There
are many situations in which a small or medium business can support its
commercial and go-to-market strategy through a network of partners
(distributors, dealers, wholesalers, etc). It is a very common way to market
products and to provide a high level customer service.
But
developing a suitable indirect channel strategy is not easy at all. Having a
distribution network has many advantages but requires at the same time a
thorough understanding of its dynamics.
Otherwise, dealing with distributors can become a real headache and a
burden rather than a competitive advantage.
One
way to address this complex issue is to start by analyzing the most common
mistakes in the practice of managing distribution channels. I call them
"the myths of the distribution channel" due to the huge number of
conventions and assumptions generally accepted but usually unrealistic.
The myth of exclusivity.
In
my experience granting a distributor an exclusive territory does not guarantee
a special performance. It only makes sense if the product is particularly new
in the market or require a specific investment by the dealer . Even with this
situation the timeframe for the exclusivity should be limited.
It
can also make some sense in those sectors in which the ripening time for
purchasing is very long and requires a high level of interaction with the end
customer.
In
all other cases I know, the market share obtained is greater when channels
compete or are complementary.
The myth of access to new customers.
Distributors
are often particularly effective in attacking its base of regular customers.
Accessing new customers is difficult and often very expensive. Therefore,
unless we give the dealer a very good reason to do a special effort (for
example, a great incentive or a significant competitive window of opportunity),
access to new accounts in this way is frequently very difficult. Therefore,
when choosing a partner make sure that its customer base is adequate for your
products.
The myth of demand generation.
Distributors
serve markets but rarely develop them. This means that the manufacturer has the
ultimate responsibility for demand generation. Of course you can decide to have
some specialist dealers to train end customers about new products, services or
technologies, but its contribution in terms of market share growth is probably
going to be very limited.
The myth of treating everyone the same
Another
common mistake in implementing a development strategy of distribution channels
is assuming that it must be the same in all areas, for all products and for all
partners. But the real world makes differences. For example, we may find
relatively small distributors that have extremely large market shares in its
territory or distributors with a wide geographical presence but with a very
limited market share at local level.
Obviously
both are important: the first because they provide us proximity to local
markets (usually thanks to an excellent customer service) and second because
they give us capillarity. But it is also clear that both can not be managed on
the basis of rewarding them in the same way. In short, we must make a
differential management based on the value provided for our brand in the short
and in the long term.
The myth of “higher investment in the
distributor means higher sales”
In
distribution management is very important to manage expectations. If your
products are a very small part of the portfolio of a particular distributor and
therefore a very low percentage of its sales, it is more than reasonable to
think that the effort of the sales force will be even lower. It is important in
this case to assume that our product will be "more dispatched rather than
sold" and therefore does not worth making large investments in specialized
training, expensive promotions or certification programs. The right thing in
such cases is to make the selling process as simple and easy as possible and
assure a reasonable stock availability. Everything else is wasting valuable
marketing budget that should be devoted to generating demand on the end
customer (pull strategy) and to support dealers who are playing their survival
with their products or services.
The myth of pressing
the channel only with sales matters.
There
is a belief in some circles that the manufacturer just have to press dealers to
sell because everything else can distract them from their main task. Although
there is some truth in this, it is also true that professional management of
distribution channel requires monitoring and control from both sides. For
example, as well as the distributors expect from the manufacturers a detailed
list of marketing activities that support their sales action, the manufacturers
have the right to demand similar information to its partners (training plans,
sales reporting, business plans, etc.)
In
short, developing a business strategy through the distribution channel does not
in any way mean the delegation of responsibility of selling in the
distributors. If you are a manufacturer, do not forget that you sell through
the distribution channel, not to the distributors, and you can not ask them to
do what you do not want to do. It is important to remember that brand loyalty
by your distribution partners is directly proportional to the margin they
obtained by selling your products and the potential sales growth they observe
in the short and medium term.
Therefore, it behooves manufacturers to offer a
solid business proposal that should convince the dealers that to bet on their
brand is a good business. But as well manufacturers demand planning, rigor and
results to their direct sales force and offer support with marketing policies,
incentives and talent management, they also must demand and offer the same to
distributors in accordance with their business strategy and demolish the myths
mentioned above. That's the only way I know to have a strong business
partnership and I'm sure it works when talking about channel distribution
development.
