Synopsis – Steam Equipment Manufacturer – Channel Strategy Development
A leading supplier in the steam equipment market turned to QDI to evaluate their existing channel structure’s ability to deliver long-term growth. They were struggling with both sales growth and profitability issues in their North American operations.
The client was concerned that their channel strategy was not working, and in fact they were losing sales and margins because their distributors were selling competitive product lines when they could have been selling theirs. QDI’s assignment was to assess how buyers purchased these products and how the channels sold these products to see if there was a way to modify the go-to-market strategy to keep better control of sales.
This was an industry comprised of replacement sales, small system sales and major project sales. Distributors were in place to capture all the replacement and small system sales, while large projects were bid directly by the manufacturer, with a distributor involved in the overall logistics of the sale.
QDI’s end-user research determined that the replacement market basically purchased like-for-like and there was minimal loss of sales in this market. Likewise the project market was entirely different as the whole system was specified and a bidding process was followed which pretty well assured that if you won the bid you would capture all the products on that bid.
The real challenge was the “small systems” market. This was a market where the client’s sales engineers spent a lot of time helping customers determine how to improve their steam systems. When successful, this led to a purchase from the local distributor. However, a significant portion of the margin dollars in the sale came from the accessories that supported the overall package.
Distributors often carried competitive accessory product lines and sold those to the customer instead of our client’s product. The net effect was that the margin contribution from the engineered sales effort was significantly below the target to justify the effort.
Through primary research with a sample of end-users that represented the industries the client served, we were able to determine the value of the engineering sales support and how this would impact a customer’s purchase decisions. Likewise, we were able to tie this to industry and census data to develop a model of the potential sales that existed in each of these three types of sales.
Distributor interviews revealed that distributors were basically loyal on the key components, but had additional vendors for the accessory products. Often the distributors did not stock our client’s accessories as they duplicated their inventory.
With this market information in hand, QDI conducted several internal planning sessions to evaluate alternatives of serve these customers and capture the additional revenue and margin dollars on system sales.
Out of these sessions came a strategy that included increasing the degree of control they would exert over systems sales through a combination of more direct sales activity and increased leverage with distributors to capture a higher percentage of the revenue generated from these efforts.