What strategic approach can you take to analyzing services business that, simply, doesn’t seem that strategic? The determination to grow a product line that requires services is also a decision to provide those services. Growth designation is a commitment to invest heavily in people and assets to achieve the company’s full potential with a product line. Broadly speaking, it is feasible for distributors to develop services as a product center separate from product lines but this is rare.
ERP and CRM as Strategic Tools for Wholesale Distributors (Part 5)
The decision to maintain the status quo of a product line is a commitment to invest as needed to hold the company’s market position or share of that product line. Doing so requires growing the business fast enough to expand with the market as well as to find pieces of business to replace those that are inevitably lost to competition or for other reasons.
Harvesting a product line is potentially difficult because of the way suppliers may react. The distributor’s intention is to hold onto the customers already buying the products while not seeking other customers for those products. The resulting loss of buying power may be a problem even if the supplier is supportive. The decision to harvest a product line is sometimes a determination to replace the supplier’s line with another line or to drop the unprofitable products altogether.
It is much easier for sales people to build sales with a product line they are familiar with and feel confident with than to be a market pioneer with a line they don’t know much about. Some sources state that it is four times more difficult to introduce new product lines, even to a well-established customer, than to sell what the sales person (and the company) is already proficient with. The decision to move into a totally new line is a difficult one because of the commitment of time and capital over a long period, possibly several years. This is a “zero sum game” when trying to sell a new line through the existing sales force. The new products will take sales time and energy away from established products. The new products must be more profitable, and have more growth potential, than those they will displace.
Many products have become more complex with the stunning growth of technology. Suppliers expect more technical expertise from their distributor sales forces partly due to a reduction of the size of some supplier sales teams. Customers often demand that distributors provide technical support for products and equipment including the ability to solve complex problems. The technical evolution is both an opportunity and a threat for distributors in many lines. Some companies choose to solve the need for field technical support by adding technicians to the staff to assist the sales reps. Others are training their sales reps to provide more expertise. Adding new product lines may require hiring sales specialists for the new line, hiring more technically savvy sales reps or engaging technical support staff. The incremental costs place more demands on the profitability of the new line. The customers’ current suppliers will react to the entrance of a new competitor to the field and a plan needs to be in place to deal with their responses.
Continued in part 6