Who should be doing what for whom

Sunday, August 15, 2004

Powering-up manufacturer-distributor relationships

By John R. Graham

For the past decade, battles between manufacturers and their distributors have been escalating. Neither is satisfied with the other's performance, particularly when margins are often razor-thin. The tension, which seems to be at an all-time high, comes down to one issue: Who should be doing what for whom in promoting products?

"If it isn't hot, they don't want it," growled a Midwest manufacturer about his distributors. "They expect us to do all the work and they want the rewards." He went on to point out that most of his company's distributors fail to follow up on leads they receive from his company's sales department.

Creating the demand

All this is nothing new, of course. Manufacturer-distributor bashing is legendary. But, today, it's the disappearing margins that drive the distress on both sides.

What's happening? Manufacturers are feeling the pinch as distributors trim their lines so they can focus total attention on the most profitable, fastest turning products.

Distributors and wholesalers are sending manufacturers a message that should be taken seriously: If you aren't committed to creating the demand for the products you manufacture, don't expect your distributors to do it for you.

Having analyzed their operations carefully, many distributors realize that they have been carrying too much of the load. From a distributors' viewpoint, it's time for manufacturers to belly up to the bar and pick up more of the tab. What this means is taking more responsibility for creating a competitive advantage for their products.

Traditionally, manufacturers have looked to distributors to do the heavy lifting for marketing their products to dealers and, in many instances, to end-users.

While a distributor's value is serving as a competent technical and support resource for dealers, establishing product acceptance and demand belongs in the manufacturer's hands.

The manufacturer-distributor partnership

What's needed is a partnership in which manufacturers use their resources not only to produce the product, but to create customers who want to buy it. A distributor's job is to make the product available and to focus on prospect cultivation, product knowledge and service.

This suggests that it isn't enough for manufacturers to produce quality products, they also have a responsibility to create customers for their products, a role that many have been delegating to their distributors.

It's the job of creating demand that bothers many manufacturers. They contend that distributors are being paid to do this job.

A Southern California-based computer component manufacturer is an example of traditional thinking. Working through a half-dozen major distributors, the company maintained that in addition to supplying more than 1,100 value-added resellers, the wholesalers should be accountable for also providing marketing support. While the product had excellent ratings, sales were declining. The "we-make-it-and-you-sell-it" mentality continues with too many manufacturers.

Manufacturer guidelines for distributor relations

The manufacturer-distributor relationship is enhanced if they make a commitment to partner in meaningful ways. Here are guidelines for a positive, beneficial working relationship with distributors:

1. Make it clear that you see your job as creating the demand for your product. Distributors know when a manufacturer is simply "passing the buck," transferring marketing responsibility to them.

With multiple lines, distributors understandably give the most attention to products with visibility and customer acceptance. It only makes sense since their dealers do best when their customers recognize, want and ask for particular products--those that "fly off the shelf."

Trying to capture a distributor's attention by offering a few more points is useless if a product doesn't sell. Distributors don't have time to spend trying to talk someone into carrying another product.

On the other hand, demonstrating to distributors what you're doing to market your products to end users can make sense to a distributor. What's required is the investment in a unified, consistent marketing program to create and sustain demand.

2. Develop a marketing strategy with an end-user focus. When customers ask for specific products, dealers go to their distributors looking for them. It's the manufacturer's job to make this happen.

The pharmaceutical companies figured it out. They no longer expect physicians to be their marketers. From daily newspapers to magazines to radio and TV, ads for specific medications are everywhere. The goal is to influence physicians, of course. But the primary objective is to get millions of consumers to ask their doctors about one drug or another. Viagra is the number one example of the effectiveness of this strategy.

Sending out supplies of glitzy brochures and six-color catalog sheets to distributors isn't the answer, although this is what many manufacturers consider good marketing. Far too much money is wasted on totally useless brochures that are destined to gather dust on distributors' shelves! They're easy to produce and ship. Few, however, ever influence a sale!

The need is to get directly to end-users in as many ways as possible. It begins with identifying the ultimate customers and talking directly to them. This is more demanding, costly--and successful.

Marketing should drive business to the dealers. Pulling customers is always more successful than pushing product that ultimately sits on the shelf.

3. Listen carefully to what distributors and dealers are really thinking. Manufacturers (like distributors and everyone else) are captured by their own views, ideas, experiences and objectives.

What passes as "listening" is often little more than thinly veiled efforts to pacify distributors. In-depth distributor surveys conducted by a disinterested third party can uncover valuable information. The results of one survey, for example, startled a manufacturing company's sales staff. The sales force had long believed that personal relationships were the crucial factor in customer satisfaction. The survey revealed quite a different perspective. "Understanding my business" was the number issue for the company's customers.

But don't stop with distributors. Manufacturers should survey dealers as well. They know what's happening because they're the ones closest to the end-users.

The issue is not what manufacturers think their distributors are thinking. Far too many decisions are made on the basis of hearsay and anecdotal information. That's not good enough today.

4. Make your expectations clear as to exactly what you want from a distributor partner. Manufacturers and distributors get in trouble with each other when each feels it's a one-way street. They become adversaries, even though they both have the same goal--to maximize sales. It doesn't need to be this way. In the final analysis, it's in the best interests of manufacturers to make certain their products get the high visibility needed to impact end-users, influence dealers--and get the proper attention and face time from their distributors.

If a company is willing to take the responsibility for effectively marketing its product, distributors should be expected to maintain an acceptable inventory, be knowledgeable about specifications and applications, and take the steps necessary to focus proper attention on the product.

5. Remember that a distributor is also a "customer." Just calling a distributor a customer isn't good enough. Distributors aren't just inert pipelines, although this is the picture some manufacturers seem to have of them. They see distributors as some sort of necessary evil who add cost but little or no value to the sales process. It's another instance of our lack of appetite for the middleman.

Also, it seems easy for manufacturers to become cynical about distributors, feeling that too much time is spent trying to keep them happy. In a sense, the criticism may be quite accurate. "High maintenance" may well result from a lack of sufficient demand for the manufacturer's products. Hidden underneath a distributor's complaints may be a "we need help" message to make this product line work.

The distributors' goals are the same as those of manufacturers. They want to grow their companies and become more profitable. This is why the relationship must be that of a partnership. You may create a first-class product, but it is distributors who have the power to put it in many places at the same time.

The more you make sure you approach distributors as "customers," the more manufacturers will be able to focus on meeting their needs, helping them solve their problems, and serving as a resource for them and their customers.

The manufacturer-dealer opportunity

There are many manufacturers who will disagree with this approach to distributor relations. "It's too costly. Anyway, our distributors are getting good margins. They should be out there spending more time pushing our products."

It's time to put the "we-they" problems aside and develop a positive partnership relationship. It's all based on the unavoidable fact that in the final analysis, it's your product that's at issue.

The major task of distributors is to get product to dealers. But it's the manufacturer's job to make sure there is a steady flow of customers who want what they produce.

When there's a demand and a way to meet that demand, then the manufacturer, the distributor, the dealer and the customer all win.

John R. Graham is president of Graham Communications, a marketing and sales consulting firm in Quincy, Mass., 02170 (617-328-0069;j_graham@grahamcomm.com. The company's Web site is www.grahamcomm.com.

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