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Best Practices For Maintaining Profits and Satisfying Manufacturers

“Manufacturers need market share and dealers need reasonable profits from the market share they achieve to stay in a strong financial position. What are some of the best practices that balance satisfying the manufacturers and, as a dealer, maintaining reasonable profits.”  – Chad Hines, Quality Lift Trucks in Chula Vista, California

Richard Donnelly
Executive Vice President
Gregory Poole Equipment Company
Raleigh, NC
Your question concerns market share versus profit. I would make the following observation. When I was the marketing manager at our company I was reviewing our market share with an old time sales manager. He said to me” Richard, you cannot eat market share.” Basically, what he said was that profits were more important than market share. In today’s environment, you have to balance market share versus profit. If you try to buy market share, you will not get the return on your investment. You have to earn your increase in market share.

Asked & AnsweredI would identify viable market opportunities and target markets that, with the products and services you offer, allow you to be recognized by the customer as the best solution provider versus your competition. This solution includes products, services, parts, rentals, used equipment, fleet management, training, financing and other solutions. I would develop a strategy for how I want to grow my market share in these markets, investment required and the short and long term return on the investment. I would review the strategy with your manufacturer to ensure alignment with goals and direction. In many cases, the manufacturer will participate in a well-developed plan that is focused on growth strategies. A well-executed plan has the opportunity to increase market share while maintaining and growing profit.

Jerry Weidmann
President
Wisconsin Lift Truck Corp.
Brookfield, WI
A manufacturer attains a national market share based on the breadth of its product offering, the relative product value, product support and pricing. The national market share a manufacturer attains is a fair representation of the market potential for their product based on the value stream they offer to end users. In general, I believe it is reasonable for a manufacturer to expect its dealers to attain market share that is on par with the manufacturer’s national market share.

With that being said, there is regional variability in market demands and competition that can affect the reasonable attainment of the national market share goal.

It is my belief that market share goals at a dealer level should be part of a conversation with the manufacturer that includes the following elements:

Manufacturer
• The market share goal of the manufacturer. The manufacturer should justify the attainment of the market share goal. National market share should be the starting benchmark.
• Manufacturer support. Manufacturers provide pricing, marketing, lease subsidies, floor plan support, national account support, etc. The support level received by the dealer is a major component of the dealer’s ability to attain market share. The greater the market share goal relative to the national share of the manufacturer, the greater the support the manufacturer should provide to the dealer.
• Strategic Plan. The manufacturer should supply the dealer with sufficient information about the manufacturer’s strategic plan for the dealer to incorporate into its own strategic plan. This should include information on target market segments, product positioning relative to the competition, etc.

Dealer
• Dealer market share goal. The dealer should review the offerings/support of the manufacturer, the nature of its customer base and market segments, and the gross profit targets for the product line and derive the dealership’s market share potential for the product line.
• Dealer commitment to the line. The dealership should establish the actions that will be required to support the line at the market share goal, including sales representation, sales training, technical training, marketing and advertising costs, etc.
• Strategic plan. The dealer should determine how a product fits into its strategic plan.

To the extent the market share goal of the dealer is less than the market share goal of the manufacturer, the dealer should meet with the manufacturer to discuss what the dealer would require from the manufacturer in order to meet the higher market share goal.

There is a natural tension between the dealer’s need for gross margins and the manufacturer’s request for market share. The dealer must obtain sufficient profitability to support the business. To the extent that the manufacturer is unwilling or unable to support the dealer to attain their market share goal, the dealer must decide in favor of his business.

In a healthy relationship, the balance of profits and market share are part of an ongoing dialogue between the manufacturer and the dealer.

Duncan Murphy
President
Riekes Equipment Company
Omaha, NE

This is the age old battle that is the largest stumbling block in our supply chain relationship. It has been exacerbated in recent years as margin compression at all levels leaves less cushion to take one for the team. The first step is to sit in our partner’s chair to understand the dynamics. Manufacturers have a larger asset base than we do. Our income pretty much matches our revenue growth. But for our partners, drops or gains in revenue that affect plant capacity have an exponential effect. So, the first step is to do what you say you will do, not necessarily by share percentage, but by gross number of units projected. To allow the factory to plan, keep them updated on pending deals and celebrate surprises. If at all possible, never lose the sure thing on which both of you are relying.

Now, these steps do not necessarily ensure profits, but they make them predictable. Find other profit sources, other products and services that are incremental and that do not interfere with your core business. Network with your peers. This is one of the greatest strengths of MHEDA. When you do complete strategic plans for your company and your suppliers, make them come alive and revisit them during the year so you use the action steps as your map to profitability and for meeting manufacturers’ expectations. They really want you to succeed so you can afford to take those low margin deals to move iron for them.

Scott Lee
President
Conveyor Solutions, Inc.
Schaumburg, IL

The answer is simple but the implementation is often difficult. The answer is communication. Many manufacturers come up with elaborate plans/processes to deal with this balancing act. They roll it out to the distributor and expect harmony. The best manufacturer/distributor relationships are those where formal two way communication processes are in place. These are successful because both parties have input and typically generate a common process beneficial to everyone.

Once the plan is in place, the communication becomes even more critical. There must be solid, defined feedback channels in place so both parties can comment on their interpretation of the plan’s success. Some of the more successful relationships have advisory councils built in as part of the communication process. These counsels meet on a regular basis, provide open feedback and understand they’re representing all of the distributors. The distributors understand their interests are being presented and hopefully implemented through the counsel’s involvement. Most importantly, the manufacturer provides continuous feedback to the distributors on the progress of their plan.

As margin pressure continues to grow, information and education becomes more available on line and manufactures search for new ways to bring their product to market, this question will become increasingly important to answer.

Buddy Smith
CEO
Carolina Material Handling Services, Inc.
Columbia, SC

Your question is a good one, and something we as dealers face daily. Over the years I have come to believe a couple of things have helped us both hit our profit targets and meet the market share expectations of our manufacturers.

First, invite your manufacturer’s rep to spend lots of time in your dealership. Time spent in the dealership should not only include customer visits, but also strategy meetings with dealership personnel where you talk about your business and its profit goals and challenges. Unfortunately, many times these meetings turn into finger pointing exercises that put people on the defensive. In this type of environment, nothing gets accomplished. These discussions should be issue focused where both parties compile action plans so that common goals can be achieved.

Second, focus on the rental business. Several years ago we made a concerted effort to focus on building our rental business. This not only led to greater profits, but the trucks we bought for rental counted toward our market share.

Finally, I have come to believe that in our industry, gaining a customer will lead to greater profits. In other words, while the initial sale of equipment may include thin margins, over time these relationships more often than not turn more profitable as we bring rentals, service, parts, allied products and many other value added solutions to the table.

Al Boston
CEO
AK Material Handling Systems
Maple Grove, MN

This is a great question. A lot of distributors and manufacturers have wrestled with this in the last 10 or so years given the changes in how the end user/distributor/manufacture roles have evolved.

There was a great book that came out a couple of years ago through NAW called “Working at Cross Purposes: How Distributors and Manufacturers Can Manage Conflict Successfully” (by Michael Marks, Tim Horan and Mike Emerson). The points in the book would be that each role has different goals and, although it cannot be a win/win relationship, you have to have an arrangement that allows for both parties to make acceptable profits. To relate to the material handling industry, distributors need to be able to make profits in other areas than gaining market share in new trucks. The big picture should make the distributor and manufacturer successful.

Doug Carson
VP Marketing/Sales
Fallsway Equipment Company
Akron, OH

Many manufacturers have invested a good deal of resources into products that can produce close collaboration between the customer and the dealer on an on going basis post truck delivery. With acceptable margins for both dealers and manufacturers on product support offerings, it’s very important to maintain this close customer relationship after the initial delivery. Some examples of these offerings from OEMs include:
• Fleet management reporting and the subsequent consulting role for the delivering dealer;
• Web based parts look up and ordering tools for the in-house service customer with parts fulfillment provided by the delivering dealer;
• Lift truck monitoring systems that can help customers with OSHA compliance, collision reporting, energy management and fleet utilization;
• A full array of allied equipment offerings. All of these products keep the dealer foremost in the customer’s mind as an expert in the field while providing acceptable margin business for the distributor and OEM.