The 6 myths of the distribution channel

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.