To achieve coverage in as many areas or countries as possible, many companies choose to work through distributors or ‘channel partners’. This approach may produce an impressive amount of ‘pins on the map’, but what are the pitfalls and how can you manage for success?
It’s sad, but true: you can often compare relations between British companies and their foreign distributors or channel partners with unhappy marriages. Although it’s often better to discontinue a business relationship that doesn’t work, terminations actually don’t happen that often.
The underlying reason is commonly a misguided hunt for quick profit. For the distributor it’s nice to have an additional product in the range, and for the manufacturer there’s the prospect of being able to sell in an additional area or country.
Confused mutual expectations
The primary reason for the souring of a manufacturer-distributor relationship is that the parties have never fully discussed and clarified their respective expectations of the collaboration.
- The manufacturer wants to open up new markets for his or her products and sees channel partners or distributors as a cost effective alternative to an in-house sales force
- The distributor wants additional products to offer customers, alongside other products currently in the portfolio
- This is where things often go awry; neither party is willing to invest seriously in the other
Manufacturers want as many “flags” as possible on the map and therefore struggles to provide proper support to each distributor. Distributors want as many products as possible and naturally find it difficult to focus equally well on all their manufacturers.
Why use distributors?
One thing is clear: if building your own sales organisation is the right thing to do, you should never use distributors simply as a cheap alternative. Either the market and your products are suitable to being served through a distributor, or they are not.
Distributors are often more skilled in typical sales techniques as opposed to advice and technical competence. That’s why distributors are typically well suited to settings with many customers and relatively simple products.
In such situations, using distributors may be the best approach, but you then have to put up with their greater focus on selling, and less emphasis on understanding customer requirements.
Similarly, they also tend to emphasise price as the bargaining tool, and many companies find that distributors tend to complain over cost prices more than internal sales people do.
Frequent manufacturer complaints over distributors include:
‘They don’t sell enough’ (they take orders rather than create orders)
‘They sell at too low prices’ (they don’t understand the product’s actual value to the customer)
Both points can be valid, but it’s important that the manufacturer considers his own role. After all, the manufacturer generally chooses the distributors, not the other way around.