When The Going Gets Tough, The Tough Get Promoting
By Michele Bell & Matt Histand

Suppliers: Not The Same Old Same Old

Sounds pretty bad, right? The thing is, if you were paying attention to some of these trends and digging a little deeper, you learned a lot. Example: The combination of a slow-to-recover economy and increasingly techno-savvy end-users (who are more than capable of “Googling” keywords like “T-shirts,” “pens” and “mugs” all on their own) showed suppliers and distributors that they need to find new ways to keep existing customers, generate new business and expand their market share.

Result: An overwhelming majority of suppliers (95%) have a Web presence, and they say it’s used most often as a marketing tool for client communication/education and customer service. The most frequently used Internet tool was e-mail, followed by banner ads and links. But there are some sticking points. For instance, while 42% of distributors say they want to hear about new products via e-mail, nearly 60% note they don’t want to be communicated with in that fashion. So what do you do, throw up your hands in frustration? Maybe it’s better to use e-mail like salt around the rim of a margarita – sparingly and to add some kick. 

A majority of suppliers who opted to establish and/or build an Internet presence as their primary market strategy for 2002 saw a positive, measurable effect and consider it one of the most effective things they did last year to improve their business. 

“There is a massive unopened stack on my floor that proves to me that I don’t use catalogs much,” says Dave Liegeot, president of A.I.A./Promotional Advantages Inc. (asi/109480). “If people are using them, then it’s simply habit but, like a good dog, I’ve been housebroken of that bad habit and use the Internet way more often.”

Additionally, nearly one-fourth of responding suppliers say the Internet is playing a vital role in their businesses – though the vast majority (77%) do 10% of their sales or less via the Internet. As for generating leads, the average number was almost 10%, with smaller suppliers ($0 to $500,000) generating the most – perhaps because it’s a relatively inexpensive option compared with other marketing tools like trade shows or mailings. 

“I use Promomart to track down a source and then use catalogs to refine the search,” says Colin Searle, owner of Black Cat Promotional Products (asi/140717). “[It’s] very quick and easy to navigate, and a lot of times I’ll pick up graphics from Promomart rather than give the client a catalog, and they seem okay with that. I’ve used catalogs to give clients a choice and they usually return them after a decision is made.”

Touring Like A Rock Star

Between national promotional products shows, those sponsored by regional associations, distributor shows, tabletop shows, traveling showcases and end-user shows, suppliers and distributors could be perpetually “on tour” if they so chose. Suppliers, as always, have the hard choices to make as far as which shows to attend and which offer the best return on their investment of time and money. 

“Trade shows provide the only way that distributors can see the majority of our product line in person,” DiBiase says. “We also utilize trade shows to expose internal sales support personnel to face-to-face meetings with distributor salespeople that may have only had contact with us via phone, fax or e-mail.”

DiBiase’s opinion is that it’s nearly impossible to determine if a trade show is a profitable investment. “With the number of shows increasing and at times overlapping while marketing budgets decrease or, at best, remain flat, making decisions regarding trade show participation is a difficult challenge for suppliers and distributors alike,” he says. “As a general rule, we participate in the shows that make sound business sense for Leed’s. End-user shows would generally rank last; some distributor shows rank higher if the focus for the salespeople is on supplier education and working projects. A national show such as PPAI Vegas is strong because it’s the kick-off for the new year. Regional shows like ASI Orlando and ASI Dallas work because they draw, for the most part, distributors who aren’t attending other shows throughout the year.”

It’s ironic: Though many suppliers lament the number of trade shows in the industry, a majority of respondents (54%) say exhibiting at shows is their preferred form of self-promotion, along with catalog mailings (also at 54%). In fact, they note that shows are their main source of new business.

Scott Wood, vice president of marketing for Time Products Int’l. (asi/91320), has his company exhibiting at most industry trade shows and believes the opportunity to network with both suppliers and distributors and test market new products and ideas are some of the great advantages of being a regular on the show circuit. 

“Exposure is the name of the game,” he says, “and this holds true in print and electronic media as well. However, you have to market before, during and after the event, as well as do follow-up.” Wood does feel that there are too many shows too close together in the calendar year and says this could eventually have a negative effect: “We’ll have to cut our booth space size, and next we’ll be making choices about which shows to drop and which to let the multiline reps do,” he predicts, adding that he’s tracking leads and ROI more closely than ever. 

More For Less

When asked what their top market strategy was last year, nearly 30% of suppliers chose quality over quantity, focusing their resources on increasing business from a select number of distributors (interestingly, this was not one of the top two strategies cited by suppliers in last year’s SOI). 

Delving deeper, smaller suppliers generally chose to increase distribution channels for their services, while mid-sized firms ($500,001 to $2,500,000) and large suppliers (over $2,500,000) were the ones that favored working with select distributors. One might surmise that larger suppliers can afford to be picky about who they do business with, while smaller companies don’t have that luxury.

“Our marketing strategy for 2002 focused on multilevel coverage in trade shows, through reps, electronic media and print media,” says Wood. He also admits that while pruning existing business is the easier path, it’s a lot of fun introducing the company to new clients. “We definitely attack all parts of the market segment,” he adds. 

Maybe it’s because suppliers are expanding their client base. Maybe an increasing number of distributors are entering the industry. Maybe it’s a bit of both. Whatever the answer, suppliers did business with an average of 1,346 distributors last year, up from 1,183 in 2001 and 870 in 2000. Keep in mind, however, that averages include some broad swings of the data. For example, 92% of smaller suppliers did business with 500 or fewer distributors, while 43% of large suppliers did business with more than 2,500 distributors.

Preferred vendor relationships, once looked upon by suppliers as having the same kind of clout as being on the VIP list at the Viper Room, doesn’t appear to be the marketing panacea everyone thought it was. Though nearly 37% of distributors believe working with preferred vendors has a “strong effect” on their business, suppliers noted that some distributors use this relationship to shave suppliers’ prices, which is obviously not a plus for them.

DiBiase says that from a cost-savings standpoint, Leed’s has invested in operational areas that will yield improved efficiencies and ultimately save money. “We also worked to standardize imprint methods, locations and minimum order quantities wherever possible to reduce cost,” he adds. 

And in a move different from many other suppliers, Leed’s aggressively expanded its entire go-to-market offering this year. “[We did this] while most suppliers were circling the wagons and waiting for the recession to end,” DiBiase says. “In a recession, you have two choices: You can hunker down to weather the storm or you can seize the opportunity to gain market share. We took the latter path and it proved successful for Leed’s in 2002.” 

One would have to agree. Unlike many suppliers who saw a dip in their sales figures last year, Leed’s actually climbed in the Counselor Top 40 rankings, cracking the top 10 and moving into the number 8 spot. In one year, the firm’s sales rose 15%, and few would argue that a double-digit increase in the current economic climate is a rare thing indeed. Obviously, they chose the right path ... .

Cleaning House

Some people feel that tough times offer the best excuse for pruning your client list. Others say you need to hold on to anyone and everyone. As it turns out, it largely depends on how big you are. Roughly three-quarters of suppliers who responded to this year’s survey say they “fired” up to 10 of their distributor customers. On the other hand, small suppliers eliminated almost no one from their client roster – maybe because they’re newer to the industry, less experienced or hesitant to turn away business.

And while most suppliers – 85% – maintain a database of customers, mainly to track purchase amount, frequency and distributor profitability, only 14% say they track successful promotions to distributors and calculate ROI – and even fewer (12%) have a formal client loyalty or recognition program in place. However, when tracking and client appreciation programs are utilized, markedly higher gross profit margins are realized, so maybe it’s time to join the measurement minority. 

Another area where supplier and distributor philosophies diverged: The majority of suppliers maintain that developing a new product line was the smartest thing they did in 2002 to improve their business, followed by attending and/or exhibiting at more trade shows. Conversely, distributors don’t put nearly as much emphasis on the importance of new products. Only a third feel there weren’t enough new products in 2002, and 41% say the new products that were available weren’t all that interesting to their clients. 

“I used to think finding new products was paramount to be cutting edge,” Liegeot says. “But after chasing the ‘new & different’ for a couple of years I realized that while most customers say that’s what they want, they buy items that are ‘tried and true.’”

It’s All About You 

Obviously, suppliers and distributors practice what they preach, because despite belt-tightening client budgets, self-promotion efforts – both from suppliers to distributors, and distributors to end-users – increased. 

What’s interesting is how such efforts are perceived on both sides of the fence. As previously noted, trade shows and catalog mailings are suppliers’ top choices for self-promotion. But distributors, when asked how they’d prefer to hear about a supplier’s new products, ranked mailings as their first choice – although they say they prefer special flyers announcing the products rather than catalogs. Trade shows came in a distant fifth.

And though it’s undeniably effective, self-promotion comes at a price: Suppliers say they spent an average of $83,000 in this area last year, nearly double the amount they laid out in 2001. Broken out by company size, small suppliers spend an average of around $19,000 on self-promotion efforts; mid-sized firms $42,000; and large suppliers $226,000. 

And for all the varying forms of self-promotion that suppliers use (trade shows, catalog mailings, e-mail promotions, Web sites, mailed flyers and samples) – to say nothing of the copious amounts of money these marketing efforts entail – systems to monitor return on investment and follow-up were alarmingly lacking. 

Roughly one in four suppliers say they think they have a handle on where most of their business comes from, but they aren’t absolutely sure, while 22% report they track major self-promotion efforts (although not those they consider “routine”). And from the you’ve-got-to-be-kidding-me file: Nearly one in five (18%) suppliers who responded to this year’s survey say that distributors occasionally tell them how they came to do business with them, “but most of the time we just guess.” Yikes! 

Reassuringly, 18% also said they know exactly how much business they get from each method of self-promotion they use. And the good news is that this group has an average gross profit margin noticeably higher than those with a more laissez-faire attitude. 

“For 20 years I have used self-promotion campaigns and still do,” says Kayla Tollen, CAS, president of Kayla Advertising (asi/239482). “They’re always an effective tool to generate business and create good will.”

A majority of suppliers also said they took “extra” measures to retain their current customers and/or get a larger share of their orders. Key examples include expanding their lines/product offerings, offering special pricing and sales, calling on distributors more often, offering more services (such as a shipping system, art and custom products), and reducing lead time by increasing efficiency The increasing number of suppliers who engaged in these practices could have been trying to offset the negative effects of the economy, given the small-investment-big-payoff quotient of such efforts. And as you might expect, more large suppliers (81%) say they took extra measures to increase their market share than smaller suppliers who are more limited in their resources. However, regardless of company size, those who did employ such measures saw their sales volume increase, substantiating this as a marketing strategy with tangible ROI. 

Suppliers may also want to look at their business ethics and promote them to their distributor partners. Why? Because distributors who responded to this year’s SOI say issues such as sweatshop labor, suppliers offering employees a living wage and using environmentally-friendly and USA-made products carry a lot of weight when it comes to deciding which suppliers to do business with. 

Distributors Weigh In 

How are things on the distributor side? Starting with the big picture, distributors sell to clients locally and regionally in almost equal numbers, with national clients counting for only slightly less of their total customer base, leading one to conclude that geography is no longer an issue – not hard to fathom, given the technological advances in ordering and art transfer, as well as suppliers’ ability to turnaround orders more quickly than ever (not to mention the miracle that is overnight delivery). How about venturing outside America’s borders? No big surprises here: The ratio of distributors with clients overseas is only 17%, though that is up slightly from last year. 

When asked to describe their market strategy in 2002, the largest share of distributors (35%) echoed suppliers: focus resources on increasing business from a select number of clients. Though this was also the top distributor strategy in 2001, the number was notably higher (57%). 

And how are distributors keeping track of all these clients? Well, three-quarters of them say they maintain a database of their clients, but the bad news is that nearly 23% do not. Of those who do maintain a database, the majority track purchase amount, purchase frequency and client profitability, in that order. On the other hand, very few distributors track the lifetime value of a client or attempt to segment clients and tailor enhanced services to those segments. 

This is interesting, considering the commonly held belief that it’s easier (and less expensive) to generate more business from existing clients, while breaking into new markets and/or cultivating new distribution channels often require more time and financial resources. Proof that it works: The majority of distributors who pursued this option responded that they’ve seen increased profits due to their expanded efforts. 

“Don’t have enough business?,” asks Joseph Scott, MAS, vice president of sales & marketing for Scott & Assoc. (asi/321502) and an industry education facilitator, “then make more cold calls, ask for referrals, utilize your network. As distributors we should be able to help our clients plan ahead by reviewing their order history, viewing their promotional calendar and calling them 3-4 months in advance.”

The Road To Profitability 

Reiterating what the industry has been espousing for years, apparently it’s more profitable to sell marketing ideas and solutions as opposed to just products. Roughly 25% of distributors say their most profitable clients are those willing to pay a premium for such things as copywriting, complete ad agency services, Web-based promotion/design, and results/ROI marketing analysis. Other top vote-getters: clients who place the same order repeatedly (18%) and clients who know what they want and just need you to take the order (16%). 

While it may be true that the latter two categories require relatively little time and effort, there’s something to be said for going the extra mile. Crunching the numbers, we find that distributors whose clients see them as creative consultants seem to enjoy longer relationships and higher profits: Even though only 36% of distributors say they charge clients for their creative time, 47% of those who do increased their profits in 2002. Of those who don’t, only 35% had higher profits. 

Both Scott and Robert Berman, owner of Strategic Marketing Alliance in Bellevue, WA (asi/337857) and a frequent speaker at ASI shows, have been charging clients for their creative consulting services for years – everything from mapping out a marketing strategy to design and Web development, copywriting and rights and usage to intellectual property such as program ideas. 

“By far, the best clients and the best profits are from those I have that kind of relationship with,” Berman says. “I really got sick of being taken advantage of. Think about it. Any other design firm or creative agency would charge for their time. It’s what they do for a living, so why wouldn’t we? Isn’t this what we do for a living?”

Berman says he determines how much to charge clients by estimating how much time and energy will be involved, adding, “I can – and do – charge hourly, but I think it’s better for all parties to work on a monthly retainer.”

Forward Thinking

“The economy is still having its way with our industry,” says Glen Colton, MAS, president of Atlanta-based Seville Marketing Inc. (asi/323798) and a columnist for ADvantages magazine. “My experience has been that advertising and marketing – of which our industry is part – are much like the canary in the coal mine: We’re among the first to feel the effects of an economic downturn. Are things getting better? The trend I see has been the opposite of improvement. There is way too much emphasis on costs and an astounding lack of planning when it comes to promotional products.”

Colton maintains that the stagnant economy and peoples’ natural fear of being fired when business is off has caused decision-makers to hesitate before spending. In effect, they’re seeking permission to spend money for fear they might be punished otherwise. “Upper management can’t be bothered, or else they make the safe decision to do nothing,” he says. “Thus, the (formerly) bold decision-maker is now reduced to being a flinching influencer. He or she then plays it safer still and gets three bids on every project.

“So all of our knowledge and creativity go out the window, and it gets down to a battle over pricing. I have no adequate defense when my prices are being undercut. What I want to do is sit these people down and tell them, ‘You are not going to keep your job because you got three bids on an order for 5,000 pencils, and you are certainly not going to get promoted if you should happen to mention that in your resume.’”

When asked about how suppliers’ and distributors’ marketing strategies in 2003 are going to fare come next year’s State of the Industry report, Harrison believes that imagination, innovation and entrepreneurial, maximized by the free enterprise system, has worked to … make this nation the greatest this world has ever seen, he says. “I feel that our industry’s ability to respond to a challenge will lift us up out of this funk we seem to be in. This rising tide will lift suppliers, distributors and clients, and as a result, the nation as well.” 

Colton, in his left-of-center way of looking at things, offers this assessment: “I’m putting all my savings into gold coins and purchasing a year’s supply of dehydrated food,” he laughs. “I also have my eye on this cabin in the mountains of North Carolina that has its own well and a good cave system nearby.” 

Michele Bell is senior editor and Matt Histand is associate editor of The Counselor. You can reach them at mbell@asicentral.com or mhistand@asicentral.com.