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Despite falling revenues, many technical distributors are not taking any fundamental action to structure themselves for a successful future. Too few of them can boast significant growth through new markets, customers and business models. Instead they are still living off yesterday's successes. What to do?
At first glance that comes as quite a surprise. After all, Germany is one of the most attractive European markets for the technical distribution industry: around 52 percent of all industry products are still sold through dealers. And the European machinery industry has also exhibited impressive growth rates of around seven percent in recent years – with the same high profitability. Why isn't the technical distribution sector profiting from this good situation?
One explanation lies in the increasing demands being made by industrial customers. For a long time, the stocks of products, the breadth of the product range, the technological expertise and the on-location service were the deciding factors in market success. But current developments are giving rise to an entirely new pressure to act – for example the commoditization of products, greater price transparency, the internationalization of the customers, increasingly interlaced markets, greater pressure to be efficient, new competitors arising through digitization and advancing market consolidation. And that list could go on and on.
In addition to this, a palpable change in growth patterns can be observed along the value chain, with the result that the sales and profit pools are also shifting towards services.
Many trading companies still consider service to be something you don't sell, but that somehow just goes along with the product (for free). At the same time, nobody denies that service is something of value to the customer. And for just that reason, it shouldn't just be some kind of appendage attached to the real business, it can also be used to generate revenues. Standard and additional services can be developed from mere extras into stand-alone products. For a start that will often be relatively close to the product itself, but the enormous potential for value generation can only be extracted from services if they are priced on their own right, and independent growth arises - i.e. they have their own business model.
Comparing its services and competitiveness with the market is an indispensable prerequisite for any trading company wishing to improve its earnings. But it mustn't forget that traditional price models no longer apply. Sales has to look at how to price the new offers; and pricing shouldn't be seen as a one-off action, but become an integral part of the continuous effort to increase profits.
Alongside the already highly demanding daily business, most of these companies also have too many topics on their agenda that are important for them. This brings great pressures with it and leads to frustration. There is often little or no time left in the day for strategic work, least of all together with externals.
The management is often fully aware that it cannot make any progress in this context using only internal competencies and resources, but in view of the already extreme pressure on costs, the decision-makers often shy away from the cost of external projects. That is very short-term thinking, because the investments in transformation programs pay off over the long term. Indeed: if you don't invest, you lose.
Technical distribution is a complex field that only experienced consultants really know their way around. Standard methods pulled out of the Power Point draw seldom lead to success here. Also, an external consultant should always be a sparring partner for the implementation, and accompany the process until visible results have been achieved.
Emphasize on structuring the sales organization in line with
clearly defined customer segments
Technical distribution can still play an important role as intermediary, even in these times of digitization, increasing competition and market consolidation. But it can only succeed in doing so if the distributors offer true added value for their customers, and charge a fair price for it! They also have to gain a better overview of their cost structures, in order to be able to remain competitive. Time is running out, and only the higher performers will survive.
Published in an edition of the specialist publication www.technischerhandel.com // 05-2017
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