Since 2009, United Stationers has observed a significant increase in resellers leveraging cooperative purchasing agreements (known as ‘co-ops’) to reach new markets and increase sales and growth opportunities for their businesses. In fact, co-op agreements are estimated to be roughly a $600 million-$1 billion market, posing a significant opportunity for resellers everywhere.
Purchasing co-ops offer mutually beneficial purchasing solutions that give resellers and potential customers an alternative and more efficient way to do business with each other.
These agreements have become a relevant tool for resellers to access markets they historically may not have been able to access. Oftentimes, these coops serve key growth verticals for resellers including the public sector and non-profit organisations across the US.
Mark Nolan, owner of independent dealer Nolan’s Office Supplies, also heads the PACE co-op based in Texas. He cites the co-op’s ability to provide a national distribution infrastructure for resellers aligned to the agreements as its main advantage. “We’ve created a solution for resellers to be competitive, grow and protect their territories and increase gross profit,” says Nolan.
Co-ops can be used to capture end-consumer business without having to go through a formal bid process, and allow other state/local entities to take advantage of cooperative solutions through a ‘joint-powers’ clause. In many cases, the end user prefers this solution because not only does it avoid dedicating resources to a formal bid process, but it also avoids exposing the municipality to end-user protests or other related issues. For many resellers, this alternative is becoming one of their fastest growing sales vehicles today.
Stand out from the competition
While there are a number of co-op solutions resellers can utilise to capture sales that avoid having to go through a formal request for proposals (RFP) process, they should still focus on having a complete understanding of the end consumer to position their value proposition appropriately and stand out from the competition.
United works closely with resellers to ensure a smooth and successful RFP process through a variety of consultative resources, including:
- creating partnerships through programme coordination and agreement
- helping resellers understand and align their current capabilities with RFP requirements
- providing knowledge and guidance through qualitative research and insights
- delivering custom responses that take into account pricing, product mix and other requirements that will support the RFP needs.
“Co-op partnerships provide a sort of ‘hunting licence’ to call on the public sector,” says Bill Jones, owner of The Office City and member of the AOPD-NCPA cooperative. “With diminishing procurement staff at many of these organisations, I would guess that 90% of the agencies that we have called on require a cooperative contract before they will talk to us.
“Not only has our cooperative contract allowed us to gain a significant amount of new business,” Jones continues, “but the public sector customer is still very traditional in its business processes and thus consumes more office supplies than the typical private sector business.”
At the start of 2013, Jones’ overall co-op revenue was close to zero. Ten months later, it’s increased to 10% of his overall business and is growing month over month.
Sell the benefits
The key to success for resellers is being able to sell the benefits of co-ops, such as the cost savings of group purchasing with virtually no procurement issues and a ‘feel good’, buy local component for potential customers.
Co-ops continue to be a growing opportunity and United recognises that they are a viable vehicle for resellers to leverage.
“The Interlocal Purchasing System (TIPS co-op) has really helped us in securing more business with schools and governmental offices,” says Russ Wood, owner of BizSupplies.
“Before, we really had nothing other than price to compete on, and with the superstores offering special pricing to the schools and government offices, we really had difficulty in approaching this market to the point we wanted.”
Today at least 60% of Wood’s business is from co-ops serving mostly private and public schools, non-profits and governmental offices.
There are several factors resellers should consider when determining if a co-op agreement is right for them. Most notably, it is a remarkably different selling cycle which can require a great deal of patience and effort. That said, once resellers do get an account on a co-op contract, they are likely to remain entrenched in that account for a long time.
The major benefit to becoming a contract vendor is that members of the co-op can purchase from any of the vendors within the co-op without going through a costly and time-consuming bid process, while ensuring they are fulfilling all of the inter-local legal requirements typically involved. In addition, these national opportunities allow resellers to expand into new regions in which they may not have previously had a sales pipeline.
However, there are a number of things that resellers should look out for. Jones states: “One potential issue arises when a reseller comes across an agency that is using multiple cooperative contracts. Allowing the agency to cherry-pick from multiple vendors can drive margins down and make these accounts less appealing.”
One reseller also warns that joining a co-op is not an automatic marketing vehicle for independents. Simply becoming a contract vendor with one of these groups does not mean new members will come rushing through the door.
Resellers must continue to improve their marketing efforts and customer experiences both on and offline to be successful.
We at United are excited to support new avenues of growth for resellers and co-ops are a great solution for resellers to capture market share that has historically been out of their grasp.
United also recognises the opportunity for wholesalers to support the reseller channel in helping them compete in this important marketplace. We have worked closely with a number of customers to win co-ops – one of the first successful co-op awards was the US Communities bid won by Independent Stationers. It proved that an innovative, strong partnership is critical to winning in this marketplace.
Do your homework
Although there are a growing number of new contracts available to independent resellers, they are not all created equal. Rebates, fees and restrictions vary greatly amongst the different offerings, and we encourage anyone who is considering utilising a cooperative contract to do their homework before fully committing to one. United Stationers believes giving resellers multiple options is the best way of ensuring resellers align with the co-op that best meets their specific end-consumer requirements.
Though United Stationers’ owns MBS Dev, an ERP software solution for resellers built on the Microsoft Dynamics platform, we recognise that each reseller is responsible for evaluating its own technology requirements and comparing those to the various technology options in the marketplace. They can then make their own decision on which solution best meets their overall needs.
So as long as a reseller’s core business margins remain healthy, public sector business can add significant top-line growth with reasonable margins. However, this business has a different selling cycle and strategy, so not all existing sales reps may be good at selling to this market. But once a reseller understands how to do it, there are opportunities for sizeable growth.