No. 7030
Managing Middlemen
This article covers the key elements of managing dealer, distributor, and agent networks plus strategies for partnering successfully with distributors. It includes a listing of pertinent books, seminars, and other resources.
| T A B L E O F C O N T E N T S | |
CRITICAL ISSUES
Successfully managing dealer networks has become the biggest single challenge most supplier organizations face today.
For sales vice presidents, sales managers, distributor sales managers, and others who oversee distribution channels, the key to managing and motivating these noncaptive audiences lies in the strategy known as partnering. Partnering refers to strategic alliances built not by empty promises but by vision, communication, training and customer support.
There are numerous forms of middlemen, from dealers, distributors, and retailers that stock product, to agents, brokers, and representatives who generally don't.
Distribution channels are undergoing rapid change, and, unless both the dealer and the manufacturer can remove inefficiencies, both parties will come under a major competitive threat from other organizations that do. Anyone overseeing a channel of distribution must be a business manager first and a sales manager second. They must crystallize and sell a business vision about a better way of doing things that benefits the supplier, the distributor, and the end user.
This is critical today, because more and more sales managers are managing multiple channels of delivery. For example, Staples, the office equipment store, maintains an 800 number, two different types of retail outlets (large and small), and jobbers. Although these channels compete with each other, Staples management understands that if the company walked away from any one channel, a competitor would invade and dominate that channel.
As companies increasingly handle from six to ten channels of delivery, management must be proficient at managing and motivating all partners to work together. There may be greater reliance on independent agents in some channels, because downsized companies can no longer afford to have full-time people addressing every niche market.
Key obstacles to successful partnering include: the inability of distributors or agents to focus on more than a select number of product lines; the unwillingness of independent distributors to let manufacturers control their business; the fact that independent distributors and agents are often more loyal to their customers than to the suppliers they represent.
DEALING WITH A NONCAPTIVE AUDIENCE
Strategies for managing and motivating distributors mirror many of the tactics used to spur a company's direct sales force, with one major difference: Distributor networks are independent. The Robinson-Patman Act states that suppliers can't tell distributors whom to sell to or at what price (they can publish suggested resale prices). Once title passes to the distributor, the products are the distributor's to sell as it pleases. In addition, the Sherman Antitrust Act maintains that any form of price fixing in vertical markets is illegal.
The independence of distributors and agents has another important implication. Most do not depend entirely on one supplier, so a supplier must earn their willingness to promote its product. Although most distributors represent many lines of products and services, a small percentage of these accounts for the bulk of their business. Research suggests that distributors paid by commission often respond more vigorously to value-added services that help them improve their sales or profits than they do to a straight increase in the commission rate.
STRATEGIES
To reengineer their dealer networks, sales managers must first answer three questions: If we were all one company, what would we do differently? What's stopping us from doing these things? What can my company do that will help the distributor improve its business. This process can root out inefficiencies and identify ways to help distributors improve their business, too.
Here are key components of a strong distribution management strategy:
- Know how the end user buys. If you want to reach a specific market, you need to know from which channels those customers traditionally buy. Do they buy direct, through independent representatives, agents, or both? If you decide that you have to work through distributors or agents, you must choose the right ones for the end users you need to reach. To understand the end user, you will have to conduct surveys or telephone interviews to ascertain their buying patterns.
- Possess a clear vision. Successful sales managers know that distributors can be an integral part of the total sales and marketing strategy. They have a strong vision of what their organization can do for the distributor. This means identifying what your company can do to help distributors succeed not just with your product or service but with the entire category.
- Understand what your end users need. If you don't know what your end users expect from your distributors or agents, you can't select the right distributor or develop strategies that will help a distributor succeed.
- Make yourself an expert on your distributors' business. You should have a complete understanding of what makes distributors or agents successful in the field you're going after. Look at what other successful manufacturers in your industry are doing to motivate dealers. The best way is to ask the dealers themselves.
- Make yourself an expert on the market you're addressing. This may seem obvious, but many companies work through distribution channels that they don't understand. Companies often don't know their markets, and they assume that the distributor will do all the groundwork. Suppliers should have a complete knowledge of the market, including demographics, buying patterns, and culture. In addition, sales managers must determine how important their product is to a distributor. If your product or service accounts for only a small portion of a dealer's potential, chances are you won't get much attention.
Define the market you're going after and find out how and where end users buy your category of product or service. Identify the distributors and end users in those markets and gauge their potential. Potential can be estimated by extrapolating data from past sales history or conducting face-to-face interviews.
- Involve distributors in your planning. After identifying vertical markets and key players, sales managers must work closely with distributors to estimate the potential value of those markets, forecast sales, and establish a priority plan. The plan spells out who will do what, and when, in order to penetrate key markets: What will be the respective roles played by the supplier and by the distributors? What will the distributor need in terms of promotion, sales support, training, and joint sales calls?
Spell out in dollars your current business nationwide and worldwide, by product. For each key market, show such statistics as number of accounts, average annual sales volume per account, and the potential for growth of each account. Translate this to the distributor level.
- Joint profit planning. Many sales managers overlook this step. Joint profit planning with distributors primarily concerns inventory planning, inventory control, and communication. It includes working with middlemen to cut their sales costs and improve margins. Ask yourself, What can I do to help a distributor reduce the cost of sales? Work with distributors to develop an optimum inventory level that will enhance turnover. Introduce better communications systems, including the Internet, to enable distributors to keep up-to-date. Explore co-op opportunities in such areas such as media advertising, local promotions (signage, brochures, banners), rebate programs, incentive programs, and trade show participation.
- A strong pull-through program. Once you have determined the specific distributors or types of distributors that can benefit from your product, consider what steps you can take to drive potential customers to them. Distributors respond most aggressively to manufacturers that bring them the most business. Look at advertising, sales promotion, product innovation, customer identification, incentive programs, and lead generation.
- A strong "push" program. For years, suppliers have offered pull-through programs like "spiff" and "spurt" incentive programs, which focus on promoting certain products for a short period of time. Many sales experts believe it's a mistake to rely only on spiffs and spurts to provide the incentive, because they focus dealer salespeople on selling one product over another, a practice that some dealers resist. Incentives should reward not only better sales of your company's product but better overall salesmanship, something every distributor is eager to promote. Design programs that reward salespeople for selling both your product and selling better, but make sure your middlemen don't become burdened with the complexities of incentive-program administration.
Recognize that distributorships have various categories of personnel who have different motivations. Via interviews and surveys, learn the expectations of these different audiences, which may include inside and outside salespeople or warehouse personnel. You may also consider a program that gives distributors an inducement to support your product through purchases or putting up displays.
- Market-oriented training. Ongoing supplier-sponsored training programs are critical to the success of partnering. Too many companies place the emphasis on product training. Well-constructed training programs help distributors identify key decision makers, outline the sales cycle, and underscore supplier resources available to service the customer.
- Stay active in your distributors' territories. Make joint sales calls with distributors and their customers. Enlist the help of mystery shoppers, if appropriate, to see how your product is presented by dealer salespeople. This will help you learn about distributors' sales priorities and give you some knowledge of their customer accounts. It will also clarify why customers buy from certain distributors. This information will provide a strong basis for sales training sessions.
- Quality customer service programs. End users need a source for product information and help. While this often is the distributor's responsibility, a supplier can work with distributors to increase the effectiveness of service programs. This includes providing middlemen with such electronic support as order entry diskettes, inventory control software, and dedicated modems. Many suppliers provide electronic data for distributors to interface with key customers. Such hookups with major clients pare the order entry process and enable buyers to check inventory levels.
Make someone available for distributors to call at all times. This person can be an inside sales coordinator or customer service rep, but this one-point-of-contact must always exist. Use this person to uncover new services and systems needed by distributors.
- Take advantage of technology. Easy-to-use databases, along with the Internet, are providing new ways to keep track of distributors and end users. They can also help you communicate with distributors on a regular basis. If you have not explored how to use sales automation or the Internet, you have missed an invaluable opportunity to improve sales productivity and communications with dealers and distributors.
SELF STUDY/COURSES
Distributor Customer Base Management is a class offered by Texas A&M's Department of Engineering Technology in the College of Engineering. Reputed to be the only college course covering distribution management, the class takes a seminar approach to problems in distribution. Topics include systems contracting, quality assurance, negotiation techniques, profitability predictors, and branching operations. Call 409-458-1197.
"There Are No Secrets To Success . . . Just Unanswered Questions" is a series of six 30-minute audio cassettes designed for sales and marketing executives. The tapes, produced by The Pinnacle Group, a consulting firm, cover everything from time management to competing effectively and refining marketing and presentation skills. $49.95 for the set. Call 800-659-3669.
Syracuse University's Graduate School of Sales Management and Marketing is held annually in late spring. This eight-day session is part of a two-year program cosponsored by Sales and Marketing Executives International (SMEI) and the university. Classes run from 8-4 with optional sessions at night. Attendees receive a certificate of completion and six continuing education credits. $4,300 a year, includes meals but not housing. Call 315-443-3333.
TRADE SHOWS AND SEMINARS
For a list of Industry Events, go to #9510, Calendar of Industry Events.
BOOKS
How to Develop and Manage Successful Distributor Channels in World Markets, by William C. Fath, covers every aspect of the distributor relationship including payment, pricing, discounts, legal ramifications, how to select the right distributor, and more. 1996. 211 pp. $55. AMACOM. Call 800-262-9699.
Marketing Channel Management: People, Products, Programs and Markets, by Russell W. McCalley, gives a detailed account of the functions to be performed in moving products from the product source to the customer, and uses examples and illustrations from businesses to help provide realistic applications. $38.00, Praeger Pub./Greenwood Pub. Group.
Getting Partnering Right, by Neil Rackham, Lawrence Friedman and Richard Ruff. Despite the awkward title, the authors provide a clear analysis of how successful companies turn partnering into a reality. 256 pp. $22.95. McGraw-Hill. Call 800-722-4726; fax 614-755-5645.
Managing Channels of Distribution: The Marketing Executive's Complete Guide, by Kenneth Rolnicki, is a practical handbook which gives you all the information you need to plan, implement, and manage a successful channel of distribution network. It explores channel management efficiency, channel power and conflict, the potentially dangerous issue of legalities (including international laws that affect channels of distribution for 46 countries), and, most importantly, the channel design sequence. The book covers basic concepts such as what the various channels of distribution are and why you use them as well as more sophisticated topics such as channel selection criteria, market coverage strategies, and channel candidate enticements. 1997. 288 pp. $59.95; $59 through Amazon.com; $53.95 to AMA members. AMACOM. Call 800-262-9699.
Grow to Be Great: Breaking the Downsizing Cycle, by Dwight Gertz, describes successful strategies to produce profitable growth in the tough business environment of the 1990s. 208 pages. $24.50. The Free Press, div. of Simon & Schuster. Call 800-223-2348.
Solution Selling: Creating Buyers, by Michael T. Bosworth, is designed for sales managers and salespeople and explains the process of solution selling, a strategy designed to take the guesswork out of hard-to-sell intangibles. 270 pp. $27.50. Irwin/McGraw-Hill. Call 800-722-4726.
Built to Last: Successful Habits of Visionary Companies, by James Collins and Jerry Porras, is a ground-breaking book that shatters myths, provides insights, and gives practical guidance to those interested in building a landmark company that can stand the test of time. $25. Harper Collins. Call 212-207-7000; 800-242-7737.
The Dartnell Sales Manager's Handbook is a valuable tool for sales managers. The 1,272-page book covers sales organizational structure, telemarketing, trade shows, sales promotion and direct marketing; sales planning and control; budgeting, forecasting and sales policies; sales channels from distributors through franchising; and managing the sales force from recruiting through motivating. Also included: a glossary of terms, directory of sales training aids, legal contract forms, promotion laws and a list of business directories. $49.95. Dartnell Corp., Chicago. Call 800-621-5463.
PUBLISHING SERVICES
Purchasing, edited for the purchasing professional, is a twice-monthly publication that may give sales managers a view from the other side of the fence. Articles interpret news, market conditions, and overall buying conditions, as well as provide information on how specific companies conduct their purchasing operations. Free to qualified executives. $99.90/year. Call 800-446-6551.
Industrial Distribution, published monthly, is edited for owners, top management, and sales personnel of industrial and construction distributorships. Articles focus on profit-making opportunities, new technologies, improved selling techniques, merchandising, and marketing. There is also coverage of distributor-supplier relationships and customer-distributor relationships. $97.90/year. Free to qualified executives. Call 800-446-6551.
Today's Distributor, published seven times a year, targets owners, top management, and sales personnel of industrial and construction distributorships (both general-line and specialists). How-to articles focus on how distributors can increase profitability, as well as how to improve the relationship between supplier and distributor and between customer and distributor. $45/yr. Free to qualified executives. Call 800-547-7377.
Sell!ng, formerly a magazine, is now a newsletter loaded with articles on sales tips and strategies, case studies, profiles, Q & A, and more. 12 issues/$79. Call 800-621-5463.
Selling Power is written for sales managers and salespeople. It features interviews with top motivators and salespeople and articles on selling trends and tactics. Includes sections on motivation, automation, and new product ideas. $33/year (9 issues) or $76/3 years. Call 540-752-7000. Get articles and find new products; search for resources and jobs, and chat in forums at the magazine's Web site: http://www.sellingpower.com.
Sales & Marketing Strategies & News is an eight-times-a-year tabloid with articles that cover successful companies, sales strategies, and sales tools. Sections focus on point-of-purchase materials, promotion and motivation, sales automation and presentations, and trade show marketing. $49/year. Free to qualified executives. Call 815-963-4000.
Sales & Marketing Management covers a range of issues for executives who manage the sales and marketing functions in their companies. Each monthly issue has case studies, columns, and an international report. Topics range from motivation to sales training to automation. SMM also publishes the Survey of Buying Power, which uses U.S. Census data to track consumer buying patterns by county and metro area. $48/year (12 issues). Call 800-821-6897.
Potentials in Marketing is edited for marketing, sales, advertising and sales promotion executives. The monthly tabloid publication covers new products and services for use as premiums, incentive awards, business gifts and incentive travel. $24/year. Free to qualified executives. Call 612-333-0471.
Incentive magazine features monthly articles on motivation issues and case histories in management and marketing. Stories cover companies that maximize performance by motivating their dealers to buy, and salespeople to sell, via programs that incorporate merchandise and travel awards, communication strategies, and promotion techniques. $55/year. Free to qualified executives. Call 212-592-6263.
SUPPLIERS
In every industry, there are specialists in such things as point-of-sale technology, database marketing, and logistics. Consult the trade association or major trade show in the industry to obtain a list of specialists. In the area of motivation and dealer support, there are three types of suppliers:
Point-of-purchase display companies provide in-store signage or other services designed to promote sales at retail (see Article 6010).
Full-service incentive companies provide complete incentive programs, including communication, tracking, and training, as well as awards (see Article 3010, Premium/Incentive Overview).
Consumer products manufacturers sell merchandise through premium representatives or ad specialty distributors (see Article 3010, Premium/Incentive Overview).
To find a supplier, go to #9520, Supplier Finder.
CONSULTANTS
There are a large number of incentive, promotion, and advertising agencies that can assist with channel marketing. The following consultants help companies develop a distributor management strategy:
W.C. Fath Associates is a Springfield, MA, marketing consulting firm specializing in developing and managing distributor networks. Call 413-782-8507.
Frank Lynn and Associates, Chicago, is a channel marketing consulting firm dealing with distribution issues. Call 312-263-7888.
Sibson & Company is a sales management consulting firm with offices in Chicago and Princeton, NJ. Call 312-580-7770.
The Pinnacle Group, based in Atlanta, is a full-service sales and marketing consulting firm specializing in sales training, promotional and sales incentive programs, and marketing development. Call 800-659-3669.
Mercer Management Consulting is a general and sales management consulting firm with 18 offices in 11 countries. Call 781-861-7580.