Talk and Act
Numerous manufacturers and service providers make the same errors in judgment over and over again when designing their go-to-market channel strategies. Market Strategy
The following are the most common repetitive misconceptions in business-to-business markets selling through distributors, wholesalers, dealers, etc. Distribution
Mistake #1—Expecting Distributors to Generate Demand for Your Product
Distributors service markets and rarely develop them. Demand generation is the role of the manufacturer. Some channels classified as “technical specialists,” will help to educate end users relative to new product and technologies and, therefore, can contribute to demand generation but ultimately demand creation is the manufacturers responsibility.
Mistake #2—Expecting Great Performance by Providing Distributors Exclusive Territories
The only good reason to grant a channel an exclusive territory or market for your products is the territory is new and requires the distributor to invest and you want the distributors to feel they will have an opportunity to recoup their investment. Even with this situation the timeframe for the exclusive should be limited.
Mistake #3—Expecting Your Partners to Sell to New Customers
Dealers and distributors focus on servicing their customer base. They evaluate new products and services to determine the best ways to grow revenues in that set of customers. While they may add new customers, typically you can expect 90% to 95% of the distributors’ revenues this year will come from the same customers they sold last year.
Mistake #4—Expecting broad business objectives to work equally well in every market.
Let’s say you have a “selective” channel strategy, wherein you select the best distributors in each geographic market. Based on our experience, this approach may land you distributors in secondary markets (think Des Moines, Dayton, and Fargo) that control 40% to 50% of the market. However, in major urban markets (Chicago, Detroit, and Los Angeles) this selective approach may get you distributors that individually deliver 5% to 7% of the market.
If your plan is to grow your overall market share from 25% to 30% you have a problem. You have 15% share markets and 45% share markets and managers often articulate similar growth strategies to your distributors in both. Using one number for everyone never describes the market accurately for everyone.
Mistake #5—Expecting your investment in various Strategies/Tactics will motivate Distributors to Promote Your Tertiary Product
If your products are tertiary to the channel, that is, the category represents ?1% of channel sales, then you have to adjust your expectations of the channel and avoid spending money on things that the channel will not utilize. We describe tertiary products as those that are “bought not sold.” Therefore, don’t invest in training programs for the distributor’s sales force, or worse, certification programs.
Mistake #6—Treating All Partners as if They Perform the Same Functions and Have the Same Costs
A common mistake made by many manufacturers is offering a discount structure that “treats everyone the same.” Clearly not all channel partners are the same. Those that perform more activities on your behalf will tend to have a higher cost structure and therefore require more margin. Those that perform fewer activities can afford to lower the price of your products to their customers if you are “overpaying” them.
Our philosophy, as succinctly summarized by one of our clients, “Do what it takes to serve the customer, and pay the channel that does the work.”
Mistake #7—Failure to Enforce Your Own Policies
Manufacturers are in the business of selling, not in the distributor termination business. We understand that. But many manufacturers have clearly defined expectations of their channels they fail to enforce. There are many other penalties that can be levied prior to termination but manufacturers must have an effective and functional penalty process. Channel Workshops
Channel partners are very observant. If they see that XYZ distributor did not put in the showroom you require and nothing happened to them, then it will be assumed that your requirements are requests.
If your requirements are really “required,” then enforce them. If you don’t, your channel partners will decide which policies they will support, for you.
Take a look at your channel strategy and see if you find any of these seven common mistakes that may be undermining your effectiveness with channel partners and jeopardizing the results you expect to achieve. If you would like our help in correcting these mistakes contact me at jhenderson@franklynn.com or visit http://franklynn.com
Tags: Business, Distribution, management, Market Research, Strategy
Posted in Business · May 7th, 2010 · Comments (0)
In an ideal world, your key distributors would develop annual business plans for your product line and work closely with your distributor account managers to get the plans implemented. In reality, many manufacturers skip this planning effort altogether. Those that require distributor plans often struggle – either to convince distributors to create high quality plans or to assure that the plans are followed. Market Strategy
To understand the “why” and the “how” of a distributor planning process, consider the following questions.
Why should a manufacturer require its distributors to create written plans?
The success of many manufacturers hinges on the actions of tens or even hundreds of independent, mostly small, distributors. However, each distributor has different customer targets, different product mixes, and different sales and technical skills. Many lack strategic planning skills and marketing departments. As independent businesses they’re free to do what they want.
Is it realistic to expect or require plans from each distributor? Distribution
No. Most manufacturers don’t have the capacity to handle hundreds of individual plans. Furthermore, most manufacturers experience the 80:20 rule, where 80% of their revenue comes from 20% of their channel partners. At a minimum, suppliers should require plans from key partners.
Not all manufacturers have the clout to demand distributors create a plan. A small company selling through Wal-Mart might face an uphill battle to get a detailed, written plan. Still, vendors should “think big” and not retreat unless facing a true negotiating mismatch.
What should be in a distributor’s plan?
Obviously, these plans should have highly customized content. However, the typical items a manufacturer should expect, or even require, in a distributor plan might include:
• Business background – a short strategy statement, review of market conditions, a competitive summary and a list of the distributor’s key financial, sales and technical objectives
• Product/services summary – a list of (existing/future) services the distributor provides and complementary product lines carried
• Customer mix – sales by market segment; a list of key/major accounts
• Marketing plan – a listing of specific marketing activities including start and end dates, people assigned and resources required (of the distributor, and of your company). The plan should cover trade shows, seminars, mailings, web site, publications, advertising, etc.
• Training/personnel plan – a schedule of which distributor personnel will attend what training sessions (yours or third-party) over the next year; hiring plans that will affect your product line
• Sales plan – major/key account activities, joint sales expectations, telemarketing plans
• Logistics plan – warehouse/technology investments
• Financial plan – agreement on sales targets, forecasting frequency, etc.
This sounds like a lot of work for the distributor. How big do these plans get?
First, its often helpful if the manufacturer creates a template. It’s a lot easier for a distributor to fill in a pre-formatted form rather than creating a plan from scratch. Furthermore, this assures the manufacturer it will get the type of information it seeks (in a consistent format).
For a major supplier, distributors often want to dedicate significant time to create a comprehensive plan. Sometimes the document becomes the overall strategic plan for the distributor. Regardless, most plans consist of a two to three pages of text with five to six pages of tables or forms. Distributors often attach appendices with sales spreadsheets, forecasts, tradeshow listings, etc.
What is the role of the manufacturer’s channel sales team in the planning process?
The channel managers should establish an annual planning calendar:
• Annual account plans completed in December
• Formal (two-way) reviews each quarter
• Informal updates monthly
Provided with a template, distributors, not the account managers, should write the business plans. The account managers can add commitments from their company to the plan during the annual planning meeting.
The annual meeting should take place between the account manager and the owner or senior executive from the distributor. The actual meeting, to review last year’s results and revise the plan for next year, will likely require two to four hours. In preparation, the account manager should review, in detail, the distributor’s sales history, local market trends/conditions, the manufacturers’ fulfillment of past commitments, new product plans, etc. Channel Workshops
For questions and further discussions about sales channel management, contact Bob Segal, Principal of Frank Lynn & Associates at bobsegal@franklynn.com or visit http://franklynn.com
Tags: Brand Strategy, Business, Distribution, management, Manufacturing
Posted in Business · May 1st, 2010 · Comments (0)