He went on to express his concerns about constantly being bloodied up for better prices, terms and factoring, and about the other outrageous demands that his customers make on him. All of this got me thinking about where suppliers of full lines stand in the current environment in which everyone is looking for the lowest price. What can they do to retain those full-line buyers in light of changing market dynamics? Are full-liners a creature whose time has passed?
There is no question that traditional full-line manufacturers face numerous challenges. Technology enables resellers to break down "bundled" lines they typically have offered. Since resellers no longer depend on their suppliers for the paper catalog, they can choose who to source their products from — value line from a low cost country (LCC), import from another and heavy-duty from a third.
Some resellers, especially those with private label programs or house brands, are even able to buy at the SKU level. Combined with the power shift that has moved nearly all of the negotiating leverage to the center of the channel, resellers can make some hefty demands on suppliers for price, payment terms and other financial deals. With surplus capacity at home, new availability of good quality products coming from LCCs and the acceptance of LCC-manufactured parts, full-line manufacturers are feeling the squeeze.
Most resellers are leveraging their LCC suppliers against the established manufacturers in an attempt to gain pricing concessions. On the surface, this is a fair and reasonable practice. A buyer must always have the option to pit one supplier against another. But the consequences of these tactics might not be so benign.
At the same time resellers are using the newfound leverage of the LCC suppliers, their expectations for traditional suppliers remain unchanged.They may buy more of their total offering in a specific line from "outside" sources, but they expect full-line manufacturers to supply the slower-moving part numbers and field sales force support, category management leadership, training, tech support, cataloging, data services and marketing programs. But it is not financially possible to provide full wraparound services to customers purchasing less than the full line.
Net pricing and charging extra for everything else could be the aftermarket's newest market strategy. Do you want extra terms? Pay this price. Do you want to make a return? It will cost you 15 percent. Do you want pickup from a local warehouse or drop ships? Pay this much more. And the same goes for field sales support, category management, training, tech support, cataloging, data services and marketing programs. The market must determine what services are of value.
As more North American suppliers globalize their production, they can and will become more competitive with LCCs on pricing. But they will never fully close the gap as long as they provide full service. That means most will need to create a pricing model like many package good providers have done, where resellers pay for the services they use.
Alternatively, full-line suppliers may need to start leveraging their channel partners against one another. With more retailers looking to establish a position with the traditional installer base, a full-line supplier's national sales force can play a powerful role in directing technicians' purchases away from traditional store outlets to the retailers' wholesale programs. They'll do this by making their brands available and using their sales force to redirect purchasing. I know a lot of traditional distributors will scream at the idea, but how different is that from what they are doing: buying the fast movers from LCC suppliers?
Ultimately, the market sorts all things out. But, just as my old salesman friend said, we might well be looking at the demise of the full-line manufacturer. And, at the risk of being old school, I don't think the aftermarket would be better off as a result.
Bob Moore is president of Bob Moore & Partners, a consulting firm that specializes in the automotive aftermarket. Moore can be reached at [email protected].
