LOSING TOUCH WITH YOUR CUSTOMERS

     I had an interesting discussion the other day with a friend who is a regional sales manager for a large autoparts manufacturer.  They warehouse and sell over 40,000 "under the hood" sensors and switches to the Canadian automotive aftermarket.  I couldn't believe the complex, multilayered distribution system for these products.  Product changes hands 5 times before Joe consumer ends up with the part in their car.  Parts that cost $5.00 leaving the manufacturer end up $40-$50 when you buy them.     

       His problem recently is that some of their major customers, 3 or 4 national car part distributors, are effectively beginning to take control of managing the downstream layers of the distribution channel, thus blocking direct communication between his sales force and the grass roots jobbers and installers who actually use the product.  This situation really puts their company at risk in terms of relationship building, sharing new product information, and staying in touch with trends in the marketplace.  When sales volumes drop its becoming harder for them to determine why and take preventive measures.  In effect, they are losing control of their brand to others on the distribution ladder.

     It's a frustrating situation that is all too often shared by other manufacturers.  Manufacturers need to do everything they can in terms of their sales and marketing strategy to stay in touch with their marketplace.  Don't be satisfied with simply selling product to national wholesale and retail chains who themselves are spending the marketing dollars to brand their companies so that customers buy from Canadian Tire, Home Depot, Marks Work Warehouse, Ikea, etc. without pausing to understand their purchases.  It may return short term gains by minimizing marketing costs and maximizing sales volumes,  but long term it renders manufacturers extremely vulnerable to things beyond their control including import product substitution, pricing pressures, and lack of market information for future product planning and innovation. Remember, the more you are buffered from the end customer the harder it becomes to communicate the long term value inherent in buying your product and the more susceptible you will become to commodification; i.e. building a product that in the eyes of your customers is totally interchangeable with your competitors' offerings if the price is right.  Conversely, the stronger your brand is in the marketplace the stronger your position will be with your channel partners and the end consumer.

     Besides brand building, if a distribution channel isn't working anymore because times have changed,  FIX IT!  Broaden the channel to include other ways of reaching the end customer including your own company stores, online virtual stores, and direct marketing. That's what G.M. is doing by tying up with Ebay Motors to sell their dealers cars online.  They recognize that online car shopping and buying is fast becoming the norm and they better make it convenient for online customers or suffer the consequences. 

      That's what Lazy Boy Furniture did 15 years ago when they decided to blanket the North American landscape with their own furniture galleries in order to take control of the customer sales experience.  Selling to old fashioned, mainstreet furniture stores just wasn't working anymore.  In 15 years their volume skyrocketed from $600million to $4 billion dollars annually.  Much of this increase due to their furniture gallery stores. 

On the other side of the coin, I remember a discussion I had with a large Toronto based office furniture manufacturer years ago who was under increasing price pressure and import substitution by his dominant retail customers including Staples and Office Depot.  I said to him that you make all the desks, sound dividers, chairs, and cabinets that go into an office.  You therefore have the product breadth to open some of your own stores in selected high traffic market areas.  Why not take the plunge and see what happens.  Unfortunately, he was hesitant to plunge into retail. He couldn't see the wisdom of this radical change in distribution channels that might upset his current customers.  So he continues to struggle, importing more product from Asia and trying to cut cost costs in his factories at home.  It's a scenario that is all to common in the Canadian economy.  "HE WHO HESITATES IS LOST". 

      As a final footnote, when I asked my autoparts friend about the possibility of creating their own online store capability, bypassing several layers of distribution, and selling direct from their warehouses to the jobbers and installers he didn't think it was a very realistic idea.  It may be that he is right; maybe not.