Beyond price Featured

6:42am EDT July 31, 2006
There are only so many ways a distributor can set itself apart from the competition: Offer the lowest price, offer the largest selection or offer the best service.

At BlueStar Inc., a national business-to-business distributor of point-of-sale and auto-ID products, superior service and added value have been the keys to differentiation. And that differentiation has been the key to sustained growth. “People in business-to-business do not buy electronic equipment simply because they need another gadget,” says Steve Cuntz, president and CEO of BlueStar. “They buy electronic equipment because they’re trying to solve a problem. With the industry we’re in ... we realized that rather than just selling hardware, we had to sell value.”

BlueStar created that value by offering services its competitors didn’t, such as a free marketing program and a simple return policy. And while this differentiation program isn’t without challenges, it has been a smashing success, leading the company to a revenue increase of more than 400 percent over the past four years.

The value of distinction
The process of creating value for BlueStar clients began when the company went national. Since its inception in 1929, BlueStar had operated locally or regionally, but in the early 1990s, Cuntz and a sales manager decided that to remain competitive, they had to expand its reach.

But operating nationally in the days before the Internet was a challenge.

“At the time, Federal Express was not a given, 800 numbers were extremely expensive,” says Cuntz. “But we decided if you could take an idea of electronics distribution and try to create more value than people were accustomed to receiving ... that would be enough of a value-add that people would welcome doing business with you anywhere in the country.”

So BlueStar began to implement value-add services.

“It included everything from offering software that allowed the hardware to work better, it included extended warranties without charge, it included things like unlimited technical support without charge,” says Cuntz. “We even took some retail concepts and said, ‘If you buy something and it doesn’t fit, as long as you have the receipt, you can return it to us.’ That is a huge value-add in the electronics world.” As BlueStar began to attract national customers, Cuntz realized he needed to make another change, a change in philosophy.

“As our success took root and our revenues increased, we became convinced that we had to break the model of what people conceived to be an electronics distributor, and we decided to become a solutions-based distributor,” says Cuntz. “We changed our business model to expand our value-add offers.”

This shift in philosophy, from selling hardware to selling solutions, led to even more changes. When the company was just selling a product, price was the most important element. But when it sold solutions, services and value took precedence. So in addition to its return policy and extended warranties, BlueStar began offering more services. For example, it helps many of its clients drive their businesses by designing logos, gathering sales leads and implementing individual marketing programs.

“Since we’re very value-add focused, more than likely we’ll go out and sit down with the customer and find out what their needs are,” says Cuntz. “And we’ll do all the marketing — we’ll produce sales books, we’ll put out mailer cards announcing what their services are, we’ll build Web sites for them, we’ll help them do Web optimization. We try to give them a holistic business experience with us.”

Bumps in the road
While BlueStar’s added value increased sales, it also exposed the company to growing pains. The business has been operating for more than 75 years and remains privately held, and that, says Cuntz, is sometimes viewed as a negative by potential clients.

“As you reach a certain critical mass, if you’re a privately held corporation, sometimes there’s a bit of a challenge in getting acceptance,” Cuntz says. “There seems to be an aura that the caliber of the organization or the people aren’t to be taken seriously, and that can sometimes be a challenge. Employees get very frustrated when they approach a partner on an issue of great importance and (the partners) figure, ‘Gee, if you were a better caliber person, you wouldn’t be where you’re at.’”

BlueStar combats this perception by implementing all of the infrastructure systems and checks that its public peers implement, from using Oracle’s management software to following Sarbanes-Oxley requirements. Cuntz says that it can be expensive, but the investment pays off, not only in terms of peer and client acceptance but also in operating costs. For example, says Cuntz, up-to-date procedures and systems are vital in areas such as accounts payable.

“I have no idea how many times a day in this country invoices are double- and triple-paid,” says Cuntz. “If you don’t have good control and procedures, it’s going to happen. So by spending money on compliance and by making sure that your processes eliminate to the greatest extent any possibility of error or any possibility of redundancy, it just comes back to you many times over.”

Cuntz is also challenged by the task of developing clients into partners. Although all clients are treated equally and offered the same services, the difference is in the way clients think of BlueStar and the way they spend their money.

“People who just simply want to buy something at the best price, while they are a customer, aren’t necessarily a partner,” Cuntz says. “Because if for some reason your price is a little bit higher than somebody else’s, they will take their business somewhere else. A partner generally places a higher value [on the partnership] than [on] a half a percent of a price differential.”

In some buying models, says Cuntz, if a product is a penny cheaper somewhere else, the client goes with the competition. But partners are the clients that stay with BlueStar, even if the distributor’s prices are slightly higher that those of the competition. And that loyalty is rewarded when partners take advantage of BlueStar’s value-add programs, all of which are free.

But the process of developing a partnership can be tedious and time-consuming — it takes an investment of time, money and attention. So BlueStar implemented a one-on-one account management system to encourage the development of partnerships. Each client is assigned an account manager when it begins working with BlueStar, and that client works almost exclusively with its assigned manager, building a relationship. However, if a client has an emergency and its account manager is unavailable, it can call BlueStar and speak with someone else.

This one-on-one account management system serves a dual purpose. Clients are more likely to develop a close business relationship with an account manager who knows their story and can provide one-on-one attention, thus turning into a partner.

And those partnerships save the company money.

“It costs somewhere around $12,000 to land us a customer,” says Cuntz. “The least expensive thing in the world in business is customer maintenance, and one way to do that is partnering.”

In addition, because account managers work so closely with clients, they can easily spot trends in the problems their clients are reporting, improving BlueStar’s ability to identify and adapt to client needs.

For example, when clients kept calling late in the day to request that products be delivered ASAP, BlueStar implemented an overnight shipping program.

“Many people get a call at the end of the day from their customer saying, ‘Oh, my God, my printer just broke, what do I do?’” says Cuntz. “Well, we can still get it out that night. We have account reps working late that can make sure that product gets shipped out that same night and can take care of somebody with a day-end problem.”

The importance of people
While the value-add programs and the one-on-one management system have helped spur BlueStar’s growth, that growth has presented the company with another challenge — finding and managing new employees. “When your sales are small, your marketing revenues are small,” says Cuntz. “But as your sales expand, it allows you to hire more people, and actually better people.”

The key factor to deciding whether or not someone is right for BlueStar, says Cuntz, is the Platinum Rule.

“What we look for are people who have a sense of being empowered to do the right things,” he says. “It’s the Platinum Rule — not only do you want to do unto your customer what you’d have done unto you, you want to do what you think they want done unto them. And so we look for people that can practice the Platinum Rule, who typically will put the concerns of the customer in front of worrying terribly about what effect it may have on their day.”

Beyond that, the hiring manager evaluates the personality and the cultural fit of the prospective employee and asks hypothetical questions to see how that person would react to common situations.

In addition to finding the right new employees, Cuntz also had to develop a way to manage his growing remote sales staff. His solution? Establish clear expectations and a hands-off approach.

“You can’t manage a remote team of salespeople,” says Cuntz. “You don’t have the ability to motivate them — they wouldn’t take the job unless they could get up in the morning and do that job themselves anyway. What happens is, you can make it very clear what the expectations are and what you need them to do.

“And then you kind of let them tell you what they need to do that job. And then we provide the support and services that are required administratively to do their job.”

The only real requirement, says Cuntz, is for employees at remote locations to submit a weekly report, detailing what they accomplished, what they liked and didn’t like, what needs improved, etc. Beyond that, they self-manage.

Since 2000, BlueStar has increased its employee base by 300 percent. And thanks to the value-add programs and the one-on-one management system, its revenue has also increased, from $46 million in 2002 to $215 million in 2005.

“Every day that we come into BlueStar, we kind of have an idea of how we add even greater value to a process,” says Cuntz. “It’s really common sense — the more you get for the money you spend, the better buying experience you have. And the value of the total experience has really spurred our growth.”

How to reach: BlueStar Inc., www.bluestarinc.com