Doing business in the auto care industry

June 22, 2016
This article is designed to guide suppliers and manufacturers to conduct business in the auto care industry for the first time, and ultimately bring their products to market.

This article is designed to guide suppliers and manufacturers to conduct business in the auto care industry for the first time, and ultimately bring their products to market. The goal is to help your business to exceed the needs of three common sales channels: warehouse distributors (WDs), national buying groups and retailers.

Ecommerce will not be covered, but certainly some of these principles may be applied if you decide to forge an online relationship. Best practice and common protocol tips are introduced here to help you develop a working partnership with the key decision makers.

The industry at a glance

More than 500,000 businesses participate in the $268 billion auto care industry, which equals Singapore’s gross domestic product. There are 41 sales channels, but retailers, WDs, buying groups and ecommerce sites are the four mainstream sales segments vying for the commercial repair shops’ and the DIYers’ loyalty who will at one point work on the 255 million registered cars and trucks in the U.S. Aside from the DIY, the DIFM (do it for me) customer segment is broken down by repair shops, dealerships, fleets and municipalities. Stand alone independent parts stores are a shrinking channel, but the remaining ones choose to buy their products from any source.  

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The market place is marked by hyper price sensitivity and perceived value by repair shops and the serious DIYer. To stay price competitive, retailers, WDs and buying groups purchase product from multiple sources from domestic suppliers and manufacturers. Chemicals, appearance products, shop supplies, accessories and most of all finished “hard parts” defined by year make and model are the most popular sales categories.

Unfinished or semi-finished hard parts are less popular because of ambiguous fitment. Lower trade barriers have made international suppliers, contracted factories and container shipments more attractive. To make payment, retailers, WDs and buying groups abide by invoice terms or may resort to supply chain financing, a deferred payment plan mutually agreed upon by a financial institution, buyer and seller.

Go direct or work with a manufacturer’s representative agency?

Direct customer contact or hiring a manufacturer’s rep agency are the two most commonly practiced routes. Going direct is the most tempting way to establish business contact because it eliminates paid commissions to manufacturer’s rep agencies. Financially endowed suppliers with product breadth and depth believe that their companies are best equipped to support their customers’ range of needs such as supply chain, marketing, payment and the like; but leverage alone does not promise an open door. Any one in a decision-making role such as a buyer, merchant, product director or category managers are in a daily juggling act functioning under an unpredictable environment; so surprise onsite visits or cold calling may risk hurting your chances of progressing onto the next stage. It is perfectly acceptable to mail or email a proposal followed up with a phone call. Upon contact, follow their directions and respect the proverb: don’t call me, I’ll call you.

Manufacturer rep agencies play an invaluable role to help newcomers navigate the local market territory. Rep agencies pride themselves on working the trenches where they enjoy direct access to parts stores and the professional repair shops. On behalf of their customer accounts, rep agencies act as a clearing house for vetting products which is why smaller suppliers and manufacturers prefer a guide to lead the way to key decision makers, avoid pitfalls and bridge any unforeseen gap.

Some reps argue that even the largest suppliers may benefit from a disproportionate cost advantage because their teams can do more than one direct salesperson can accomplish in the same time. Another consideration is whether your product is the same item as what they currently represent. Rep agencies have an obligation to avoid any conflict of interests. They cannot represent duplicating products so it is incumbent to prove how your product differs or why it is a more compelling alternative.

What is the best way to find a buyer, product manager, category manager, manufacturer’s rep or other manager responsible for product selection?

Some company online directories may supply names and email address. Members of the Auto Care Association have access to the membership directory. Social media sites such as LinkedIn can be good starting point through its robust search engine. Trade magazines publish classified sections. While informal, word-of-mouth recommendations can pay enormous dividends especially when it may lead to an introduction.  Be mindful that job titles and responsibilities are not interchangeable from one company to the next. For instance, a category manager for company “A” has the authority to negotiate deals whereas another company “B” may assign deal making to another manager. If you are unsure, use the generic term “merchant” or “buyer” until that company defines their nomenclature.   

Will the Auto Care Association refer a rep agency?

The Auto Care Association provides a list through its online rep finder, but they will not steer your company to one agency over another. The association exists as the unifying voice of the industry, which serves the interests of all without playing favorites to any particular company or individual.

Can trade groups set up appointments between sellers and buyers?

The Auto Care Association strives to function as an objective resource; not to serve as brokers or facilitate deals on behalf of manufacturers.

Are suppliers obligated to stay with a manufacturer’s representation agency indefinitely?

There is no obligation to remain with an agency. The contractual terms are agreed upon between both parties over the terms and parameters at the onset of the working relationship.

What should be known about doing business with a WD, buying group or retailer?

Regardless of whether your company will partner with a manufacturer’s rep agency or sell directly to the target customer account, consider the common challenges these prospects face. When you are presenting to a decision maker; understand their needs. Sometimes there are egos at play and some may misinterpret “opportunity” suggestions as “criticisms” of their company. Many are sensitive about product commoditization and downward price pressures. They value an engaged partnership to enable their business to be the leading market differentiator. Study their business and ecommerce model. Visit their stores. Know whether their customer mix is made up of independently owned parts stores, commercial repair shops or the DIY customer. Verbalize how you understand their vision by weaving your product and services into their company vision rather than making them conform to your business model. One sure fire way to lose credibility is to ask the prospect customer to tutor you on their business.

In summary consider these elements that cover product, pricing, placement and promotion:

  • Prove that there is an unmet need for the product that you are selling, and how the end user (e.g. DIYer or repair shop) stands to benefit.
  • Master your prospective customer’s business model and their customer segment.
  • Know your customer’s product mix.
  • Know which product lines that you are going to replace or supplement. If a supplement, explain where your product falls into the “good, better and best” spectrum.
  • Understand your prospective account’s strengths, vulnerabilities, challenges and opportunities.
  • Study their competitors.
  • If your company wants to replace a pre-existing product, be prepared to how you will be doing a re-label, lift, destroy in field or sell through.
  • Be prepared to explain product defect and warranty policies.
  • Produce a price sheet and payment terms when unveiling the product line.
  • Have a price sheet ready that has a unique part number, unit of measure, quantity unit of measure.
  • Provide suggested market pricing for their customers. This minimizes price wars.
  • Find out if the price sheet EDI compliant used by WDs and buying groups computer system
  • Is that price sheet PIES compliant with the national retailers?
  • Are your catalogs ACES compliant? Does your catalog provide a competitor part number interchange?
  • Do you have a marketing plan to support your products?
  • Do you have funding available to create product stack outs, islands and end cap displays?
  • Do you have funding for advertising, promotion and event planning?

Beyond these considerations, lay some nuanced differences between these groups. How can you balance their interests if you plan to sell to multiple partners?  No one account wants to learn that you have a working relationship with their direct competitor, which they may perceive as bigamy. It is imperative to establish a check and balance that respects the interests of your customers while maintaining your company’s integrity in the auto care industry.

Doing business with a WD

Dubbed as the traditional side, a WD consists of a distribution center and multiple store locations whose focus is servicing the commercial segment. Compared with a national retailer, WDs are more accessible and flexible for doing business. But it is important to contact them in advance rather than come in unannounced. To WDs, pricing that will allow them to compete in the marketplace is important, but so are partnerships. Most perceive their business at a disproportionate disadvantage when competing with a national retailer, which is why a tangible partnership to enhance their value proposition in the marketplace may prove a durable alliance. When price is a sticking point, consider qualifying their business a first to market participant. For ease of doing business, some WDs may enjoy a dedicated in-house contact to manage orders, back orders, invoice billing, IT and the like. Joint line reviews, GAP analysis, field work, product clinics or anything that will trickle down to benefiting their customer base that can be quantified to building their business may in turn benefit yours. In short, WD’s enjoy a unique cultural advantage because a gentleman’s handshake and relationship building can go a long way. A supplier must be open minded to what this type of emotional relationship means compared to a transactional kind.

What else does a WD buyer have responsibility for?

It depends on the company. Some give buyers complete ownership and accountability. Others give them strict guidelines of taking on more of transactional and less of a managerial role.

Doing business with a buying group

Buying groups are collective formations by independently owned WDs and multi-store location whose objective is to improve their purchasing power and market their businesses under a recognizable brand. They agree to sell a blend of branded and private label products. Even though a member is independently owned, they sign a contract to abide by the product offering, which is commonly known as an “approved line.” An approved line is voted by a product committee by each member group by a simple majority. Some buying groups covenants vary in how much freedom a member has to take on a second line or drop the preferred line. To get an appointment, a member may refer you to the product director or you can look up that person’s name on the directory.

Broken in the simplistic terms, a product manager will expect these three basic questions answered.

  1. What do you want?
  2. How much does your product cost?
  3. Why should I care?

Treat those elements as the 45-second elevator pitch before making a detailed presentation. Product managers are inundated with product requests, which is why it behooves you to practice brevity. From there, the product manager will guide you through the vetting process unless it is published on its website.

Doing business with a retailer

Given size and scope of serving a national retailer, the financial rewards are rich, but the demands are exacting and regimented. Category managers make the product decisions, and are viewed as the owner of their business within a business. Acquaint yourself with their requirements and be prepared to abide by those standards. Category managers choose what product to sell by making factual based and data driven decisions that will benefit the bottom line. Be prepared to prove how your product will meet their financial objectives: profit margin percentages, turn rate and gross margin return on investment. Issues such as scan downs, pay–on-scan, markdown monies, defective product funding, marketing funding  and event funding will need to be addressed. Extended payment terms are equally important and often referred to as supply chain financing facilitated through a major banking institution. Be sure to understand how delivery terms factor in the negotiations. Sometimes FOB or collect is used over pre-paid freight. In addition, a contract regarding on-time delivery may arise. These considerations may be out of the category manager’s hands, and managed by the inbound transportation group. They put a premium on fill rates, and hold their suppliers accountable for shipping performance. Bring up this issue even if it is not.

When is the appropriate time to pitch a line with a retailer? 

Category line reviews are an annual event dictated by a series of milestones on a planning calendar that includes the opening bid date announced by the category manager or the manufacturer’s rep. It is rare that a retailer will change up the schedule, but not uncommon for them to add or remove a product in between line reviews. If you are unsure what a line review means, seek a third-party consultant or a manufacturer’s rep agency.

Are trade shows a good venue to meet decision makers? 

It depends. Networking is a healthy part of trade shows, but not suitable for structured meetings. Participants attend these events with an agenda or schedule so it is best to contact that manager in advance or allow that person to initiate a meeting. Otherwise a chance encounter might be the next best outcome. And be sure to bring a fistful of business cards that states your company’s mission and product line to reinforce a positive initial contact.

How important is Product Exchange Information Standards (PIES) and Aftermarket Catalog Enhanced Standard (ACES) for a retailer?

Both standards are paramount because PIES requires data needed for point of sale, delivery and storage. Other elements include product description, dimensions, weights, UPC and HAZMAT. This data is used regularly for SKU upload and maintenance for purchase price and unit of measure, quantity unit of measure that extends to physical product dimensions ranging from palletation down to the lowest saleable unit. Make sure that those dimensions are properly accounted for in consideration for shelving. Application product look up and searches by vehicle year make model is what defines ACES to support the electronic catalog effort. Monthly updates for this standard are a requirement. Lacking compliance may preclude your company from doing business.

How important is (PIES) Product Exchange Information Standards and ACES for a WD and buying group?

The answer depends on the type of computer system used by that business. They may use a parallel version to PIES and ACES but product selection and fitment information is important as well as the attributes required by PIES would be the same reasons.

What are ACES and PIES?

Both are industry standards or a universally understood language. ACES is a database collection of product classification, attributes and qualifiers that makes publication possible for managing vehicle application data. This data is also referred as application and fitment. These databases require an XML format of vehicle configuration database and product catalog database. This amalgam of databases matches the part number with its respective vehicle application, which is the very foundation of selling auto parts and accessories.

PIES consists of the remaining elements ranging from product descriptions, package dimensions, UPC codes, pricing, attached digital media and images. These databases require an XML, but in certain instances a well-organized Excel file may be used.

Are there firms that offer services of converting catalogs into the ACES and PIES format?

There are many established third-party companies that offer data validation, authoring and creation services, which can be found in the Auto Care Association directory or found on a search engine by using keywords such as ACES parts catalog data, automotive parts cataloging.

Conclusion

Relevant evidence was gathered through the input of WD, retail, manufacturer’s rep agencies and buying groups who have encountered companies cutting their teeth in the auto care industry. Look at this guide as a starting point with markers to lead your business in the proper direction. While it is unfair to unfurl a rigid set of “dos” and “don’ts,” it is fair to state that trial and error is part of the onboarding process into the industry. Special thanks goes out to the following people for their unvarnished critique: Larry Northrup, David T. Segal, John Dragicevic, Bob Hall, John Hetzler, Chris Callahan, Brady Peterson, John Heller and Dan Patton. I invite you to contribute to help make the auto care industry a hospitable environment to do business for all newcomers.

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