I often hear concerns from distributor sales managers who’re stressed out by the pressure to increase revenue in saturated markets while maintaining reasonable profit margins.

There is no denying it.  Margin shrinkage and sales growth are challenges for everyone.  In so many ways, competition has increased dramatically in the compressed air market.  It’s difficult to differentiate products.  On-line retailers often sell at rock-bottom prices and disregard geographic boundaries.  Low-cost Asian competitors are playing against the “big boys”.  As the economy continues its slow climb out of the 2008 recession, one can only expect tougher competition.  It’s not unheard of for a competitor to “loss lead” and buy his way into a new account. 

So how does one grow sales and maintain margins in today’s business environment?  I suggest taking a closer look at the aftermarket sales strategy.  Aftermarket sales are typically more profitable than sales of capital equipment.  Yet the aftermarket side of most businesses receives much less attention than the equipment side.  I see this often when making sales calls with our distributors.  It’s normal to see a sales person spend most of his or time chasing the big dollar equipment sale while overlooking customers’ need for more smaller yet profitable products, such as replacement parts.  A baffling fact when you consider that aftermarket sales often out shine capital equipment sales for both profit and sales revenue generated in any company.

Developing a successful aftermarket sales strategy, however, is not an easy task.  It does require some strategic thinking and understanding of how the essential part any good aftermarket strategy applies to your business.  And that essential part is lock-in.  Without it, the whole strategy falls apart.  Aftermarket sales growth depends on customer’s being locked-in to buy your product or service and not being able to buy their aftermarket products from the competition.  When you pick up your free or discounted droid phone, you are locked-in to a long-term service contract.  That new inkjet printer you use to print photos requires you to buy the chip- coded replacement cartridge from that manufacturer.  And when you are driving your car to the dealer for a mechanical problem, you know that the car company figured out a way to ensure that the car couldn’t be fixed anywhere else. 

 Citing examples from the consumer market is easy pickings.  Every day we see how companies use service contracts, technology or service expertise to keep us as consumers coming back to buy their product.  Applying these concepts in the compressed air market is more challenging.  But it can be done.  Here are a few ideas.

1. For decades it has been common practice among equipment dealers to ask the customer to sign a service contract when purchasing a new piece of capital equipment.  With the present philosophy in most companies of repairing equipment rather than replacing it, expanding the service contract idea to include service parts or maintenance on other related equipment is more viable than ever.  All plant equipment requires some type of service at some point.  Whether it’s changing out elements in compressed air filters, replacing desiccant in regenerative dryers or making sure automatic drain valves are functioning correctly, you need to find out what your customers’ maintenance needs are and show him that there is a value to the service you are ready to provide. 

2. Product technology is ever changing.  Perhaps not so much in the compressed air market.  But it is still important to look at the products you sell from the perspective of aftermarket potential.  For example, single tower deliquescent dryers have enormous potential for aftermarket sales dollars.  What could be easier?  The customer needs to replenish desiccant on a regular basis.  The bottom line is that once you have an installed base of any product which is not a commodity, you are ensured of repeat customers and aftermarket dollars.

3. Be the “go to” sales person or distributor when the customer needs an expert.  While a buyer of compressed air treatment products is certainly capable of gathering immense product knowledge with a few Google searches, he’ll still place value in an vendor who also provides expert guidance.  Technical application sales are still very much a part of our business.  And when the customer comes to trust in the product recommendations you make, you develop a strong business relationship which often leads to repeat customers and tag-along sales. 

One thing is for certain.  In today’s competitive environment, it is no longer possible to leave the details of the sales process, including development of a successful aftermarket business, to chance.  To do so would be an invitation to the competition to take your customers and potential aftermarket sales and profit.  And while I continue to be a believer in customer loyalty, that loyalty can only get you so far.  It is always better to have a plan to lock-in your customer base so you don’t endlessly worry about where the next order is coming from or why the profit on an order wasn’t high enough.

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