March 19, 2018

Channels of Distribution

What Can Manufacturers and Resellers Expect From One Another?

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A manufacturer that produces a product must identify the right combination of direct sales resources and indirect channels–such as distributors–to effectively reach its target customers. Too many times, a manufacturer chooses the wrong channel partner, has unrealistic expectations, or does not know what to do to ensure accountability for the sale of the product.

Can any company expect great sales from a channel partner without giving it an exclusive sales territory?

Many suppliers (product or service) feel that they get more attention from resellers or third parties by giving them an exclusive territory. Our view is that while granting an exclusive territory may give you peace of mind, you have limited your market access. Very few resellers are capable of effectively reaching all the target end-user customers in a given market.

The more successful companies we work with have segmented their customer base and understand how to match certain types of resellers with certain types of customers. As a result, you end up with a nonexclusive type of go-to-market approach that utilizes multiple channels to market.

Should a company expect a third party to generate demand for its products/services?

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Our view is that it is the supplier’s responsibility to generate demand. The third-party reseller, for the most part, services the demand. While resellers can steer demand to a specific brand/supplier, in many cases the reseller markets the availability of a supplier’s product or service. They inform the customer as to where the product can be attained but are not very good at educating a customer on a new product or service. The supplier creates the demand for the product while the reseller assists in the pull-through merchandising and fulfillment of the product.

 

How do a supplier’s business objectives need to be adjusted for each market?

Manufacturers and service providers that analyze their market position by geography or vertical market characteristics are usually going to find themselves in different competitive positions within each segment. Their market share is likely to be different by market, their growth opportunities will be different and their competition may be different. As a result, the channel partners they need to use to get to market may be different as well.

A common flaw occurs when management creates a generic strategy–such as a generic growth strategy–not recognizing the dramatic differences by market segments. This type of shotgun approach is seldom successful in the long term.

Should all resellers be treated equally?

No. Every indirect channel reseller essentially has a business model that defines a set of activities it performs for the manufacturer or the supplier. Costs are directly related to the number of activities and functions that the reseller can or will agree to perform. Some perform more services for a supplier than others. Problems result when the supplier fails to acknowledge the full list of activities and functions that the reseller performs and fails to compensate the reseller adequately through commissions, fees or discounts. If this occurs, the reseller cannot afford to perform all of the desired functions.

If the manufacturer overpays a reseller for the level of functions and activities performed, then the reseller will generally pass the savings on to the customer in the form of a reduced price.

How important is it for firms to enforce their policies with a distributor/reseller?

It is extremely important. First, some of them may be contractual, and if you do not enforce them, they will no longer be binding. Other policies may be stated in documents that convey your expectations of the reseller relationship.

Manufacturers often do not enforce policies/requirements out of fear of retribution by the reseller or for fear that they do not have enough leverage in the relationship to demand that the policies be followed. These are not good reasons. It’s up to the product or service supplier to determine what they value from the reseller and enforce their values. If you do not value it, then do not make it a requirement.

Do not worry about upsetting a reseller by asking him or her to follow policies you have set forward. You are more likely to upset the resellers that do follow the rules when you do not enforce the rules with others. If two distributors or resellers are competing with each other, it often gives a cost advantage to the one

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