There are many factors that impact the profit making potential of the distributor-manufacture relationship. We will present you the quid pro quos distributors and manufacturers aim to as they go toward mutual growth objectives.
The following are the major expectations that manufacturers have of distributors. Just keep them in mind, when checking how much you are committed to a principal.
Commitment to invest the necessary time, effort and expense to support the manufacture at least to the level of income expected from that manufacturer. This commitment includes the mutual development and pursuit of objectives for penetrating the territory.
At times, we’ve listened to distributors criticize the whole concept of objective settings as a burocratic time dissipator. Yet, considered objective setting entails a disciplined approach to market opportunities that many times become a positive, self-fulfilling prophecy. If objectives are established, plans and programs must be agreed upon to achieve these objectives. Add appropriate follow-up to monitor progress toward objectives and performance invariably is better than if no objectives had been set and business growth were simply left to chance.
We define a successful relationship as one that achieves expected results for both parties. At Victar, we expect distributors produce a rational market share within a reasonable period of time, because “rational” and “reasonable” is function of many variables. We usually aim at six months to penetrate a market. It is therefore important to agree upon these objectives and constantly assess progress toward them.
If the distributor does not achieve expected market share within a reasonable period of time, both parties reexamine the relationship to determine the cause for the shortfall. Perhaps it was simply a function of inflated objectives that had little chance of being attained. If so, objectives should be revised and share performance reassessed after an appropriate period of time.
On the other hand, non-attainment of expected share may be the result of a poor match between a distributor and a manufacturer or poor support by one of the partners. If one of these factors is defined as the cause, the partners should carefully reexamine the relationship and reach an agreement to either resolve the problem or terminate the relationship.
- MAINTAINING A GROWTH STRATEGY
The executives of companies are invariably charged with the responsibility to grow that company. At Victar success with distributors means that the distributor must be also growth oriented. This means common objectives, an essential requirement of long-term success.
Whereas the corporate executives typically cannot choose between growth and no growth strategy, the owners of independent representative firms have such a choice, as they are usually the sole owners of the business. As a result, we sometimes hear from distributors that they have no intention of adding personnel. This is their right as independents, but it may also be a very clear statement to the manufacturer that the relationship is no longer functional.
A single-person firm has a limited number of hours available to sell for the manufacturers represented. If the market opportunity in the area permits growth and the individual representative does not expand, the manufacturer may suffer loss of market share. On the other hand, there are many single distributors who represent manufacturers in very narrow niches or who focus on limited, high-potential customers. These distributors in high demand because of their excellent customer contacts.
At times, we see a distributor’s staff declining from multi-person to single-person levels based on the owner’s decision, either consciously or subliminally, to enter a life-style mode of repping rather than continue with the pressures of a growth mode. As mentioned above, this is certainly the distributor’s right. That is not disputed. However, by doing so, the distributors objectives have changed and are no longer compatible with the manufacture’s needs, namely an adequate head-count to provide intensive coverage of the trading area.
The senior executive of the manufacturer then has to recognize his responsibility to company stake-holders and employee security is much greater than any loyalty to yesteryear’s performance by a well-liked representative. There is only one clear ethical direction for the executive if the distributor refuses staff to grow – termination of the rep, or at least a contract modification that permits another representative to take advantage of the growth opportunity.
- NO COMPETING LINES
While we have occasionally seen a representative who handled directly competing lines without the manufacturers being aware of it, this is a major exception. We find the great majority of distributors being highly professional and operating not only legally, but also ethically. Yet, there is always the danger that lines may be functionally competitive. We believe it is the representative responsibility to discuss any functional competitiveness between lines represented between two principals and try to reach a win-win-win relationship.This ethic also introduces the need for each distributor to promptly alert a manufacturer any time his other principals introduces a new product that is even partially competitive with an existing line.
Distributors should be selected for their intimate contacts with specific markets and customers targeted by the manufacturer in the distributor’s trading area. If a manufacturer’s products or services do not precisely fit customer needs, the representative has a responsibility to advise the manufacturer. This feedback responsibility should also include feedback on competitive activity, changes in customer organizations that should be of interest to the manufacturer and all other data that would be prudent for a manufacturer to understand in order to better plan the future.
The most common problem is poor communication. Closer examination reveals it is more of a shortfall in form than substance. By this, we mean that representatives generally are good at providing feedback verbally, but are much less so when it comes to reducing it to writing. Our advice is to negotiate how feedback is to be conducted with each principal in order that expectations are rational and achievable by both.
- PROMPT ANNOUNCEMENT OF CHANGES IN PRINCIPALS AND KEY EMPLOYEES
The two characteristics of a representative that perhaps best define the compatibility of a rep with a manufacturer are the quality of principals represented and the capability of their sales personnel. If the representative has a change in either key sales personnel or principals represented, the rep should routinely advise the manufacturers they represent of these changes. It is similar to a manufacturer’s responsibility to advise the representative of changes in the manufacturer’s staffing, products and market priorities. The responsibility of advising them of changes is not an attempt by manufacturers to manage a rep’s business. It is simply the type of open communication that is so vital to outstanding long-term success.
- INVESTMENT IN PRODUCT TRAINING
This responsibility is very well shouldered by distributors as long as they have a commitment to that manufacturer. Distributors want product training in order to improve their chances of closing a sale and therefore get a better return for their invested dollar. If one has a distributor who constantly puts off attending obviously needed training, we would suspect that the distributor is not committed to the manufacturer.
- APPROPRIATE PROMOTION
In this day and age, many distributors become marketers as well as salespersons. Part of their marketing work is to develop promotions for the products they represent. A major question becomes: “What is appropriate?” At Victar, we are less concerned about the ‘how” of promotion than the results achieved by our distributors. Each successful distributor achieves their success in a way compatible with the leanings of the distributor personnel in that organization. At the same time, we suggest that distributors should recognize the need to promote each principal’s offerings and to use each manufacturer’s promotional capabilities as they best fit that distributor firm is all about.
- ASSISTANCE IN COLLECTION PROBLEMS
Holdups in payment of invoices are frequently the result of some minor stumbling blocks. The distributor is typically in a better position to define that stumbling block and the steps needed to resolve it that an accounts receivable clerk in the manufacturer’s headquarters. We therefore feel that representatives should provide assistance in collection problems with parameters agreed upon with the manufacturer they represent. They should not, however, be held responsible for each credit checks nor should they be penalized for uncollected invoices beyond the loss of commission on the uncollected amount.
- PROPOSAL PREPARATION AND ORDER WRITE-UPS
With today’s computer capability and software programs, some distributors prefer to develop proposals themselves, as this puts them almost completely in control of the proposal process. We suggest more and more distributors jump on this bandwagon and request such software programs from the manufacturers they represent, when field proposal creation is appropriate. The manufacturer, however, will always control price levels, terms of sale and delivery commitment.
There are really no complex or magical aspects of outstanding distributor-manufacturer relationships. Exercising some good common sense, respect for your partner and a commitment to a win-win relationship will do it. This is even true at that point in time when the objectives of one or both parties change to the extent that the relationship should be terminated, both parties should leave the relationship with nothing but fond memories of great fun.