Customer loyalty isn’t what it used to be. Pricing pressures, global competition, cost-cutting initiatives, less face-to-face contact and a number of other factors have left distributors wondering how to maintain their customer base.

In the Feb. 17, 2004, issue of V-Mail, we asked readers to respond to a hypothetical situation similar to a problem faced by many distributors and suppliers today.

Fictitious U.S. manufacturer Super Industrial Gadget Corp. wanted to cut costs. The manufacturer’s long-time distributor, Primo Industrial Supply Company, brought in supplier reps from Best Cutting Tool Company to conduct a head-to-head test comparing end-mills from Best Cutting Tools and the brand Super Industrial currently used.

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The Best Cutting Tool product beat the competition, and Primo Industrial Supply won the order, helping its long-time customer cut costs. Later, Super Industrial Gadget’s purchasing manager approached Primo Industrial’s sales manager to inform him Primo would lose the business to a competitor if Primo could not lower its price.

How should the sales manager have responded? Could he have done anything differently before conducting the product comparison? What could Primo Industrial do in the future to demonstrate value so price is not the primary concern?

Overcoming price pressures
Michael Obermeyer, operations/territory manager for Desloge, Mo.-based distributor U.S. Tool Services, said it’s obvious the purchasing manager is strictly looking at the cost of the tool and not the overall cost of the part the end-user is making.

“The first thing I would do is to take the cost of my end mill and find out how many parts it made and get the average cost per part,” said Obermeyer. “I would place these on a spreadsheet we use for cost analysis.”

He would also include the competitor’s end mill on the spreadsheet and give it to the purchasing manager. The key, according to Obermeyer, is to provide as much information about the competitor’s product next to his own, except for the price. Then, when the purchasing manager puts the competitor’s price into the spreadsheet, he will understand why a lower end mill price may not correspond to cost savings.

“I would give him my word that if our report did not show our solution as the lower cost, then I would do everything I could to get him a better cost,” said Obermeyer. “But, I would ask him to let me be his supplier of end mills if the cost was in our favor.”

Mark Moore, sales manager for Lapeer, Mich.-based manufacturer PATCO Air Tools, went a step further. Moore said he would calculate the annual usage of the new end mill and compare it to current annual usage. If the new end mill is better, it will show up in the breakdown.

Moore also said the distributor should offer services as part of its total package.

“Since this cutting tool opportunity is new business, perhaps Primo should offer a discount on the cutting fluid that will be needed,” he said. “Additionally, Primo needs to put value into this opportunity by offering vendor-managed inventory, summary billing, vendor-managed resharpening service or other services.”

Standing up to scrutiny
Whether calculating tool cost as a function of total cost or as a function of time, Obermeyer and Moore insist that distributors must use documentation to indicate value. Documentation can overcome price arguments because it often proves a customer will realize cost savings, even if the customer pays more on a per-end mill basis.

Without documentation, distributor salespeople and supplier reps face a continuous uphill battle.

This article was prepared exclusively for ValueAddedPartners.org. Copyright 2005.

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