A year ago I wrote a column entitled Gathering Storm Clouds. That was followed up by last month’s column articulating the nine steps that should be undertaken during the turbulent times that lie ahead for equipment dealers. While some may be too timid to call a war a war, make no mistake about it, what equipment dealers will experience over the next 5 years will be a “war of attrition.” And as General Douglas MacArthur once stated: “War’s very object is victory, not prolonged indecision.”
The Oxford Dictionary defines attrition as “the action or process of gradually reducing the strength or effectiveness of someone or something through sustained attack or pressure.” Because of lower commodity prices and eventually higher interest rates, dealers will be under sustained pressure to change their business practices. Those who hear the trumpet will prepare for battle and weather the onslaught while those who ignore or avoid the trumpet’s call will suffer the same fate that many of their predecessors experienced during the 1980s when nearly 50% of the dealers were lost because of their inability — or unwillingness — to adapt to the changing times.
In one of the shortest inaugural addresses of all time, Abraham Lincoln, in his second address on March 4, 1865, eloquently stated: “Fondly do we hope — fervently do we pray — that this mighty scourge of war may speedily pass away.” As do those of us who make our living in the agricultural equipment industry.
But if this war of attrition is to last for some time, then affected dealers would be wise to follow the precepts of Sun Tzu, the military advisor who is credited with being the first individual to codify his astute observations into a military text entitled, “The Art of War.” The book, written over 2,500 years ago, is a trenchant book on a serious subject that has guided military strategists, political leaders, athletic coaches and any other number of individuals who have found themselves in a dog-eat-dog, winner-take-all situation.
Sun Tzu’s first chapter in “The Art of War” is literally translated to mean “reckoning, plans or estimates.” Sun Tzu writes that “The Art of War is of vital importance to the State” (read dealership) and that “it is a matter of life and death, a road to either safety or ruin.” Like the warring nations of Chinese lore, the goal of today’s agricultural equipment dealer is to survive and prosper while hopefully achieving a meaningful return on assets. To do so may require dominating the market, or as Sun Tzu wrote, “Your aim must be to take All-under-Heaven intact” as “this is the art of offensive strategy.”
“Because of lower commodity prices and eventually higher interest rates, dealers will be under sustained pressure to change their business practices...”
Dealers can seek to dominate their market in a variety of ways. The one approach to dominating a market that far too many dealers pursue is one based on increasing market share. While certainly favored by the manufacturer, pursuing market share as a means of dominating a market is, in most cases, an ephemeral approach. Great in an upmarket, but devastating in a down market. Show me a dealer with high market share, and I will show you a dealer with low equipment gross margins and, unfortunately in most cases, an average, or lower than average, absorption rate. The perceived value to the end user is simply low priced equipment.
Another approach to dominating a market is to promote product knowledge and technological innovation. Rather than order takers trying to be a jack-of-all-trades, dealers who take this approach will employ consultative salespersonnel who serve as partners to their customer base. Unfortunately, few dealers pursue this approach or employ such personnel.
A third approach to dominating a market is to stress operational efficiency and cost containment. While market share may be average or below, profitability and cashflow will be significantly above the norm. Financial and operational standards are stressed and customers can expect a well-managed dealership.
The final approach to dominating a market is to provide exemplary customer support by being focused on the needs of the customer. While laudatory on the surface, dealers pursuing this approach often experience abnormally high expenses that are not offset by higher margins. The key is to get an adequate return on the services that are provided.
Rather than trying to be all things to all customers, dealers committed to winning a war of attrition, like any war, will require dominating the market in such a way that the end user is provided perceptible value at a reasonable cost to the dealership. Sun Tzu writes that wars are won by those generals who make many calculations even before the first battle is fought. Preparation and planning are key. Dominating your market in the months and years to come will be the first step to winning this war of attrition.