability of

Tec

h. S

uppo

rt

Pac

kagi

ng &

Lab

elin

g

Cre

dit D

ept.

& Cre

dit T

erm

s

Con

sign

ed In

vent

ory / D

ating

Pro

activ

e Com

mun

icat

ions

Trainin

g / J

oint

Calls

Sales

Lea

ds


Performance


Performance Ratings of Vendors

2.5

3

3.5

4

4.5

5

Availa

bility

Pricin

g

Res

ponsiv

enes

s

Qua

lity

Ease

of B

usine

ss

Client

Competitor A

Competitor B

Competitor C

Competitor E


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


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


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


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


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.”


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


Implications

Fiber Products Erosion 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


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


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

[email protected]