Manufacturers test new distribution channels

Third-party distributors now handle more than just low-end test instruments.

Tam Harbert, Contributing Editor -- Test & Measurement World, 11/1/2011 12:04:00 AM

See also: - Tight budgets boost rental market - R&S marches to a different beat

Prominent manufacturers of test equipment, who have historically sold directly to their customers, have begun exploring new sales channels and are now offering a wider variety of products through distributors, franchisees, and online stores. And what may be even more surprising is that their use of these new channels is not limited to low-end instruments. In fact, manufacturers are working more closely than ever with distributors to coordinate both sales efforts and technical support.

“Over the last five years, we’ve seen a major broadening of the channel in terms of the types of equipment that’s resold and the level of sophistication,” said Mike Stonebraker, director of worldwide indirect channels in the Electronic Measurement Group at Agilent Technologies.

Several factors are driving manufacturers to expand their sales channels. First, the rocky economy has them looking for more-efficient ways of reaching more markets. Test-equipment vendors were hit hard by the economic downturn—revenues shrank by more than 20% from 2008 to 2009 (Figure 1). Even though the market has resumed growth, it has not yet recovered to 2008 levels.

FIGURE 1. Manufacturers of general-purpose test equipment (which includes oscilloscopes, signal generators, arbitrary waveform generators, spectrum analyzers, network analyzers, power meters, electronic counters, logic analyzers, and digital multimeters) were hit hard by the economic downturn. Revenue should return to pre-2009 levels by 2012. Source: Frost & Sullivan.

 
“That was the second downturn in 10 years,” noted Jessy F. Cavazos, industry director of test and measurement at Frost & Sullivan. As a result, organizations are becoming more conservative and are trying to adjust sales strategies to enable them to ride out such swings.

Broadline distributor Allied Electronics has been approached by several test-and-measurement equipment manufacturers with formal programs to increase their sales through distribution, said Scott McLendon, VP of product management at the company. “[Vendors] have found that it’s not very profitable for them to support the multitudes of smaller customers on a direct basis, given all the service-level implications, their return on working capital, and credit risks.”

Second, as electronics has pervaded all sorts of consumer goods, the customer base for test-and-measurement equipment has grown beyond the traditional electronics test engineer. “You can hardly buy a fan anymore that doesn’t have a microprocessor,” quipped Stonebraker. At the same time, Moore’s Law has enabled more sophisticated technology to go into smaller-sized instruments at lower price points.

And third, although the market has slowed in the US and other developed nations, vendors see potential double-digit growth in emerging markets, said Cavazos. She also noted that previously, vendors have sold equipment directly to multinationals that had R&D or production facilities in low-cost, developing regions, but today they see additional opportunities to sell to expanding indigenous companies as well.

Moving more product through the channel

Two of the most dominant test-and-measurement companies, Agilent and Tektronix, have both increased sales through distribution. Agilent has honed its distribution strategy over the last two years, a move that appears to be working out well for the company. “It’s been a major trend in our business and a strong contributor to growth as well,” said Stonebraker. Indeed, 25% of the company’s orders come from indirect channels today, compared to only 8% two years ago, according to a company spokesperson.

Stonebraker gave credit to Tektronix and Fluke for pioneering the use of distribution for low-end equipment years ago. Agilent took note of their success, he said, realizing that its customers also likely wanted a more-efficient purchasing process. “Engineers don’t necessarily need to see another engineer to make a decision on what piece of test equipment to buy,” Stonebraker explained. “When a customer wants to buy their 10th scope and it’s exactly like the previous nine, all they want is the quickest and simplest way.”

Tektronix also has expanded its use of indirect channels. The company has used distributors for more than 20 years, but lately has started selling higher-end equipment through the channel. Late last year, Tektronix announced new distribution agreements with Allied Electronics, Entest, Newark, and TestEquity, authorizing those firms to carry higher-performance oscilloscopes, signal generators, spectrum analyzers, logic analyzers, and bit-error-rate testers. And this year, Tektronix, which is a subsidiary of Danaher, inked similar agreements with several European distributors.

Vendors are using specific channels to meet particular needs. Some high-end products are still only available directly from the manufacturer, such as the Tektronix DSA8200 digital sampling oscilloscope, which requires custom configuration, said Gina Bonini, technical marketing manager at Tektronix. On the other hand, some of the company’s distributor partners are beefing up their technical chops and building their own applications teams, she added.
Tektronix direct and indirect sales people frequently work together on sales opportunities, said Faride Akretch, also a technical marketing manager. “We don’t see it as either [a direct sale or an indirect sale]. We see it as a combination of the two.”

A sampling of options

For manufacturers who choose to employ third-party distribution channels, several options are available:

•Broadline distribution: The core business of broadline distributors is wide selection, deep inventory, and fast shipping. If an engineer needs an instrument quickly, a broadline distributor is often the best bet. Broadline distributors can also be a convenient one-stop shop. By definition, these distributors carry a broad selection of both test products and other electronics equipment, so an engineer ordering for a project will likely be able to buy all he or she needs in one order.

•Online sales: Both manufacturers and distributors see more and more online ordering. McLendon said more than 40% of Allied Electronics’ orders come through its Website. That compares to only 10% just three to four years ago. “The test-and-measurement vendors have been quite amazed at how much of their product we sell online,” he said. “They were under the impression that [no one would] buy a $10,000 oscilloscope online. But it happens every day.”

Some manufacturers are recognizing the potential of this channel and are moving to take more advantage of it. For example, in the fall of 2010, Tektronix launched its own online store for US customers.

•Specialty distributors: For medium to high-end products that require a higher level of technical competency and more personal attention, manufacturers often work with distributors that specialize in test and measurement. Entest, for example, carries Tektronix oscilloscopes with sampling rates of up to 3.5 GHz and price tags of more than $30,000, according to David Rountree, Entest’s president. The distributor has its own staff of account managers and reps who have deep technical knowledge, and the company maintains an inventory of high-end demo equipment. In addition to technical sales presentations and demos, Entest provides post-sales technical support and user training.

Some manufacturers are also using particular distributors to reach particular vertical markets. Agilent uses TESSCO, for example, which focuses exclusively on the installation and maintenance of cellular base stations.

•Franchised technology partners: At least one vendor is forging a new type of indirect channel. In 2009, Agilent franchised 10 ATPs (Authorized Technology Partners) to sell medium to high-end products in the $25,000 to $100,000 price range, said Stonebraker. The move is a way to offer special attention to particular customers who are important but not easily served by direct salespeople. That includes key strategic customers. For example, “a particular account may not generate a tremendous amount of revenue but they are extremely influential in what happens down the supply chain,” he explained. “Maybe they are deciding on what the specs will be for the next generation of wireless services.”

ElectroRent, one of Agilent’s largest ATPs, has the franchise covering the US and Canada. It’s a hybrid model that combines “the best of both worlds,” with some features of direct sales and some aspects of distribution, said Tanya Jamison, ElectroRent’s worldwide director of marketing. The franchisee can provide a technically specialized, personal sales force for customers, devoting the extra attention required to forge key relationships and grow incremental sales for the vendor.

The new model has “created a lot of buzz in the market,” said Jamison. “We’ve had a lot of interest from other manufacturers” interested in doing something similar.

Watch this channel

Despite all the recent experimentation in test-and-measurement sales channels, there may be even more changes ahead. Manufacturers and distributors are still in the early stages of figuring out what combinations work best, said Stonebraker. “This is only the third inning or so in the development of the test-and-measurement channel,” he noted. “There will continue to be innovation, expansion, and in the long term, some consolidation” as the industry figures out the most-effective ways to grow sales and serve an expanding customer base. T&MW

Tight budgets boost rental market In these tough economic times, more and more companies are holding the line on capital expenditures for high-end test equipment. That’s given a boost to companies that deal in rental equipment. While ElectroRent serves as an Agilent Authorized Technology Partner for equipment sales, the lion’s share of its business comes from the other part of its operations: rentals. That’s where the company earns about 75 to 80% of its total revenue, said Tanya Jamison, ElectroRent’s worldwide director of marketing. The company maintains a huge inventory of equipment, much of it newly purchased from the major test-and-measurement vendors. Customers can rent the equipment for the long term or month to month. At the end of the term, the equipment goes back into the rental pool or is sold as used. The rental business is riding a more general trend of corporations shifting expenses from the capital budget to operating expenses. “Companies are realizing that the cost of buying the equipment is only a small percentage of the ownership costs,” said Jamison. “They also have to maintain it, calibrate it, and store it.” That’s been good for ElectroRent’s bottom line. Rental and lease revenues grew more than 25% over the last year, according to the firm’s 2011 annual report. Allied Electronics has seen evidence of this reining in of the capital budgets, said Scott McLendon, VP of product management. While the distributor’s overall sales grew 30% last year, test and measurement grew less than 10%. “If it’s only a ‘nice to have,’ they are not buying it today,” he said. “It’s got to be a ‘have to have.’” Rental and used equipment is projected to maintain healthy growth, said Jessy F. Cavazos, industry director of test and measurement at Frost & Sullivan. The research firm projects a compound annual growth rate of 4.5% from 2009, when revenue was $605 million, through 2015, when it is predicted to be $787 million.—Tam Harbert

 

R&S marches to a different beat While most instrument vendors are expanding their indirect sales, Rohde & Schwarz is moving in the opposite direction. Over the last 18 months, Rohde & Schwarz has cut its number of distributors from about 10 to five, said Daniel H. Henmi, the company’s North American channel sales and marketing manager. “Our strategy is to go direct for most products, and then have distributors to go after incremental opportunities that we can’t touch with our direct sales force,” he said. “We are cutting back on the distributors that aren’t finding us incremental business, that don’t have outside salespeople out there finding new business.” Another reason for the change is that many R&S products are difficult for distributors to stock. For example, the popular FSH series of handheld spectrum analyzers comes in about 14 different models, all of which must be customized at the factory, according to David Rountree, president of Entest, one of the five remaining Rohde & Schwarz distributors (Continental Resources, TestEquity, MetricTest, and TestMart are the others). With 14 different variations, “you can’t stock very good inventory on these things,” he said.—Tam Harbert