Commodities
The farmer will come to the dealer who services him best. It proves that in agriculture, loyalty to the dealer is stronger than loyalty to the brand!” Bill Ratliff, Founder, President/CEO, Chairman Board AGCO, Duluth, Georgia . . .
Over the past 40 years we have served many industries, many brands of product, many manufacturers, many associations and yes, many equipment dealers. Over these many years there has been a reluctance to use the term commodity when referring to equipment. What is a commodity anyway? Is it wheat, corn, pork bellies, a loaf of bread or a truck load of pineapples; or is it a lift truck, a tractor, an excavator, a riding mower or a skid steer loader? Categorizing the product you are discussing as a commodity takes away the investment in the design and performance of that particular product.
A lawnmower cuts grass, a fork lift moves loads, a tractor plows a field and an excavator digs a trench. Yes, some of these products have more bells and whistles and features with added market appeal. That may help the particular manufacturer pick up a “bit more” market share, but for how long? Years ago it was considered a marketing must. A supposition that stated if you could not market your product to a 15% market share then you were better off staying out of that market.
With 10, 15 and sometimes as many as 25 manufacturers competing for a single market . . . the fact of the matter is that all 10, 15, or 20 competitors trying to capture the same market won’t have a 15% market share. Yet today we see many manufacturers who are demanding an even larger market share penetration, despite the added number of competitors. There are not enough bells and whistles that a supplier can put on a piece of equipment to increase the dealer’s market share.
Today, we see equipment running down production lines with every other piece switching into a different paint booth to be painted a different color than the unit behind or in front of the production line. Different paint colors and decals call for a different brand name and many times a different type of distribution for the exact same product. In our mind the product becomes a commodity; add to this what has always been referred to as private labeling and the problem expands.
We know of a supplier whose dealers’ sales have led world sales for years. Unfortunately these dealers are showing little increase in overall margins for the sale of their equipment versus the competition. Unrelenting demand for market share, in our opinion, puts pressure upon the dealer to hold margins down in order to hold market share up.
Herb Kelleher of Southwest Airlines who preaches providing customer service and customer satisfaction and as a business founder seeks increased customer retention says: “Market Share has nothing to do with profitability. Market share says we just want to be big and that we don’t care whether we make money doing it!” All airlines have to sell is seats; seats on an airplane that move prospective customers from one place to another. It is a travesty that a company as old and well known as American Airlines did not take notes from Kelleher.
Go back and re-read the Bob Ratliff quotation at the start of this article. Try to make something like this your Mission Statement: “Loyalty to the dealer is stronger than loyalty to the brand!” Could it possibly be that strong customer loyalty and customer retention is the answer to developing profitability and increased market share? Successful world-class equipment dealers have practiced this philosophy for years.
We have witnessed equipment dealers who have taken on mediocre, not the top of the line, best in class, product lines and developed highly profitable market share. These dealers continue to focus on servicing the customer after the sale. These dealers offer added value to the sale and always will. It is not just lip service; these dealers are not selling a commodity, no matter how many other like pieces of equipment are represented in their market place. These dealers are committed to giving the customer full service. While the world-class dealer does this he is also making a fair profit for his company, for himself and for his employees.
Is all this an unusual case scenario? No it isn’t! Unfortunately, it isn’t all that typical. It takes a great deal of effort and focus to truly become a world-class equipment dealer. Many successful dealers have been quietly doing this for years. Quietly, because these dealers don’t really want their competitors to know what they have to do to enjoy the same success . . . it isn’t brain surgery!
Value-added equipment dealers don’t fear the competition or their suppliers. They know they have the secret of being successful even if they had to start over with new lines of equipment. George Keen of Currie Management states: “If you are the dealer, or work in a dealership, then you should ask yourself . . . are we a cost of distribution or do we add value to the process!”
We’ve written about the dealer less society before. We do believe that the Internet is affecting the way equipment dealers do business. But the products that our readers sell all require set-up, warranty, service, parts and rental. These are the value added essential ingredients that the successful dealer adds to the marketing of any product.
We have indicated in the past that surveys clearly indicate that customers will pay a bit more for the product if they are assured of competent service after the sale. We have asked many dealers what another 2%, 3% or even 4% in profit margins on the sale of new and used equipment would mean to the profitability of their business. We’ve seen it happen with focus and believing, but you’ve got to work at it and not just talk about it to make it happen.
Yes, the Internet and E-Commerce is having an effect on the way manufacturers and dealers do business. Will it cut out some of the cost of distribution? Yes, and after all the smoke clears away and the cost of programs are covered, we believe the dealer should share in these reductions. We believe that mergers, consolidations and drop-outs will begin to taper off slightly. We believe that the time has come for many of the “mega-dealers” to take a hard, cold look at profitability . . . bigger is not always necessarily better, nor is it always more profitable! The value-added dealer, the dealer who offers full lines of service, the dealer who promotes customer satisfaction, customer loyalty and customer retention, with an eye towards increased profitability will indeed survive, with or without merging and/or consolidation.
Full service is the real product a dealer has to sell to the customer and service begins before the sale, continues throughout the sale and is most important to continue after the sale. Service is the foundation of the relationship the dealer has with the customer. No matter how many competitors the dealership has, if the dealer offers added-value to the sale, the product will never become just a commodity! If the dealer thinks that service is only something they do to equipment in their shops or in the field, they are missing the point. Service is the function of all disciplines of the equipment dealership!
For your additional reading you may want to go to Amazon and order the book entitled: The Myth of Market Share, why market share is the fool’s gold of business. The book is written by Richard Miniter. We are also renewing our special offer for our manual entitled: Customer Satisfaction . . . Dealers may order this manual at our special price of $19.99. It will be emailed to you along with your invoice which you pay only if you are satisfied with the manual’s content. We would appreciate your including your name, title, address, email address, industry and lines of product handled.
John R. Walker is president of Aftermarket Services Consulting Co. Inc. E-mail [email protected] to contact John.
