The Power Of Many
With the recent economic swoon, distributors are forced to expand their willingness to try new business practices while tightening their budget.
One way to achieve both is by joining a buying or marketing group. The groups offer distributors strength in numbers that can help them get deep discounts by purchasing as a group member.
This purchasing power is appealing now more so than ever, but it is no longer the only feature used to interest prospective members. Groups have had to distinguish themselves over the years and have done so by offering such things as seminars and Web-based programs to help drum up appeal for their buying group.
Impacting Business Performance
With the dire economic situation, joining buying groups is becoming more of a necessity than anything else, says Zac Haines, executive director for Distributor Partners of America, (DPA) Cincinnati.
“In good times buying groups can sometimes be thought of as ‘icing on the cake,’ but in bad times they become much more of an integral part in a distributor’s recipe for survival.
The reason for the shift is buying groups are showing distributors an ability to impact business performance and increase sales, says Keith Marcoe, president of NISSCO, Dulles, Va.
As a member, distributors can increase their buying power with larger vendors and can buy at a lower freight minimum to meet delivery specifications. Typically, most manufacturers will work with a distributor as long as they spend enough to make a delivery profitable. This limits the amount of manufacturers a distributor can do business with.
By going through a buying group, distributors are no longer obligated to order a specific amount or meet a weight requirement on their deliveries since the group has a significantly larger amount of purchasing power. The distributor’s order no longer has to meet any specifications, something important during times when companies are even more particular when ordering products.
In turn, this purchasing power affords distributors the opportunity to purchase from manufacturers they would not normally be able to, says Haines. With this ability, distributors appeal to additional customers because they can order supplies from a larger amount of manufacturers.
Buying groups are also cognizant of how difficult it is for distributors to get end users to pay their bills on time with the economic crunch. To ease that problem, some buying groups have negotiated extended terms when it comes to purchasing products.
Before the economy hit a downswing, buying groups began to offer more to distributors in order to differentiate themselves from one another. This has lead to competition among the groups and the formation of distinct brands. For instance, once known primarily as buying groups, many now prefer to be called buying and marketing groups. These groups aim to do more than garner discounts on jan/san supplies,
One major resource is access to a marketing department, says Paul Lemieux, CEO of Pro-Link, Canton, Mass. Distributors work with the buying group to create catalogues, brochures and sell sheets for their own distribution company. By working with the buying and marketing groups, this saves distributors time they would spend on it themselves, or money spent on outsourcing the marketing duties.
Aside from the marketing additives, buying and marketing groups offer private label programs. The programs are staples for most groups and are tailored to distributors that do not have their own label.
“The program offers them (distributors) product and brand exclusivity in their geographical markets,” says Haines.
The exclusivity of being the only distributor aligned with a particular buying group in one market is more important because it gives a distributor more buying power and marketing presence than most of the competition.
In order to eliminate competition amongst members, there are certain qualifications that potential members have to meet.
“Non-competing distributors may join,” says Tobie McKown, president of The United Group, Monroe, La. “Prior to accepting a new member stockholder, the member recruited asks the current member stockholders in nearby markets for their agreement. If they do not agree, the competing distributor may not join the group.”
This dedication to controlling markets and keeping enough geographical distance between members could reach a point where buying groups will stop adding members altogether.
“We call it ‘controlled distribution,’” says Lemieux. “Our commitment is to the members. As long as they are participating and paying their bills we will not put someone else in their market.
“We want our members to feel comfortable to talk about their business and want them to get more from a shared experience than from the association by itself,” he says.
Members of a buying and marketing group also have the chance to consult with fellow members. This type of back and forth takes place at regional and national shows the groups hold throughout the year. During regional meetings, buying groups have encouraged distributors the chance to network and discuss current trends in the industry.
The networking opportunities expand beyond face-to-face encounters. Distributors are granted access to the group’s Web site where they can interact with fellow members to discuss anything regarding their business operations. The sites are password-protected and contain an extensive directory that lists contact information for all members of the group and group personnel.
Using these sites, distributors can pull up lists of suppliers who each member of the group purchases from. Products offered through the organization’s suppliers are broken into several categories to help each distributor procure products. The lists are further sorted by such categories as supplier location and type of products purchased.
The networking also allows for distributors to seek advice from one another, whether it is in person or over e-mail. For those distributors searching for ways to avoid any devastating loses in the current economic climate, fellow distributors who have been in a financial crisis and worked out of it can help counsel them on fine-tuning certain aspects of their business.
For example, members of The United Group have assured fellow members that the troubling economic times can help distributors in the long run because it forces everyone to follow stricter financial practices, says McKown.
This guidance offered by fellow members has raised distributor interest in joining groups, but the allure of groups remains the same during times like these, says Haines.
“It is important to keep things simple and as easy as possible for the distributor. They have enough headaches and it is our job to make their lives easier,” he says.
The devotion to help distributors increase their business performance and boost sales through private label programs and technological offerings is a characteristic of most buying and marketing groups. The groups can help distributors stabilize their business and improve it with marketing assistance, unprecedented Web access, payment programs, limited competition and unique networking opportunities. And of concern right now, buying and marketing groups can lend stability to distributors during a time of economic unrest.
What Group Suits Your Needs?
Distributors searching for a buying and marketing group that best fits their company could have a tough time deciding to join a member-owned group or a privately-owned group. Each group has their own benefits, but in order to take the first step in making a decision, distributors have to evaluate their own needs.
“The first thing the distributor should do is compare his current supplier purchases and his ‘wish list’ of suppliers he would like to buy from with the prospective group’s supplier portfolio in order to evaluate the financial incentive,” says Keith Marcoe, president of NISSCO, a privately-owned buying and marketing group based in Dulles, Va. “If the portfolio matches up well, the financial incentive is quantifiable.”
When trying to decide on the right buying group, the privately-owned buying and marketing groups require less of a financial commitment from its members, says Dennis Riffer, president and CEO of AFFLINK, a privately-owned group in Tuscaloosa, Ala.
“Many independent distributors are struggling to keep up with the investments they need for their overall business, let alone for the group,” he says.
For distributors seeking a support oriented group, they should join member-owned groups, says Paul Lemieux, CEO of Pro-Link, a member-owned marketing and buying organization based in Canton, Mass.
In this type of group, members speak to the direct return on investments from their involvement.
“Member ownership assures marketing allowances, and therefore, the group’s profits, go to the distributors who earn them, minus operating expenses,” says Tobie McKown, president of The United Group, a member-owned group based in Monroe, La.
Regardless of the type of group, the distributor should receive exclusive benefits, such as manufacturer programs, technological offerings and consultation on operations and finances while keeping the intended goal of improving business, says Marcoe.
“NISSCO is totally focused on the concept that buying groups must provide innovative ways for the distributor and the manufacturer to capture and keep new, profitable business,” he adds.
Even with the different appeal of both groups, Marcoe says the rate of return should remain the main reason that distributors select a group.
“What a distributor should actually be concerned about is their percentage rate of return, and the assurance that it is being distributed in an equitable fashion without different qualifiers or inside deals that gives an advantage to one member over another,” says Marcoe.