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Many years ago, we realized that many of our highest-performing clients were employing the same basic strategy. Some had it, explicitly, as a part of their mission statement while others had somehow evolved to it organically as they grew over many years. We have never taken credit for creating it only for recognizing it, organizing it, codifying it and recommending that wholesalers consider its applicability to their situation.
We have called it the simple strategy of wholesaling. We have always qualified “simple” as simple to say while admitting it is rather difficult to implement and consistently maintain over the long haul. While we still believe the fundamentals of the strategy are as applicable as they ever were, the forecast changes in the market call for a refresher and an update.
The simple strategy: Earn the role of primary supplier to a group of selected customers.
The primary supplier is the customer’s go-to supply house, much like the coffee house visited at the start of every day. In our industry, the primary supplier gets the first stop, the first call, the first web visit and the last look when the job is being quoted. That puts the primary supplier in the enviable position to remove the competition from the field of play.
If the primary supplier can satisfy the customer’s needs, the second stop, call and web visit never occur. The sale is made without the other team getting an at-bat in the game. For those of you who are really into sports, it may seem a little unsportsmanlike but in high performance wholesaling, it is the game.
Customer Selection and Online Sales
When we talk about a “group of selected customers,” it speaks to the reality that not all customers are “good” customers and not all prospective customers will be “good” customers, if you can convince them to buy from you. Part of the high-performance game is determining who you want to sell to. This is often a difficult question, but does selling to this customer make you more money than not selling to this customer?
Whole books have been written on the topic of analyzing customer profitability, so we won’t try to cover it here. We do suggest you develop a process for evaluating customer profitability and, relentlessly, use it to determine who you sell to. This process seems always to have a subjective component making the decisions trickier. The important points are: Most businesses will make more money if they fire some of their current customers; most businesses will make more money if they reform some of their existing customers; and most businesses will make more money if they do not waste their time and resources pursuing some prospective customers.
The dream of selling on the web makes the selection process even more complicated than ever. In the past, wholesalers often had some knowledge of the customers operating in their marketplace. Their reputation often preceded them and that precession allowed wholesalers to deny credit, make the customer COD, cash only or even refuse to sell to the customer on any basis.
Selling online to trade customers in your geography has about the same risks as selling to them over the counter. If you have entered into the adventure of selling online to anyone with a credit card in any geography, you have, to some extent, given up your ability to be selective. You have essentially no way to determine if you are dealing with a legitimate customer or a crook whose only objective is to steal from you. Just as you have paid your dues to learn a lot of the tricks underhanded contractors might use, you will be paying your dues again as you learn a new set of tricks that underhanded online customers will use as they buy from you.
While you might imagine the crooks saying the product never arrived, the box was empty or the product is defective, you might not imagine that a product might get returned as defective after parts were swapped out. While this seems to be an evolving trend, we understand that some credit card companies hold your money until the issue is resolved. (The time you will spend fighting for your money will often consume the reduced gross margin that is a part of online selling.)
Traits of Primary Suppliers
We believe four traits are part of earning the primary supplier role:
1. Your reliability and convenience in conducting transactions. If customers can’t count on you, they will be looking for a supplier they can count on. If buying from you is inconvenient, they will be looking for another supplier. It has been the case for years but online selling has added a few new twists: a convenient store with an ability to find the items to be purchased. They want to create orders and possibly pay for the order using a credit card. (Those credit card points drive a lot of consumer behavior and a growing amount of corporate behavior.)
Many customers want to manage their account online, see order status and view and pay invoices using a credit card. A growing number of customers require online services be provided by their primary supplier. We believe wholesalers who continue to resist credit card payments on a customer’s account must do so carefully as customers may accept an offer to switch to another wholesaler who will accept credit card payments. We also believe that allowing credit card customers to discount is like shooting yourself in both feet.
2. You must have the products they use, day in and day out, and they must know you have them. The typical customer buys a very narrow band of products on a regular basis; perhaps 300 to 500 items for many customers. It gives them an awareness of about 3 percent to 5 percent of a typical wholesaler’s stocking list. When customers want to buy something outside their base list, they may call another wholesaler who they believe will have the item they need.
We have two words to describe products in inventory that your customers don’t know you have — dead stock. Even with an online presence, wholesalers must relentlessly continue to promote and inform customers of the breadth and depth of their offering. One of the challenges with our industry is the breadth of customers we serve. They range from tech-savvy people running their business from their smartphone to people who think fax machines are too leading-edge to use in their business and bring their orders to the counter written on a scrap of 2x4.
While the world is headed the way of the smartphone guy, the low-tech tradesperson is often a good, loyal, honorable customer for the present. The point is that your marketing and communications must be multifaceted to reach the wide variety of customers out there.
A mix of in-person, print and electronic communications seems to be appropriate for the world today. The written communications might also include a print catalog or at least a print-format pdf catalog available online. The Internet is extremely good for viewing a group of items either selected or searched for but it is not good for communicating the breadth of your offering to customers or introducing your offering to new customers.
3. They must like you. People buy from people they like. We believe there is a huge danger that wholesalers will not retain their customer-service mindset as a growing amount of business is transacted on the Internet. Fast, friendly counter service is still important. Easy-to-navigate phone systems with access to live people are still critical. Good outside salespeople who offer more than “order-taker” skills continue to build relationships, giving your company an advantage over other impersonal wholesalers.
The new world has caused several adjustments. Social media continues to play a larger role in our industry. Online ratings, reviews and communications are driving the brands consumers prefer and then select, and less by advertising and recommendations by trade professionals. Your support and participation in social media can cause specification of your brands by consumers. To a far lesser extent, we hear that social media is influencing trade customers in their alignment with wholesalers in their primary supplier role.
We believe, for most people, an electronic relationship is not as strong as a phone relationship. A phone relationship is not as strong as an in-person relationship. And a personal relationship is the strongest relationship of all. This is not how many of the industry’s younger, newer employees will naturally operate, preferring texting or emailing to any real-time contact with people.
Again, the breadth of the people in our industry will demand that you communicate with customers however the individual customer wants to relate to you. We, however, feel that regular phone and in-person contact gives you the highest probability of building a personal relationship.
4. You must have fair and competitive pricing. Generally, people do not have primary suppliers who they believe are gouging them. People don’t like to believe their supplier is taking advantage of them. For decades, we have encouraged wholesalers to optimize their pricing perception and profitability. We continue to believe that active price management is critical for wholesalers. The Internet is changing how price perception and profitability operates and it is naive to think it can operate as it has for the last century.
We believe there will be less special pricing to individual customers. It is probably a good thing, overall, since most wholesalers maintain thousands of customer-specific prices and waste a bunch of time maintaining, negotiating and communicating pricing to customers. Pricing will be far less private than it has been going forward. Large Internet-based companies will publish their pricing online, which will eventually drive the market pricing to a public price of some sort. This will be simpler but the margins will probably be lower.
The challenge for local wholesalers will be to get their operating costs positioned to compete with online competitors and to continuously promote the value they bring with local stocks and fast delivery of the products.
We still believe the basic strategy will be successful going forward but, as with most strategies, wholesalers will need to continue to evolve it and adapt it as the market changes. If you would like a reprint or some additional thoughts surrounding this strategy, email firstname.lastname@example.org.