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.

How to sell more and better

Each fiscal year begins with the same nightmare: the sales counter is once again reset to zero. And what’s worse the goal for the new year is higher than the previous one and includes an additional growth percentage to hedge the wage and tax increases, the effect of inflation, the rising costs of raw materials, etc.

At the same time the market is increasingly competitive and selling is also much more difficult. We are not talking only about the effect of the crisis, which has waned considerably the size of most of the markets, but also about the emergence of substitute products, new competitors, new market channels, etc.

Sometimes we may be tempted to think that a good solution to achieve the desired sales growth can be hiring more salespeople. In some cases it may work, but unfortunately it is quite often expensive and unrealistic to find well trained salespersons willing to help us get results in the short term. Therefore, before opting for this alternative, it seems reasonable to make sure we've done everything possible to ensure maximum productivity of the sales force we already have.

Before passing the responsibility for meeting sales goals to field salespeople it is important to align them with the marketing plan. A good research of current customer base and an appropriate segmentation will help the sales representatives to know what to sell to each customer and how.

Planning

Commercial activity requires good planning and for that there is nothing better than to incorporate it into the daily salesperson work.

When dealing with a few clients, but with a significant business potential, it is highly recommended to develop an account plan (typical  in B2B environments) where you fix your strategy and decide how you are going to attack that customer, what products your are going to sell and through which people. If the customer is really important you should include the specific sales funnel and the status of every single opportunity that may exist.

In the case of the sales reps who have to deal with many customers or prospects the daily work can be planned through activity monitoring tools (time management, number of cold calls or visits to be carried out, etc.)

Incentivation plans

Another powerful tool for sales productivity growth is the incentive scheme that has to drive the activity of every single salesman in the right direction. Very often we find that incentive plans are not properly designed and end up blurring commercial activity and generating many inefficiencies.

Of course we assumed that the main responsibility of a salesperson is meeting the targets, but at this point it is also important not to forget the sustainability of our business. Therefore when evaluating sales reps we have to ensure we  incorporate practices that encourage business development in the medium and long term. If we are too short-sighted, we can end up making the mistake of promoting only short-term sales and ignore more substantial sales processes that require longer decision times.

So the incentivation plan must not only respond exclusively to sales targets. You should also consider the strategic objectives of the medium and long term: a sale today that generates customer dissatisfaction is usually a very bad deal. If we see our sales force as a key part of our customer loyalty strategy, we have to ensure and encourage actions that are designed to improve customer satisfaction and generate better customer experiences. And you should incentivize them as well!

Automation

Traditionally this concept has been linked to large organizations with a large number of salespeople. However today there are many platforms accessible to small and medium enterprises . They allow to minimize the time that sales reps spend on administrative tasks or reporting activities. Many typical suppliers of these solutions for large companies (eg Salesforce) have services tailored for SMEs in their portfolio. There are also many solutions specifically designed to be used through applications for mobile devices (smartphones and tablets).

Regarding technology as a facilitator of business productivity, we must not forget the 2.0 world. One of the main values of a salesperson is his contacts network and how he is able to manage on a day to day. Well, at this point social networks can help maintain a quality contact especially in the B2B world where you can not always access easily to the most influential or decision-making person. Social networks are also a source of information of the first magnitude to get to know more about the competitors and, therefore, to improve the approach to the customer.

According to a recent study by Google and Millward Brown, social networks are used by 41% of experts and professionals to find information quickly, by 37% to collaborate and share knowledge, by a 34% to manage their networking and relations and by 31% to reduce the volume of emails received. Undoubtly these are all aspects which contribute to a considerable improvement in productivity.

Productivity Techniques

As José Miguel Bolivar says, "productivity is not measured by the number of things you do, but by the quality of the decisions you make." The implementation of a GTD model (Getting Things Done) may generate an improvement of up to 30% on a sales staff productivity. Just make your own calculations about what this may mean in terms of new sales...

Talent management

If we accept that satisfaction generates productivity then we will accept the importance of a proper talent management of our salespeople. There are plenty of studies that show that a high level of employee engagement dramatically improves sales figures and margins. Our number one priority when designing professional development plans, loyalty and motivation schemes, etc. must be the commercial staff. After all who is going to make the sales counter work once again? Our salespeople, of course.

Keys to develop a strategic plan

According to Wikipedia a strategy is a “a plan of action designed to achieve a specific goal. Strategy is all about gaining (or being prepared to gain) a position of advantage over adversaries or best exploiting emerging possibilities”. So from a business perspective we can define strategy as an integrated set of decisions that a company takes for better results and positioning in the long term (3 to 5 years, although the current trend is to reduce this time due to the unstable economic and business enviroment we live).

A company strategy is usually developed through a document called Strategic Plan. This plan has three very distinct parts: where we are (diagnosis), where we want to go (vision) and how we're doing (action plan) . Do not forget that this is an exercise based on the deep knowledge of our business and competitive environment, but it is also intuitive to the extent that the vision and plan of action are necessarily subjective.

Usually we tend to define a strategic plan when we consider that we must make any substantial changes in the course of our business. However, in my opinion, any company or organization, no matter the size, must have a strategic plan to guide its actions and decisions. As the philosopher Seneca used to say "if one does not know to which port one is sailing, no wind is favorable".

Where we are (diagnosis)

This is perhaps the most objective part of the strategic plan, as it is based on research and data collection about current situation of the business (competitive environment, commercial offering, organizational structure, marketing policies, processes, etc..). It usually includes both an internal and an external analysis developed through a tremendously helpful tool: SWOT.

It is also important to consider the major market trends with local or global effect (what John Naisbitt calls "megatrends") that are being sighted at the time of planning but may have a definite impact on our products or customers in the upcoming years. We are talking about such ambiguous concepts as globalization or the universal low-cost concept but also about issues much more attached to the new consumer habits like the rise of electronic commerce, the electric vehicles or the healthy diets.

It is very important to do a good job of analysis and diagnosis. However it is also essential to limit the time and resources we dedicate to this chapter. The temptation to go into too much detail level is very high. If this happens the strategic plan can be too cumbersome or even do not end up seeing the light.

Where we want to go

This is the favorite part for people who like strategy. It is time to define who we want to be, how we want to position our company and what are our values​​. It is without doubt, the most poetic of work but also, admittedly, the most difficult and necessary.

There is some consensus in academia and business to address this issue with three main concepts: mission, vision and values.

Mission. Acording to some authors the mission statement consists of three essential components: the key market (target audience), the contribution (products or services) and the distinction (whay make you unique). A good example of this could be McDonalds mission statement: “To provide the fast food customer food prepared in the same high-quality manner world-wide that is tasty, reasonably-priced & delivered consistently in a low-key décor and friendly atmosphere." However I think like Phil McKinney that “mission statements needs to be aspirational.  They empower teams to create raving custom fans by doing whatever it takes to meet the mission”.

A great example of this approach is the Spanish hotel chain Room Mate: "we create welcoming and different spaces that surprise all who visit with their design, but most of all, for the treatment received, since more so than a client you are treated as a buddy, our friend, our room-mate”.

Vision. It's a very specific statement of intent. This is like a “picture” in a given time horizon that express the company position we are trying to achieve. Sometimes it is  expressed in terms of goals. An example might be: "We aim to become the French market leader in the manufacture of solar panels in 2016, with a turnover of 23 million euros and 28% market share." A definition of vision that is not expressed in terms of figures, dates and relevant milestones is not worth to the extent that it does not give a clear and definite goal to reach.

Values​​. This is a set of principles that determine the behavior of a business corporation as a whole. Somehow a code of conduct that commits the organization to follow and incorporate into all production processes and business to achieve the vision, and make it be different from other brands. An interesting example is FedEx where people, service, innovation, integrity, responsability and loyalty are their brand values.

There are at least three major strategic models to add value to clients that have proven fully effective. It is at this point that we have to choose what is best for our company and commit to it as it will determine the decisions we make from here on out. Recall that the coherence and consistency are two key ingredients in building a brand positioning.

Action Plan.

At this point we move from strategy to operational action. This Strategic Plan chapter defines all actions we take to achieve the goals we have set for our company. This section will include things like trade policy, the marketing and communications plan,  the financial and human resources plans, etc. We also have to define key metrics and indicators (KPI) that will give us the information we need to be sure we are working in the right direction. Therefore, it can be very useful at this point to define a scorecard to help us make the proper monitoring of the plan.

Finally, let me remind you that the process of strategic thinking is alive. Although we can have developed a Strategic Plan 2012-2016 it is very important to periodically review its progress and scope. As indicated earlier, there can be regulatory, economic and technological changes that can recommend the reformulation of the plan. This tool is a guide that helps us to remember where we want to go and not blur our positioning, but it should not become an element of inflexibility that can lead us to disaster.