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POSTED - Friday, March 26, 2010

Promotional Products Industry Change?

Corporate Casuals covers a few industries (uniforms, team apparel, promotional item, workwear) but we primarily provide small business uniforms, yet most folks associate us with the Promotional Product Industry.  And, growing up as a contract embroiderer and still servicing many contract customers I'm familiar with how the Promotional Products industry is set up.  I think it works well in some respect but hope it can evolve (some may not like this) to adapt to the new ways business is done.
For a little background, small companies or big companies with independent reps sell promotional products (of which embroidered apparel is one piece) to larger companies.  These folks are considered distributors but typically don't inventory products.  They do "buy-and-sell" products instead of the traditional retail model where sales folks 'represent' or Rep a brand for a percentage of all sales.  The reason this model doesn't work in the promotional products industry is there is no way to establish 'territories' where a rep may have this exclusive percentage of business since there are no retail locations.  The Rep relationship works very well for manufacturers, retailers and reps since the exclusivity allows everyone to foster relationships and drive brand pull instead of just selling widgets.  This gives the salesman/rep an aligned incentive to establish a price point so they don't cheapen their brand....and their margin!
Unfortunately, the rep relationship does not work in the promotional products for the territory reason stated above.  The other reason is there are 1,000's of manufacturers and even more products to offer that are sourced by the salesperson based on the clients needs.  More of a consultative relationship on the client side.  So, the promotional products industry created (over time) a different distribution channel where manufacturers sell to Distributors and Distributors sell to clients (larger companies).  This buy-and-sell structure creates a lot of  problems for everyone in the industry:
1. No definitive price points:  ASI and PPA have established ways of showing marked up prices but no one abides by them, so they're useless.
2. Paranoia: Salespeople live in fear that manufacturers will sell direct to their clients.  This is fostered in my opinion by the industry associations.
3. Upside down governing body:  Advertising Specialty Institute (ASI) and the Promotional Product Association (PPA or PPAI) enforce policy on suppliers but not on members.
4. No rules: there's no strong governing body or group of individuals that can or will enforce tough rules on the business
5. Sleazyness (actual or perceived): With no rules, paranoia, lower order values and negotiating everything Distributors can only focus on how to make money today.  This makes the good ones scrappy and the bad ones sleazy.  it reflects on everyone.....kinda like car dealers
6. Negative price pressure: with no protection and in order to compete everyone lowers prices.  This has a silver lining of improving efficiencies but is still detrimental long term
7. No value: A distributor's value should be there expertise and network, not their price.  When they compete solely on price, they do not deliver their value. Long term that cheapens everyone
I have long thought the Promotional Products Industry was ripe for an overhaul but there are a lot of moving parts, tangent markets, entrenched suppliers and distributors, low barrier to entry, etc that impede development.  I hope the Great Recession will benefit the Promo products in one way by speeding up its evolution.
I would propose a few general rules: 1. Eliminate Sleazy distributors:  Undersell, sell outside the established distribution channel, etc. You're out!  no supplier should sell through them
2. Eliminate Sleazy Suppliers:  grandfather pricing, direct underselling, etc. they're out and Distributors shouldn't buy from them
3. Create rules:  Discuss the problems/issues with each group and come to a consensus on hard rules
4. New pay structure and protection (partially stolen from insurance industry)
a. Offer Distributors a percentage of sales but bill end client directly
b. Offer distributors same percentage if client wants to order direct for as long as they like
c. Allow only end client the ability to switch Distributors based on fit.
This gives everyone what they want in my opinion.  Manufacturers get an engaged rep, distributors get paid no matter what they sell without needing a credit line and most importantly end clients get an engaged salesperson that can offer any brand without secretly calculating how much margin they can get.  Now manufacturers and decorators can provide expert customer service direct without breaking a distributors trust.  And then distributors can move on from servicing orders to helping their next client assess specific needs and coming up with fresh ideas to meet those needs.......which(of course) is where they add the most value!
Obviously the hard part is getting it started......and would force many to 'cull' or weed out bad customers.  that's very difficult when you have investors and need that revenue but I'd rather 'rip off the band-aid' then pull it off slowly and do more damage.
We've straddled the supplier (manufacturer/decorator) and distributor(direct marketer/seller) roll because we had to in order to diversify but my ultimate goal is to become primarily a supplier again and work with distributors.  I believe in direct selling for certain end customers but feel distributors add value we can't for other customers.  I think an honest, qualified and protected relationship can work in the promotional products industry.  We have established a few of these relationships with Promotional Product Distributors we trust and who trust us.  I hope we can continue to build these relationships and establish a new norm for this business.  Hope is of course an expectation people will change which doesn't happen quickly or easily.
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