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PTDA 2004 Report on Industry and Association Developments, November 2004

Traditionally, distributors have looked at technology as an investment designed to reduce operating costs. Enabling them to do more with less, technology helps reduce payroll expenses and investment in inventory.

For many companies, this doing more with less has helped them survive the last four or five years. Every dollar saved by reducing operating costs is a dollar counted toward net profit before interest and taxes (NIBIT).

Realistically, you can only reduce costs so much before negatively impacting sales. If you drive your inventory too low, you will diminish service levels and customers will stop buying from you. Each dollar in lost revenue can have a 20 to 40-cent negative impact on NIBIT depending on your margins. Therefore, if you want to grow your bottom line and you've cut costs as much as possible, you need to grow your top line -- sales.

The good news is: just as technology helps reduce expenses, it can help increase sales. As we look at how we can use technology to grow revenue we must remember that a dollar in sales is not the same as a dollar in profit, but the more effective your company becomes, the greater the percent of your additional sales will go to your bottom line.

Savings into Sales

The same technology you use to reduce operating costs can be used to drive sales.

Think about a distributor who found that roughly 40 percent of his customer service people's time was spent answering non-sales related questions from the customers. Instead of them selling, they were answering such questions as: "Can I get a copy of an invoice?" and "What is the status of my order?" By investing in a Web-based storefront, the distributor gave his customers the ability to answer their customer service questions over the Internet and freed 40 percent of his customer service representatives' time.

Rather than eliminate 40 percent of the inside sales group, the distributor charged them with generating additional sales by taking their newly freed time and doing prospecting calls. What could have been a cost-cutting move, the distributor turned into an opportunity to drive additional revenue.

Another distributor used technology to reduce her inventory by more than 20 percent. Using technology to track inventory turns and sales trends, she reduced the quantity of individual units she carried without affecting her breadth of product or service levels. The distributor then took the savings and reinvested it into new product lines that her customers had expressed interest in. With these new product lines she then grew sales within the existing customer base.

Driving Sales

The examples above are fairly straightforward, taking traditional cost-cutting philosophies and turning them into sales-driven initiatives. Next we will focus strictly on using technology to drive sales.

Over the last few years there has been much hype about customer relationship management (CRM). When most people think CRM they think sales force automation, which employs technology in increase efficiencies and cut cost rather then driving sales. But, sales force automation is just one piece of CRM.

The most powerful component of CRM is data mining - taking the data that you already have and using it to find NEW opportunities and generate new sales. These sales may include new customers that never bought from you before or existing customers who have limited their purchases. And since these additional sales come from your existing cost structure, most of the margin will fall to the bottom line.

Just as order takers at your favorite fast food restaurant ask whether you want fries with your burger, your customer service/sales people should ask your customers if they want complementary products with their order. Of course, with the complexity of your products and the number of items that you carry, it is impossible for your sales force to know all the accessories, or go-together items, for every item you sell.

If you have a software package running your business database, you should have a history of every line item on every order for years and years. To help you use this powerful information, your solution should have the ability to identify accessory items based on your sales history. Now when your newest salesperson sells some bearings, the solution can automatically suggest complementary products needed to install those products or expand their lifecycle. This technology will not only help drive sales, these sales will carry higher margins since most of the accessory items are not price-sensitive. At the same time, you've improved the service experience for your customers.

Sales to New Customers

Traditionally, distributors did little or no marketing to attract new customers. Those that did invest in marketing tended to take the "spray and pray" approach and blanket all prospects with a general statement making it hard to cost justify their marketing dollars.

Fortunately, the data mining approach works with attracting new customers as well as increasing sales to existing customers. Using your technology solution, you should store the same information about prospects as you do for existing customers - SIC code, revenue, number of employees, how they would use your products, etc.

By using this data, you should be able to pinpoint the items that your prospects will have the highest propensity to buy by comparing your prospects to similar customers and looking at what those customers consistently buy. You then develop marketing campaigns with very direct messaging about specific issues that your products will solve for these prospects.

While these campaigns can be paper-based, such as a flier or letter, you might want to try something electronically-based, such as e-mail. This will not only lower your costs, but more importantly, give yourself a better mechanism to track the results. So if you send a prospect a personalized e-mail that includes a link to your Web site, you can monitor exactly what they look at while on your Web site, and, based on where they spent their time, develop more and more focused messages to this prospect until you turn them into a customer.

Clearly, this depth of data mining would be far too costly to do manually, but with the right technology the above process can be very simple and richly rewarded with increased sales.

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