Will Channel “In”Efficiency Lead to 50.01% Defining Choice?

Every once in awhile I like to share the thoughts of other “thought provoking” individuals.  One such company is Egret Consulting.  Many may know Egret as one of the electrical industry’s premier recruiting firms. Some may know its principal, Ted Konnerth, who used to work for Cooper Lighting (eons ago!).

Their recent issue of their enewsletter, The Buzz, was entitled “Channel Efficiency” and touched on many of the challenges that those outside the industry face in bringing new ideas and new products to the electrical channel.

I thought we’d take some excerpts from it (and these are direct quotes). I encourage you to read the entire issue (click here):

• The surge of technologies entering the traditional electrical industry is unprecedented. In a few short years we’ve seen:
• Solar power, Wind power, DC distribution, Wireless building automation, LED lighting, Smart grid technologies.
• In addition, we’ve seen a surge in the diversity of channel influences:
• ESCO’s, LED distributors, Solar specialists, Grid/power quality specialists, Energy consultants, Rebate/tax consultants, LED assessment firms, End-user sales organizations.
• Many of the new entrants into our industry are also new to the US market, so the barriers to entry that have been created over the years are daunting to a company that simply wants to sell new ideas or products. 
• a recurring theme; the traditional electrical industry is an inefficient channel structure that is in transition and will undergo changes to remain viable for the future.
• Let’s take one large aspect of the legacy channel: financial incentives. … Each item is a cost of doing business; hence they are all built into our price structures, somewhere.
• let’s imagine a new company entering the US market. … When faced with a barrage of extended hands asking for their support: … the normal response for most of our clients has been to create their own channel. Many of our clients are deploying direct sales strategies; eschewing the Pyramid of Profits.
• which is more efficient?
• But the real question is… how much market share are the legacy players willing to give up to new entrants who hold no respect for those legacy costs of doing business? The answer to that question is… the cracks are visible. Take Eaton, Schneider or Philips …
• the bigger question becomes; with all of this new complexity, is the legacy channel appropriate to support the introduction of something this novel (LEDs)?
• The prognosis for the electrical industry is that channels will continue to fragment; the available pie will be smaller and the opportunity for innovation will shrink from view.

• New companies will create new partnership solutions. 

Now, I know this may not be popular with distributors, reps and marketing groups, but manufacturers are also wrestling with this issue as the are approached by “new” channels to represent their products and also have to combat “new” manufacturer market entrants that are going to market differently or avoiding industry “norms.”

As a distributor / rep, what do you do? Do you accept that the pie shrinks (again)? Do you actively pursue new suppliers / opportunities and create processes to encourage this? Do you develop a different business to compete with yourself but represent different suppliers? Do you adjust the way you do business to be more open to new suppliers? Do you consider alternatives to back-end profitability?

In many product categories, product innovation is changing the industry … and it will continue.  While electrical distribution may remain the channel of choice for traditional manufacturers, remember, choice only is 50.01% of sales.  The other 49.99% may come through other venues.  What percent did the channel have, what does it have and what will it have in 5 years?

Just some food for thought for over the weekend!