Are you looking for a distribution channel to
market that will reduce your costs of sales, increase your profitability, and
most importantly, grow your company’s market share? Companies that use distributors are ones who need to penetrate different markets and geographies. However, far too many companies fail to achieve their desired
results. As such, here is a list of some critical rules to live by when choosing
your next product representative.
1. Your Distributor Should Need You More Than You Need Them:
Far too many companies try to work with dealers and distributors whose focus will never be on their company’s product. Either these distributors are too large, or the company's aspirations for success with the dealer aren't realistic. These are the companies that try to work with large sales representatives, ones whose product offering is vast and whose market presence is strong. Unfortunately, large representative firms aren’t likely to focus on growing your company's market share. Instead, you become just one piece of their gigantic marketing pie.
These distributors will use you, and dozens of other companies just like yours, as a marketing tool. The message is clear: “You should buy from us because all of these companies choose us as their channel to market”. The only work they do on your company is to make sure you’re part of all their presentations to their own customers. The more companies they represent, the more impressive they seem to their own customers.
You must focus on dealers who need your company more than you need them. Granted, it is by no means easy. However, having worked for a B2B distributor for over 10 years, I can assure you that the only companies we ever worked on were the two or three companies we could not afford to lose. The rest were just marketing tools.
2. Establishing a Vetting Process for New Distributors:
I can’t tell you how many times I’ve seen business owners jump on a plane to visit a distributor they haven’t properly vetted. In fact, most of the companies I’ve worked with are just happy to have any distributor represent them. Don’t allow this to happen.
Come up with a list of criteria you see as essential for any dealer or sales representative who wants to sell your products. For instance, do they need to have a certain level of technical expertise? Does your distributor need to have an established market presence, one going back several years and one build on years of experience in their given market? Should your distributor only focus on a specific market or industry? Or, should they be product specialists across multiple markets? Focus on establishing specific dealer criteria that is tailor-made to your company’s unique needs and your customer's requirements..
Understanding your company's position in the value chain goes a long way to understanding how distributors, sales reps, dealers or integrators can help or hinder your company.
3. They Should Know You Are Market Experts:
Your dealers must know that your company knows more about their market than they do. Even if you don’t, you must still make them think that you do. Your dealer must believe their working with a company whose business knowledge, know-how and market intelligence are above reproach. This ensures that they don’t just try to add you to a long list of companies they represent.
When the dealer hears that you know as much about their market as they do, they’ll be less inclined to take advantage of you. This is especially the case if all they intended to do was add you to their product catalogue.
They need to know that you know where the opportunities are and how much sales they should generate. No distributor worth working with should be bothered by aligning themselves with a market expert. So, if the dealer balks at this point, don’t move forward with them. You just saved yourself a tremendous amount of time.
Every market leader was first a market expert. It's no longer a question about who is first or second. Instead, it's about who knows their market best.
4. Setting Benchmarks on Sales: Simply put, if your company expects a certain level of sales from your own sales team, then you should have no problem establishing sales benchmarks with your distributors and sales agents. And, don’t use this ridiculous excuse that you’re working with a distributor who is too large to report back to you on sales and opportunities. Again, you need to work with sales reps that need you more than you need them. Any distributor that can't provide you with a progress report is one you shouldn't waste any time with.
5. Understand Your Distributor’s Business:
Who does your distributor represent? Do they represent your competition, and if so, are they looking to represent you just to keep you out of their market? Most companies rarely consider the consequences of working with a distributor who also represents their competition. Instead, they just sign up with the distributor, never setting any goals or objective for sales, and never agreeing to exactly how the distributor will capture market share. You are looking for a partner, not just another sales outlet.
Ultimately, working with a distribution channel to market should allow you to reduce your costs of sales. It’s about benefitting from customer consolidation through a solid distribution channel.
Instead of selling to 25, 50 or 100 separate customers, you’ll simply sell and ship to 1 single distributor. This reduces your costs of sales by lowering your costs of freight, lowering your costs of inventory, reducing your transaction costs on sales, and finaly, reducing your after-sales service and support costs. As such, your distributor should be willing to hold inventory or share in the cost of inventory in order to better service their chosen market.
Don’t just go with any dealer or distributor. Remember, several distributors aim to keep you out of the market simply because they prefer to sell your competitor's offering. In this case, they are merely controlling the sale by making sure you never get a chance. They’ll use your pricing to set up your competition for an easy sale. It happens all the time. In the end, it gives you a bad name and gives your customers the impression that you're not competitive.
The above table is an example of how using a distribution model as a channel to market can help lower your costs of freight, lower your cost of goods sold (COGS) and ultimately, lower both your receivable financing costs and inventory costs. This is taken from: Should Your Company Sell Through a Distributor?
Make sure you come up with a meaningful process of evaluating success or failure with your chosen sales representative. Their job is to increase your company’s market share, reduce your costs of sales and reduce your costs of after-sales service and support. Achieving this objective means that they must be able to provide direct end-user support to your customer base.
Finally, don’t allow a distributor to give your company a bad name. The wrong distributor can literally price you out of the market. The wrong dealer can use you to set up your competition for a quick and easy sale. The wrong sales representative is one that only uses you as a marketing tool. Remember, this is your company and you must get some kind of results from those companies wanting to represent your enterprise.
To read more about more, please go to the following references:
Key Performance Indicators, KPI, for Distributors, Sales Agents & Integrators
Defining Strategic Partnerships Between VARS, Integrators & OEMs
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