I guess you would have to be in this business at least 20 years to have seen franchised lines.
In days of yore, our industry lacked brand names in the supplier kingdom. We have them today as the premium industry has been engulfed and devoured by our industry. To illustrate what a franchised line was, I use A.T. Cross. In a metro area such as New York, out of the hundreds of known distributors, Cross would only “allow” a small number to sell their golden pens. If a bank wanted them and called Cross to find a rep, they would be given a limited field.
If Cross advertised and captured a lead, it would go to a franchised distributor. At trade shows such as SAAI, now PPAI, the Cross company was not on the show floor. Thereby, they would not have to explain to visitors that they could not sell Cross. Towards the end of the franchise era, companies such as Cross would take a single booth, not have anyone on the show floor and rope it off; but, their presence was visible. If Don Distributor needed Cross but did not have a franchise, he would broker it through a franchised company (who took a cut) and procure them at a much smaller margin. This worked for decades in a much smaller world where buyers had literally no option but to go to a franchise line if they wanted that product.
The number of distributor companies and salespeople was a least one half smaller a few decades ago. Mega distributorships such as Halo and Geiger were not “mega”. Distributors such as AIA and IPU either did not exist or have the business model of today. There goes Dylan, again, “… the times they are a changing”.
What is most noticeable in recent years are the buying cabals, the buying syndicates and distributor groups such as Peernet. In most cases, not all, the primary mission of these groups is to get a better deal, a better price from suppliers willing to offer it. There is nothing to fault with the idea of a collective buying group. The groups, in return, offer a degree of loyalty to the participating or agreeing supplier. If the participants in these groups represent more than a third of the total industry volume, then it behooves a supplier to participate and that supplier might just level the playing field and give everyone a preferential price. That is where I see us heading.
From the supplier side, there is a tacit lockout when any syndicate of buyers opts for a single source or a limited number of sources. The group secures a preferred relationship with suppliers 01 and 02. That leaves suppliers 03-100 out in the cold as they supply the same or remarkably similar product. What are suppliers 03-100 to do? If they are true blue suppliers, they will never sell direct yet, effectively, they cannot get their goods into the hands of a major corporation if it has an exclusive relationship with a given distributor in a buying group. So, that is where 75% or more of the suppliers in the industry are today - locked out or extremely limited in their ability to get business through these group members. I must add that, the “old days” I reminisce about, saw suppliers with proprietary product. They made their umbrellas here, they invested in models and molds here. They developed and patented a pen here; they cut and sewed here. Not now. Walk one Asian trade show and 50 suppliers might cut a deal for the same pen, the same USB, the same cap. Differentiation is gone and that means more intra industry direct competition for the same SKU. Let us not forget the trend towards overseas buying by end users.
Securing leads on the internet makes direct selling very tempting for the “outcasts”. Indeed, you know of many suppliers who go “both ways”. Advertising on the net is a reasonable cost. E-blasts, strategic placement through Google allow hunting and gathering. Even a supplier website looking to capture a potential buyer with the intent of turning the lead over to a distributor makes life easier than before the internet. With this facility in mind, suppliers can look at a tight network of distributors, lower their prices to the end user becoming more competitive, secure leads and distribute them to their “franchised” group. There are many nuances to this. I stated earlier that “branding” suppliers was taboo in the old days. Nobody could know where the goods came from. That is no longer the case. So, a supplier can work toward building a brand, building buyer interest and loyalty.
I have looked into my crystal ball; I may need cataract surgery because it is not all that clear. What I do see is that we are edging ever so close to the precipice where more than half the suppliers we know must change their distribution models or perish. I draw no conclusion. I do know suppliers are wrestling with reality. The small guy who does 2 million with a line on a “C” can easily reprice the line, reposition the line, amend the distribution model and fall victim to temptation.
Both sides of the aisle need to do what is best to thrive and survive.
Joel D. Schaffer, MAS is CEO and Founder of Soundline, LLC, the pioneering supplier to the promotional products industry of audio products. Joel has 48 years of promotional product industry experience and proudly heralds “I was a distributor.” He has been on the advisory panel of the business and marketing department of St. John’s University in New York and is a frequent speaker at Rutgers Graduate School of Business. He is an industry Advocate and has appeared before the American Bankers Association, American Marketing Association, National Premium Sales Executives, American Booksellers Association and several other major groups. He has been a management consultant to organizations such as The College Board and helped many suppliers enter this industry. He is a frequent contributor to PPB and Counselor magazines. He has facilitated over 200 classes sharing his industry knowledge nationwide. He is known for his cutting humor and enthusiasm in presenting provocative and motivating programs. He is the only person to have received both the Marvin Spike Industry Lifetime Achievement Award (2002) and PPAI’s Distinguished Service Award (2011). He is a past director of PPAI and has chaired several PPAI committees and task forces. He is a past Chair of the SAAGNY Foundation, Past President of SAAGNY and a SAAGNY Hall of Fame member. He was cited by ASI as one of the 50 most influential people in the industry.