Marketing Changes Article
By: Bob Cannon
Traditions die hard, but there has been a growing awareness
for several years now that there is a convergence of
factors that is growing to dramatically shift how products,
especially new products move from idea to the end user.
I have watched and anticipated this change for almost
10 years now and every once in a while, something happens
for me to get a little bit more clarity about what is
happening. The following is an attempt to give you a
snap shot of some of the things that have brought me
to this point in my thinking as well as some early pioneers
in this shift and what they are doing that have the
potential to revolutionize this business.
Distribution First we need to understand
the “traditional channel of distribution.”
This is how products have moved from manufacturer to
end user since the industrial revolution. Generally,
a manufacturer produces a product and sells it to a
distributor. The role of the distributor is to stock
product in relative close proximity to their retail
customers. The distributor also sells the product to
the retailer for the manufacturer. Historically this
has also provided a layer of financial protection to
the manufacturer as the distributor was the one who
had to deal with collecting from the many retailers
they served. This system worked extremely well when
long distance business communication was by mail and
transportation was by railcar and truck load.
Times have changed. Distributors have moved from being
primarily service driven to being primarily financially
driven and the inventory that once was considered an
asset is now considered a liability. Turns and Cash
Flow have become the driving forces in the Distribution
world. Consequently the cost of carrying inventory has
been shifted back to the manufacturer in the form of
longer average days outstanding on receivables, smaller
more frequent orders or both.
Distribution has, for the most part, reduced or eliminated
the idea of selling the manufacturers products. What
once were exclusive arrangements are now more aptly
viewed as cherry picking the best sellers from all of
the recognized vendors in the market. This creates an
homogenized marketplace where every retailer is selling
basically the same offering as every other retailer
because the distributor has left them very little in
the way of options to differentiate. The selling effort
if it exists at all, is focused on selling programs
and services that the distributor can provide to the
retailer.
The financial insulation that distribution once provided
to retailers has evaporated over the last thirty years
as the number of Hardware Distributors has consolidated
to a relative handful. The manufacturers have learned
that as the consolidation continues, the risk of loss
increases dramatically as the number of distributor’s
decreases.
Finally, distribution has lost market share to the
folks like Wal-mart and Home Depot who have found ways
to reduce the costs associated with stocking, picking
and reshipping inventory. This combined with their financial
focus has forced them into a mind set that wants to
limit the number of vendors and skus. For some time
now, we have been faced with a situation where distributors
are reluctant to add new vendors with limited product
offerings even if it is a superior product. The time
and cost of adding a vendor to the system combined with
the cost of monitoring and issuing purchase orders for
single items discourages if not eliminates the possibility
of adding a better mouse trap if it is a stand alone
product unless the manufacturer can prove that it will
be a best seller. Recently I heard a comment that, “It
costs Grainger $100,000 to set up a new vendor in their
system.” This is not conducive to having new products
in your offering.
Supply and Demand After World War
II, the demand for hardware products far exceeded the
supply. This created a situation where the suppliers
or the manufacturers had the power in the channel of
distribution and could pretty well set the rules of
engagement including prices, terms, freight allowances,
etc.. During the 70’s and 80’s, supply caught
up with demand and the power in the channel shifted
to the distributors. Manufacturers had to scramble and
began offering programs like co-op advertising and smaller
order sizes to make their product offering more attractive.
Those that had strong brands, and were aggressive about
business survived. There was a tremendous consolidation
at the manufacturing level from the late 60’s
into the early 80’s. By the late 80’s and
all through the 90’s, the power had shifted once
again, but this time it was to the Retailers. Home Depot,
Lowes, Wal-mart and others set the terms because they
were the ones with the power in the channel. Once again
manufacturers were forced to adapt with rebate programs,
even smaller shipments and lots of other programs. As
we entered the 21 Century, the power shifted once more
to the End Consumer. There are many factors that have
contributed to the fact that the consumer is now the
ultimate power in the channel. This is creating challenges
and opportunities for manufacturers.
Technology Much has changed in the
last 50 years and I believe we are on the forefront
of incorporating these changes into a new paradigm in
marketing Hardware Products. We have moved from truckload
order quantities to LTL (less than truckload) to the
world of UPS, Fedex, Airborne and others. We have moved
from printed orders to faxed orders to EDI to online
interactive ordering. We have moved from Cash in advance
to Cash on Delivery to terms to credit card and electronic
payments. We have also moved from printed advertising
and catalogs to video to digital media. We have moved
from Customer Service that is available 8 hours per
day to Interactive Websites that are available 24 hours
a day, seven days a week, 365 days a year.
The Future In the late 90’s,
I thought that the future was in selling hardware products
directly from the manufacturer to the end-user and certainly
there is a place for that approach. Today, however,
I am convinced that the consumer wants immediate access
to hardware products, especially new products that meet
a specific need that they don’t already own. Distribution
doesn’t want to take the risk of adding vendors
and products with unknown potential. There are other
options that are slowly beginning to surface that will
fill this void and help even one sku manufacturers make
their products available to retailers who want exciting
new products for their customers.
The impending Paradigm Shift is obvious to
me. The best or most successful approach to this shift
remains to be seen, but I believe it is in your best
interest to at least explore the alternatives that are
being developed. The shift will come quickly in comparison
to past changes. You need to understand what is happening
and what options exist for your business.
These are examples of just a few of the issues that
we talk about at our new website http://www.marketingnewproduct.com.
We have even developed a collaborative consulting product
call the Quickie Market Analysis
to help inventors, and new product marketers avoid these
pitfalls.
It doesn't really matter where you are in the process
of introducing your product. The Quickie
Market Analysis will pick you up where
you stumbled and move you toward success. Visit the
U.S. Hardware /Hardlines Resource
Center to learn more.
# # #
©Copyright Bob Cannon, The Cannon Advantage,
2005. All rights reserved.
Byline
Bob Cannon helps inventors, imagineers, importers and
manufacturers successfully introduce new products to
the Hardware / Hardlines Marketplace. Check out his
blog at http:www.takingaim.blogspot.com.
Bob can be reached at (216) 408-9495 or mailto: bob@marketingnewproduct.com.
This article courtesy of http://www.marketingnewproduct.com.
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