The Distributor/Supplier Dance (The Dating Game)
I know you are probably wondering where I am going with
all this, but there is a tie-in. Throughout this spring I have had a couple of
conversations that gave me pause.
Actually, more than a pause, these conversations provided massive
flashbacks and touched a nerve far more tender than meer business. Allow me to explain.
Recently, during a deep and serious conversation with a married couple, they shared the story of courtship. They were high school sweethearts who, by
their own admission, were not part of the small clique best labeled as the
“popular” kids. Their group of friends knew or shared friendships with one or two from the popular crowd. All had a yearning to be “popular” but none attained that status.
Remembering they were only teenagers and prone to all the
typical pressures, this couple shared stories of how various members of their
tribe would often push one another aside in attempts to garner favor with the
cool kids. They told brutal tales of canceling
long-standing commitments or dates with the lower echelon group so they could
go to a big party, dance, or something else with one of the "populars."
The distributor/supplier dating game
With this story of teenage angst fresh in my mind, I was
especially sensitive to similar conversations with distributors and their
suppliers. Here are a couple of versions:
From Suppliers – “The distributor we have in West
Overshoe has been steadily growing our business, but to achieve the kind of
market share we really want, we need to have someone with more feet on the
street.”
From Distributors – “We are doing pretty well with
Amalgamated Widgets but believe their lack of strong name recognition and brand
preference is lacking. What would happen
if we had one of the top names in the business?”
There are dozens of similar scenarios in the annals of distributor/supplier
relationships. For those selling
commodity-like products (wire, pipe, fasteners, and a plethora of other
things), switching suppliers is generally not a major concern. Many customers will heartily accept products
with the same functional specifications.
But in the knowledge-based distribution world, there is a difference.
Even successful changes in partners can be costly
Let’s start with the premise that making these kinds of
changes costs both parties money – potentially a lot of money. For distributors, the short list might look
like this:
·
Training for the sales team – For many product
lines, this requires more than just a quick overview of the products.
·
Initial stock order of new inventory – In most
instances, new product lines require additional inventory. Further, this stock will most likely not
immediately “fly off the shelves."
·
Overlapping inventory to service customers
unwilling to make a rapid change to the new supplier’s product.
·
The addition of product data and pricing to the
distributor’s computer system. If the
distributor has an eCommerce presence, this becomes an even greater
effort.
·
Disposing of the old demo units and cost of
acquisition of new units. Many
distributors can dispose of old demo equipment to customers, but end up getting
only a fraction of the original cost.
The cost of changing is equally expensive to
manufacturers. While we will not go into
the same level of detail as with distributors, there is one point manufacturers
must consider. Unless you happen to be a
well-branded leader with a high market share with products carrying a high cost
of crossing to another brand, the distributor will keep over 50
percent of their existing business with your products. Regardless of the potential size and power of
your new partner, some of your incumbent business will be left behind.
Understanding your partners is important to
everyone’s future
Even with the expenses outlined above, there will always
be a level of distributor/supplier dating.
I sincerely doubt anyone makes one of these moves without at
least some level of forethought. There are
always emotions tied to the decision.
These emotions arise over ongoing friction in the current
relationship. Things like the addition
of a new distributor, a poor connection with the local sales team, pricing
issues, and, in today’s environment, poor supply chain management all carry
massive emotional baggage.
Further, changes in market dynamics often create a need
to at least consider a change.
Consolidation both in our distributor/supplier continuum and with
customers is driving much change. These
types of changes often require some fine-tuning of your product offering.
Regardless of the drivers behind the distributor/supplier
dating game, it is important, very important to fully understand your new
partner. The following is a “starter
list” of questions to explore:
Questions to explore – Distributor Version
1. How
big would we have to become with your product to be considered a successful distributor?
2. How
much revenue do your top distributors generate for you?
3. What
are your overall plans for distribution?
This would include national alliances, catalog/eCommerce only wholesales,
and big-box stores.
4. When
or where would you ever take business directly?
5. Are
there other suppliers you see as such major competitors that you would
refuse to coexist at the same distributor?
6. What
kind of initial stock order would you like to see? What are the return privileges on this order
should things not go well?
7. What
type of program do you have for buying demos?
Are distributors allowed to refresh demos periodically?
8. Who
from the top management team would be open to taking calls concerning special
issues?
9. What
kind of support can we expect from your local sales team?
10. Would
leads from this territory come to us?
11. Do
you have an ongoing marketing plan which helps cover the ongoing marketing of
your product?
12. Do
you have a plan for covering our costs of converting? Does this cover costs associated with
eCommerce conversions, employee training, and other one-time expenses?
Questions to explore – Manufacturer Version
1. Have
you developed a business plan for our products?
If so, what do you anticipate your first-year/ third-year sales to
be? Which customers have you targeted
for our products?
2. Do
you plan to terminate suppliers who are viewed as competitors? What would be the timeline?
3. What
is your track record for growth with our kinds of products?
4. What segments of the market do you serve? "Everything" isn’t a good answer, specifics are important.
5. What
do you see as training needs for your sales team?
6. Will
you commit to ongoing training which may involve factory or regionally-based
training?
7. Are
you willing to assign a product champion for our products? What other responsibilities does this person
currently have?
8. How
do our products align with the products currently sold?
9. Do
you have a marketing group? If so, how
would you see them interacting with our marketing team?
10. Do
you have a plan for eCommerce?
11. Are
you willing to provide Point-of-Sale data?
12. What
is your five-year growth plan? What
percentage of this is tied to our products and products like them?
Not everybody is compatible
It is possible that some potentially
great partners aren’t compatible with your needs. As you explore moving forward, be prepared to
consider the value of compromise.
However, some points make this distributor or supplier incompatible for
a long-term relationship. If we consider
the “dating game” concept, perhaps it is better to part as friends today rather
than create enemies in the future.
Finally,
The lists created above are not all-inclusive. Every situation is different. A bit of early exploration saves
massive headaches later.
Looking ahead...
Be prepared for more on this “dating game” concept. We are partnering with Dan O’Brien of Seven
Turtles Consulting to develop an interactive program for distributor
association meetings that brings this concept to life in a hilarious
manner. Stay tuned…
Frank Hurtte, Founding Partner of River Heights Consulting, shares his personal experiences with 28 years of "in the trenches" training and 17 years as a consultant. He serves as a personal coach to industry leaders across many lines of distribution. He has authored 5.5 books (one is almost done) and has written hundreds of articles for national trade magazines.
Frank is also a sought-after copywriter of marketing materials for technology companies. His charismatic, yet laid-back, easy-to-follow manner makes him a favorite among public speakers.
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