Building Meaningful Relationships

The importance of meaningful wholesaler/contractor relationships as they pertain to pricing, products, and management.

We think the simple strategy of wholesaling that we have espoused for decades is continuing to evolve.  As a reminder, it is, “Become the primary supplier to a group of selected customers.” We use the term “simple” since it is simple to say, not because it is simple to implement.  We think this fundamental strategy, practiced by many of the most successful wholesalers in our industry, is still sound. 

You want to build a base of regular customers who use you for most, or even all of their work.  As before, you need to earn this important role, but after you have earned this spot in the customer's life, they may even permit you to make fair to very-fair profits.  

The “selected customers” part is still on point for wholesalers, and possibly growing in importance as the industry evolves.  For some irrational reason, wholesalers continue to sell and support bad customers.  They put up with all the bad behavior served up by these rascals knowing, in their hearts, that the company would probably be better off without them.  Just like spitting into the wind, selling to bad customers seldom, if ever, ends well.  The highest-performing wholesalers are investing more effort in understanding the dynamics of customer-fit, so they can adjust how they support, price, and sometimes remove customers who do not allow the wholesaler to make a fair profit.  The focus is bottom line dollars not top-line dollars, and we have heard numerous stories where wholesalers opt to make more profit on less total sales dollars.  Less work, more money, seems like a no-brainer, yet many wholesalers stay the course of more work, less money for reasons we do not understand.

Now having decided which customers are your targets, the focus shifts to what you must do to earn their day-in, day-out business.  (First stop, first call, first website visit, last look and maybe some forgiveness when things aren’t perfect.)

Our four checkmarks to earning that role seem to fundamentally continue, but the details are evolving.  By your actions, you earn their arrival at your counter, on your online store or accepting your visit to their shop because you add value to their life.

Some updates we are observing under each of the four checkmarks include:

1) Convenient and easy to do business with

 Warranty processing is a major pain for many contractors.  Most manufacturers do little to mitigate the pain, so the wholesaler is expected to buffer the contractor from the sometimes slow or burdensome processes imposed by the manufacturers.  When wholesalers’ procedures exacerbate the problem, it causes additional pain to the contractors.

 Payment options (mainly credit card and EFT) are moving from nice to required.  Since credit card processors extract a chunk of the transaction, many wholesalers have resisted offering this option for payments on a customer’s account.  We understand the desire to protect the couple of points of margin especially when a customer pays with a credit card, and expects to earn their discount in the process.  Ouch.  Your savvy customers will pay you in time to discount, get additional days from the credit card company AND get points in the process.  You should at least consider whether you will allow prompt-pay discounting to credit card payers (make sure your agreements with the credit card companies don’t limit what you can do).  You need to do the math, and do what’s right for your company, but your days of not being able to offer it and being a primary supplier are numbered.

 Delivery adders are becoming even less acceptable.  We have always recommended that normal delivery charges not be a separate line on the order as it puts the charges in the bright spotlight that can offend some customers.  It is a difficult situation because imbedding the cost in the unit price can unacceptably inflate the unit price making your products appear uncompetitive.  Breaking out the delivery charges can make the transaction seem uncompetitive.  Delivery charges have never been popular, but internet purchasing has trained buyers to better understand the issue of the landed cost of their purchases; it seems that the trend is toward vendors with FREE SHIPPING.

 Sales taxes can be a factor in some of your business, since some states still allow out-of-state companies to sell into your market without charging the buyer any sales tax.  Before Missouri got this covered, this put many in-state businesses at a 7+ percent disadvantage.  Congress is looking to fix this on a national basis, but you need to voice your support for leveling the playing field in your state and nation-wide.  For example, you can help HARDI support the Marketplace Fairness Act (S.976) and the Remote Transactions Parity Act (H.R. 2193), which would close the legal loophole that allows some online retailers to avoid collecting the sales tax due during a transaction.  For more information contact VP Government & External Affairs at HARDI, Jon Melchi (jmelchi@hardinet.org).

2) Reliably getting the product to the customer 

• As online competition gets better, traditional wholesalers must improve their logistics to quickly and efficiently get product to customers.  This may involve transfers and inventory movement that is more immediate than the old, “we get a transfer truck every couple days so we can get it to you next Monday” response to a customer’s need for a product available in the distribution center or another store.  Ideally, in understanding the customer’s needs, you only jump through these hoops when needed and appreciated by the customer.

• You may also want to take a play from the online wholesaler’s playbook, and use third party shipping companies to move product more quickly or cost-effectively in some situations.  When you look at the operating cost of running a truck to another location and back, the numbers may say to use the third party from time to time.  Customers don’t care that your transfer truck is brown or orange and purple.

3) Building a personal relationship

  Many people still buy from people, and when your customers value a personal relationship, it is in your best interest to support building that relationship.

• A growing number of people are bonding with a wholesaler through electronic relationships.  When a customer values an electronic relationship, it is in your best interest to support that type of relationship.  While wholesaler to contractor social media seems to still be a minor factor, we are hearing about wholesaler to consumer social media efforts designed to stimulate demand for brands and even wholesalers that seem promising.  While this may seem odd, we are hearing of contractors bonding with a wholesaler’s website when the workflow supports their style and needs; no human contact is required, they just like how it works and associate the good experience with the wholesaler.  We think that email and texting seem to be the norm in many areas so your team should offer those access methods.  We think direct contact via phone or in person may still be best when there is a problem to be resolved, since you can infer information from your customer’s tone that might otherwise be missed.  Often the wholesaler’s team will use electronic media as a way to duck the possible confrontation of a phone call; they don’t have to deal with the emotional component of the situation.  We understand this, but often the best way to resolve or defuse the situation is to directly address it with the customer on the phone.

4) Pricing that is fair

• With the Internet, more buyers have access to more information than ever before.  This concept started a while ago when the big boxes started advertising pricing on some commodity products like water heaters and faucets.  In our experience, this advertised pricing seldom determines the exact price expected by the contractor, but it does shape the contractor’s anticipated pricing.  You need to be aware of the big-box pricing and what the online pricing is in order to stay within range of the market.

• We have always recommended staying on top of pricing to remain competitive and to optimize your profits.  We think the future will require even more attention to pricing.

Moving from valuable to invaluable

The bar is being raised, and the forward-thinking wholesalers will understand that these changes result in the need for more than merely providing value to customers.  The basics are becoming the norm; the four checkmarks (with updates) are still the foundation and cannot be ignored.  If you cannot fulfill them without fail, you cannot become valuable to your customers; so they don’t use you as their primary supplier.

Future, high performing wholesalers will seek to become invaluable to their customers.  They will work to establish a relationship wherein the customer feels that they cannot live without the wholesaler's participation in their business.  When you are invaluable, you get close to becoming a necessity like food and water.  They may resent it, and they may reject it because it makes them uncomfortable, but if they reject it they will be giving up something that they really need and want in the process.

We think the heart of invaluable will be providing contractor/customer-centric services that reduce their operating costs, increase their sales or build their competitiveness in a very competitive arena.

This involves the operational tools that support the guts of their operation.  Some examples are tools that support:

  • Truck and stockroom replenishment
  • Contractors billing for their work
  • Selling their product/services (helping them with their own websites or pricebooks)
  • Quoting new projects
  • Buying from you (webstores that provide punchouts, spending limits, budgeting, supervisory approvals, etc.)
  • Their completion of work, like jobsite material inventories or just in time material delivery
  • Saving their butt when it hits the fan like after hours support for emergencies

(You’ll note this list did NOT include spending $1.5 million over the next three years or any attempt to out-Amazon Amazon.)

Gratuitous plug: For information on how Schmitt ProfiTools Inc.  can help you with these tools email us at Jen@go-spi.com.

You must remind them, not in their face so as to offend them, but you need to make sure they understand and internalize that they need you.  If you flaunt it, many will be offended and dump you on principle, but if you humbly remind them how much you mean to them you may have a long-term relationship that is good for both parties.   

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