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Monday, February 20, 2012
Last week, Egret Consulting, a premier recruitment firm that specializes in the electrical and lighting industries, published its newsletter, The Buzz. We asked Ted Konnerth, an industry veteran whom many know, if we could share his thoughts on channel expansion, selling vs. fulfillment, the upcoming NAED SouthCentral and what it all may mean:
We were in attendance at the annual Strategies in Light conference last week. Strategies is the largest conference on high brightness LED in the world. Held annually in Santa Clara, CA (Silicon Valley), it features a remarkable collection of interests: component manufacturers, tooling manufacturers, fixture manufacturers, consultants, specifiers, engineers and techies. Attendance was somewhere over 5,000 people and the resounding sense of the conference was that LED has finally arrived at the mental state of acceptance. The attendees have always been ahead of the curve in understanding the full concept of solid state lighting, but this year was the first year where the topics of brightness and price point were virtually non-existent; it is now simply assumed that lighting will convert to LED. The only question is the speed of transition. So, now that LED is officially 'here,' the only remaining issue is... who's gonna sell this stuff?
I just reviewed the attendees to the Central Meeting of NAED, upcoming at the end of the month and as usual, the attendees are largely the same for the distributor members. BUT, within the manufacturing registrations, there are very, very few senior executives attending. Of over 100 registered manufacturers, there are fewer than a dozen CEO's, Presidents or Sr. VP's making the trip to Orlando.
The manufacturers are the leaders of the industry, attending a conference of their largest regional and national distributors and yet, the principle leaders are mostly staying away. These are channel partners who collaboratively figure out how to sell more stuff, together. But the Presidents of the largest manufacturers of switchgear, lighting, fuses, dimming, wire, conduit and controls are staying home. I presume they already know the distributors well enough that their presence isn't necessary. But it is also very true that the industry is changing rapidly; and channel relationships are straining.
The major gear manufacturers all have factory-direct sales models for developing the energy remodel (ESCO) segment of the industry; without traditional channel partners. The major lighting manufacturers have developed their own direct sales representatives to call on end-users to promote energy saving solutions; without channel partners. The most successful entrants into LED all have a direct to end-user sales model that eschews channel partners. Wire companies have always had narrowly defined channel sales organizations to promote specialty products into process industries or government sales, or mining, or under-sea cables, or utility, etc. But now, there is a rapid influx of new technologies that can only be promoted with a well-trained professional sales organization that is trained in the technical attributes of the technologies, plus the financial impacts to an end-user of applying those new technologies. Who can sell that kind of stuff?
Bob Reynolds, CEO Graybar recently posited a premise that wholesale distribution has largely abdicated the process of true 'sales' in favor of fulfillment. In short, sell what your customers ask you for. But what if your customers don't know anything about variable speed drives, or LED lighting or wireless environmental controls or solar energy? Or even worse, what if they do know about those technologies but also know that their regular distributor doesn't have the technical acumen to professionally advise them on which manufacturer is better, or how to qualify for rebates or tax incentives to support the decision? Customers, who have a need, will find answers to their questions. Will they find them within the traditional confines of a NAED conference? Not likely.
So what's a distributor to do?
Now that technology is here, what's the future for an electrical industry that is swimming in electronic solutions? I believe the future is channel expansion. I heard the term 'LED ESCO' several times during my Strategies in Light conference meetings. I'd never heard that before. We regularly talk to solar installers, who buy some of their material from electrical distributors, but more and more buy their electrical material from solar integrators; who buy wire/cable, connectors, panels, inverters, etc. and package them together into a contractor-friendly system that can be easily priced and installed. They buy all of those electrical supplies from varying sources; distributors, direct from manufacturers and from value-added resellers who can customize cables to lengths with connectors or terminations pre-installed. Inevitably, solar is moving to new channels of distribution.
I'm slightly bemused by the big announcement of Crescent Electric joining I-Mark; why wouldn't they join I-Mark? That is just a race to more rebate dollars; which form the cornerstone of most electrical distributors' annual profits. But rebates don't solve the future problems; they only pad the present-day earnings. The future is in training and hiring professional salespeople who understand technology and can talk to end-users who are currently awash in cash on how and, more importantly, why to invest in building technologies that will deliver bottom line results and fast ROI's on relatively small capital investments.
The construction market is recovering, but it'll take a couple more years before it's recovered to levels of 2006-2007. The money is there now for those who understand how to sell something that few people know they need. Carefully crafting a professional financial presentation on capital investments to a CFO, President and Plant Manager will return profits that make buying group rebate dollars look like pocket change.Your thoughts on Ted's observations? What does the declining role of manufacturer / distributor relationships portend?
Who's gonna sell this stuff? The channels are emerging rapidly, whether or not the traditional partners will enjoy those opportunities is up to them. But when the Presidents of the major manufacturers in the industry choose to not attend a meeting of the largest regional distributors, they've already figured where their future lies.