Burning moneyWhy do so many manufacturers give up millions long-term kitchen sales to get thousands short-term? It’s happening all the time, and has been for years, but I still don’t get it.

Here’s the typical scenario: a dealer sells a manufacturer’s line and they are building a good relationship together. Sales in that line are growing consistently – even to the point where that manufacturer’s share of the overall dealer’s business is increasing. It’s a dealer for life, really, with the later years scheduled to deliver large amounts of value for both the dealer and the manufacturer.

In the midst of this positive momentum, an interesting phenomenon happens. A builder, contractor, dealer, or some other opportunity presents itself to the manufacturer where they can make a deal and get more money immediately. It could be in the form of any of the following:

• A builder or contractor wanting to buy direct (that the dealer may or may not be focused on winning business with)
• The manufacturer wants to set up another dealer that’s “far enough away” from the original dealer (but close enough that the dealer, of course, gets upset)
• Or any deal where the manufacturer finds itself saying these dangerous words: “well, the dealer wouldn’t be able to get the business anyway”

Someone Forgot Their Sales 101 Lessons

If you’ve ever read Stephen Covey’s famous book The Seven Habits of Highly Effective People, he talks about the “emotional bank account”. Rewarding actions build the emotional bank account in the form of “deposits” and non-rewarding actions make “withdrawals” from the emotional bank account. Too many withdrawals leave the bank account empty, resulting in a failed relationship.

I think sometimes manufacturers think the example above is a minor “withdrawal” from a dealer’s emotional bank account – something that can easily be recovered in the future. A minor “bump” in the road.

What they don’t realize is this is more like a devastating bankruptcy — the complete withdrawal of ALL deposits made up to this point. It’s the ultimate sin of the dealer channel, really. In the mind of the dealer, that manufacturer is evil and the dealer will never do business with them again.

The Results Are In

So let’s review a summary of short-term and long-term results of this scenario:

Short-term Results
• Some revenue was generated for the manufacturer

Long Term Results:
• Dealer’s emotional bank account is officially empty
• Any chance at long term revenue is eliminated
• Dealer is now actively putting a strategy in place to retire the manufacturer’s line – permanently
• Dealer is now going out of their way to bad-mouth the manufacturer to all the other dealers — at networking events, industry venues, and any other event they can get their hands on
• Since everyone knows the story, the manufacturer’s competitors are using this in their sales calls to help distinguish themselves as different — and going out of their way to visit that manufacturer’s other dealers to tell the horror story (these kinds of events spread like wild-fire)
• The manufacturer’s reps are effectively handicapped because this act portrays them as predators disguised to steal any new prospect’s volume directly.

It’s hard to imagine the logic that leads to this scenario, but the sheer quantity of these events makes us have to write about it. I think we can all see how the manufacturer’s long term relationship with that dealer is now ended — even if orders are still being placed months from now.

But eliminating that line at the dealer’s site takes time. Sometimes longer than a year. By then the manufacturer has long forgotten about it and simply sees a slowly declining revenue stream, and can’t figure out why.

Wait, it Actually Gets Worse

The customer the manufacturer just obtained has absolutely no loyalty to the manufacturer. Typically the reason there is a deal like this to begin with is because the builder or other company is looking for a price the dealer can’t give them. That’s why the manufacturer is now involved. By nature, these are the deals that come with no loyalty because the customer is driven solely on price and will switch to a cheaper alternative as soon as the opportunity presents itself.

Worse yet, the manufacturer eroded the perceived value of their product in the surrounding marketplace by offering it at such a deep discount. The new direct customer spreads word that the manufacturer will wheel and deal, other dealers soon get negatively affected as some of their prospects and customers jump into the fray, and the manufacturer is forced through market pressure to lower prices even further. And so the downward spiraling saga continues…

The Summary

In just about every one of these cases you can just look at the math and clearly see the manufacturer would have been financially much better off if they would’ve kept the relationship with the dealer. Or better yet, worked the dealer into the deal somehow.

I bet on the wall of every person heading up a manufacturer’s dealer channel is something that starts like:
• “Our mission is to be the #1…”

But most don’t realize that there’s only one way to actually pull this off: You have to win a dealer’s loyalty more than all the other manufacturers do. And that’s only done in small, consistent deposits into a dealer’s emotional bank account.

Year after year after year.

With all that said….there IS a right way to do this. IF the scenario is truly one of those where the dealer couldn’t get the business anyway, then the smart manufacturer will do it the right way. Which is this…

  1. Manufacturer informs the dealer of the situation / conversation (since it has to do with their market) as early as possible (otherwise they’ll hear about it from someone else and that’s strike 1)
  2. Dealer understands and verbalizes that he/she is on board with the fact that this is NOT a customer that they could get anyway, so the dealer agrees that it’s not cannibalizing their business in any way if the manufacturer takes this customer on.
  3. And last but NOT least, the manufacturer finds a way to make it a “win” for the dealer. This is the key. I’ve seen this done many times, where, for example, the dealer is brought into the deal somehow (maybe for the labor or delivery or something) and the dealer actually gets some of the revenue side. The manufacturer can actually make this a huge plus to the dealer relationship if they do this right. At this point the dealer thinks the manufacturer ROCKS because they’re so used to the opposite scenario. BONUS for this manufacturer!
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