The working relationship between manufacturer and distributor is often defined by sales quotas. But using only quotas to manage this vital affiliation does not preserve the relationship’s primary, mutually beneficial purpose of sustaining growth in the market. When that purpose is unclear, and it becomes separated from the profit motive, bad things happen.
The original purpose of the manufacturer-distributor working relationship was to increase sales by expanding market coverage in local markets. For a while, increasing market coverage does grow sales and market share. As long as demand and market share continue to grow, the level of trust and commitment in the relationship remains acceptable as both parties benefit from a profitable competitive position.
But eventually, the number of competitors serving the market expands to meet demand, challenging the share advantage. Increased competition leads to extended periods of severe price and service warfare to gain share. Soon, margins are driven so low that the distributor can no longer invest in selling the product, and focus shifts to products that offer competitive advantages and a better ROI.
The manufacturer reacts to this lack of commitment by pursuing alternative distributors or other channels to market to make up the difference. Sometimes, they introduce a low cost version of the product, without sufficient differentiation, which complicates their relationship with the distributor and destroys their hard-won brand position. Before long, this situation has escalated to a point where the level of trust, commitment, and communication between the manufacturer and its distributors are virtually non-existent.
The realities of today’s market cause the traditional manufacturer-distributor model to quickly become ineffective. Their mutual customers still need solutions, but the fundamental purpose of their relationship must shift.
Today, information and capabilities — not just products — form the basis of competitive advantage.
Rather than driving for greater market coverage, the manufacturer-distributor relationship must expand collaboration. The partners can develop shared, mutually beneficial goals that are customer-centric and produce strategic value for their customers – goals that are explicit, measurable and realistic for the market conditions. They can collect, manage, and share information that can be used to identify and capitalize on opportunities well before competitors. They can elevate two-way communication, perhaps using a distributor advisory board that meets quarterly.
This will re-purpose the working relationship, providing direction and a means to adapt strategy that will ultimately lead to higher levels of trust and commitment, and a renewed competitive market position.
How do you sustain engagement with your distributors?
Would your relationship benefit from a strategic discussion as market partners?
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