Selecting your distributor

In conversations I have with people in the industry, searching for and selecting distributors occasionally is a topic. And so it turns out that different people have - sometimes very - different ideas as to the definition of distributor.

To some a distributor is nothing but a logistics vehicle, maybe stocking product for their own account and risk, whereas for others a distributor is the all-in-one service-provider who takes care of sales, marketing, finance and logistics on behalf – but not for the account - of principal(s). Any variation between these "extremes" seems to be possible and negotiable.

The profile of the distributor.

In smaller countries it normally suffices to have one national distributor (in whatever shape or form) whereas in bigger countries (or in countries with complicated logistic requirements) it maybe wise to have more than one distributor to cover the territory effectively.

The latter can work, provided that the principal doesn't have to act as the referee between regional distributors in cases of disputes about e.g. territorial exclusivity.

I strongly believe that in most cases it is wisest – assuming that the choice for distributorships is the best option – to go for one national distributor and let him sort out the necessity (or not) of having a sub-distribution network. The advantage for the principal is having one point of contact on which the entire effort for the territory can be concentrated.

Why go the distributor-route?

Let's assume that if you have made the deliberate choice to build your national and international business through a distributor-network and you start to explore the options, the first question is: what do I expect to find? To assume that distributors in foreign countries are a blueprint of what you are accustomed to in your home market will prove to be a capital mistake. Some markets are more advanced than others and that reflects itself a.o. in the degree of "professionalism" of the distributors available and who are prepared to take on your product(s). Whatever the situation may be, go for the best, even if the distributor's set-up appears to be below your standards; after all, the set-up may be well above the standards of the country in which it operates. And if still in doubt, put the whole idea on the back-burner.

Is there a profile a the "ideal"distributor?

What does the ideal distributor look like? In the case of a full-service distributor I recommend to think about at least the following aspects:

- degree of introduction in the country (what is their estimated numerical and weighted distribution),

- logistics set-up (can they effectively store my products, also in a growth-situation?),

- what should my product-range represent in their turnover? (do I get the required attention of the sales-force if I only represent X% of their consolidated sales?),

- do they have the right contacts in the (franchise-)chains,

- can they deal with local marketing-issues,

- what is the size and calibre of the sales-force,

- are they accustomed to selling "my type of products?",

- are they financially sound (and even more importantly, can they finance growth?).

I recommend that once the profile is ready, to weigh the aspects mentioned! E.g. degree of distribution gets maximum 30 points out of the 100 in total for the profile.

Whichever the number of points that a candidate-distributor may "collect", the main criterion for selection is and remains the chemistry between distributor and principal.

How to build and enhance the relationship.

Assuming that the principal has chosen for a network of full-service distributors, how is he going to build and sustain the relationship? Very simple, by providing the support that the distributor needs to do a very good job.

E.g. by helping the distributor to put the annual sales/marketing plan for your (the principal's) product-range together, by helping to implement programs that have proven their value in other countries, by training your distributor's people about all relevant aspects surrounding your products. There are in fact many areas of management where principals can contibute to enhance the professional approach of the distributor.

How to put the relationship in jeopardy?

There are – at least in my book – a few things a principal should never do when there is a relationship with a distributor. Do not go behind the distributors back to an important client;

do not exclude interesting clients from arrangements you have with a distributor; do not "provide" the distributor with an annual plan which is in fact a dictate. After all, your distributor is an entrepreneur – that's why you have chosen him in the first place - who doesn't like too much interference from the principal's side!

Formalising the relationship.

So, the distributor of choice is selected, the plans are agreed upon, the principal and the distributor get on like a house on fire; what more can one want?

Well, maybe an agreement to formalise the relationship? Of course the issue of coming to an agreement has been mentioned during previous conversations between principal and candidate, but when it comes to reality, mindsets can start to differ.

The distributor wants a 10 years' contract, whereas the principal thinks in terms of 1 year with annual renewals. The distributor wishes to pay in 60 days and the principle is accustomed to pre-payment. Make sure that (these) things are dealt with - assuming full consent from both parties – before any concept-agreement is sent to the distributor. Agree on the principles of the contract and if required let the legal department deal with putting these principles in the right legal language; but not more than that!

And – this is sometimes forgotten – have standards of performance as an appendix to the contract. These provide the basis for the plan and are the yardsticks to measure the effectiveness of the distributor and to judge whether or not the relationship should be continued.

There are many ways to come to conclusions as to the desirability and implementation of a distributor-strategy. But, the effectiveness of the relationship is based upon one simple thing: mutual commitment!


RELATIONSHIPS IN DANGER?

It has been prophesied before: the industry is on the eve of another round of consolidation.

Until now it was the league of the big players that dominated the acquisition-scene, but I am convinced that the time has come for the 2nd league to enter a consolidation-phase; because companies in this league, the incorporation of which traces back to the late 60s and early 70s of the last century have reached their peak and find it increasingly difficult to outgrow the market and find their ways in an increasingly brutal business-environment..

A consequence of consolidation.

In general, one of the key reasons for consolidation is cost-savings through synergies. One often sees sales and distribution set-ups overlapping after the acquired company gets integrated into the parent. Or brands become obsolete (or for sale) because they do not have any further strategic relevance in the combined portfolios of the acquiror and the acquired.

In those instances where sales and distribution of these products and brands are largely dependent upon the traditional route through the (national) distributors – in my point of view still a significant slice of the total pet industry – the latters' positions are threatened, in it that the acquiror will start to consolidate the distribution-network as well; or decides to integrate the acquired products and brands into his own portfolio and have his own – sometimes well-established – salesforce deal with these products and brands in the future.

The consequence of such is not only that the distributor stands to lose sales and margin by the discontinuation of representation(s), but also because the remaining portfolio of the distributor is weakened and thus less attractive for the retail-clients. And also the distributor will find it difficult to take important cost-cutting measures, because most of his cost will to a great extent be fixed. His cost per call are stable, whereas the average order-size is likely to diminish.

React or pro-act?

Is the distributor in a position to take fate into his own hands or does he just have to accept the status quo? Reaction is in my point of view not only a possibility, but from a business standpoint often also a necessity. But how to react? And, can the distributor only take a reactive position or also a pro-active one? And, equally important, can one distributor act just by himself?

It's all about which initiatives are taken when! Why would a distributor have to wait to take initiatives until he gets the boot by the manufacturer? If he wants to develop and implement his own way forward, pro-activity is a pre-requisite!

In most cases initiatives can only be taken by a group of like-minded distributors, facing the same challenges, because more often than not just one national market does not justify and can not absorb the investment in new initiatives, whether defensive or offensive.

How to go about it?

Whichever the options are, it is critical that the distributors are prepared to act as marketeers (which is more than just cutting corners in copying the products "lost" and sell them under a fancy name) and that the classic prejudices such as "my market is different from yours " are eliminated; because nationalistic thinking limits the options and in reality does not or at least should not exist from a business point of view.

Together with colleague-distributors (beware of possible territorial conflicts) one can and should develop products and brands. A joint approach is essential to provide the venture with strong enough a basis for a powerful international distribution and with that an acceptable pay-back period for the joint investment.

Is there a worthwhile opportunity?

Would the distributors have reasons to be afraid to play second fiddle in an orchestra that is dominated by manufacturers in the industry? Certainly not; the key asset of a distributor is his numerical and weighted distribution , which can be fully exploited, whereas the establishment (read manufacturers) needs the distributors to have access to this key asset.

There is an interesting terrain lying open for the distributors who want to become less or not at all dependent upon the strategy of their principals and who have the guts to take - in an international setting - product- and brand-initiatives that contribute to the sustainability of their businesses.


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