How To Build Your Value With Contractors

BY Senthil Gunasekaran and Pradip Krishnadevarajan
1/24/2020 - HVAC Operations

This past HARDI Annual Conference, Senthil Gunasekaran and Pradip Krishnadevarajan from ActVantage presented 2 sessions aimed at helping distributors build stronger relationships with customers. Today they sat down to follow up on those sessions and tell HARDI members how to act on what they learned at #HARDIAC.

Tell us a little bit about yourselves and how you got into this line of work.

Senthil: I am a Mechanical Engineer and started my career with TATA Motors (India) as a process engineer. After three years of manufacturing experience, I did my Masters (in supply chain management) at Texas A&M. While working with distributors in the last 15 years, I also completed my Doctorate from Texas A&M, focusing on the distributor’s customer value proposition in the digital world. 

Pradip: I am passionate about using data, analytics, and best practices to help companies drive profitable growth. I started my career as an industry principal and consultant for distributors at the Global Supply Chain Lab. I have a Masters in Supply Chain Management and a Doctorate in Business Analytics.

Both: We were introduced to the Industrial Distribution Program at Texas A&M University during our graduate studies. Since then, there has been no looking back. Upon graduation, we co-founded the Global Supply Chain Lab with Dr. Barry Lawrence. We spent the next decade consulting with distributors, researching distributor best practices, implementing these practices while educating hundreds of distribution and manufacturing professionals. We are authors of seven best-selling books through NAW on distributor profitability and growth. In 2019, we started ActVantage with the mission of helping distributors profitably grow through advanced analytics and talent development.

Hardi 2019-Hardi 2019-0409

What is something viewers can implement immediately after each of your sessions?

Senthil: After attending the "Contractor Value Builder" session, attendees can perform two quick things: (1) Ask your sales team to describe your firm’s value proposition in your next sales meeting and see how many of them talk about customer goals versus your capabilities. The responses would help you understand the current gaps in communicating the value proposition. (2) Introduce customer value builder framework to your sales team and coach them influence customer conversations.

Pradip: From the "4 Quick Wins in Pricing Management" session, viewers should know that the blurred lines between sales management and pricing autonomy is a prime reason for your margin erosion. The answer lies in making SMALL CHANGES. These changes will ensure “consistency” in your pricing process. Here are your 2-quick wins: 1) Identify customers with annual sales below $12,000 and benchmark their GM% with the top 50 customers. If the margins are lower than the top customers, close margin gap by improving margins. 2) Create a customer scorecard using these SEVEN metrics – margin ($ and %), days to pay, average order size, sales ($), number of orders (12 months) and growth from the prior year. This scorecard will not only help identify pricing opportunities but also put you close to best practices in sales management.

Why should distributors reinvent their value proposition?

Senthil: Through our research, we uncovered three blind spots in the distributor’s traditional value proposition. The lack of (1) customer focus (compared to an excessive focus on distributor capabilities), (2) customer-centric sales tools (against traditional line cards and brochure), and (3) value proposition training (against exclusive product training). In the next decade of digital transformation, the common thread of many best practices is customer experience. The distributors should shift their attention to customers’ business if they want to become a trusted customer adviser and a relevant partner in the channel.

Hardi 2019-Hardi 2019-0173

How can distributors build value for contractors?

Senthil: The distributors should understand the contractor’s business model in-depth. What does that mean? The distributor salespeople know more about products than contractors’ business details. The salespeople should understand the contractor’s process and financial performance drivers. The contractors’ world today is more complex than a decade ago. There are multiple stakeholders (foreman, field personnel, purchasing team, owner, and supervisor); hence customer value is in the eyes of the beholder. Distributors should equip the sales team to win in the age of omnichannel and customer experience. You should help your sales team to influence customer conversations (away from pricing) in the long term.

What is the biggest mistake companies make in managing their pricing?

Pradip: The most common mistakes are twofold. First, distributors often confuse their value creation (why customers buy from us?) and value capture (pricing) decisions. It is critical to clearly understand, define and optimize these two value decisions before bringing them together in a pricing model. Second, even when using a defined pricing model, distributors often compound what is already a complex process by still leaving the ultimate pricing decision in the hands of salespeople without data-driven support. These decentralized and subjective pricing decisions are the prime reasons for gross margin inconsistencies across markets, customers, and products.

How should distributors set their pricing strategy?

Pradip: The answer to optimizing profits through pricing lies in “managing complexity” by creating a price structure with fewer variables while offering “consistency” as far as the process — i.e., doing things the same way every time. Your pricing strategy should be simple and driven by these three key variables. Setting up your pricing model to reflect groups within these variables will ensure your continued success.

  • Who you represent (SUPPLIERS – core, volume driver, service driver, marginal)?
  • Who do you sell to (CUSTOMERS – core, opportunistic, marginal, service drain)?
  • What do you represent (INVENTORY – critical, important, non-critical)?

Anything else you would like to add that we did not discuss?

Both: Distributors are in the enviable position of information and data administers. They have both supplier and customer transactions. Leveraging data to drive their business decisions will not only benefit distributors but drive overall supply chain profitability and customer experience.

Both: We would like to thank HARDI for sharing our research insights with distributors in their journey of profitable growth. 

Check out ActVantage's website for case studies that show proven ROI when adapting these methodologies.

Stay tuned for more from Senthil and Pradip this year, and check out their full session videos on HARDI Hub!

4 Quick Wins in Pricing Management
Contractor Value Builder


Senthil Gunasekaran & Pradip Krishnadevarajan