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6 key questions to leverage your distributors

An efficient distribution network is a precondition for most high tech companies to reach their (potential) customer base. Having one in place, does not mean that your existing distribution network is optimal. Whether or not you are truly leveraging on your distributors, or if you could further improve the performance, starts with six key questions.

Channel strategies are an important part of any Go To Market (GTM) and crucial in finding the optimum cost point of bringing products to market and putting good distributors in place. A good distributor is one that pro-actively creates value for the targeted customers along the axis of solutions, information, value or access.

Access is mostly the reason why companies engage with distributors in the first place: they have a customer base that the principal is unable to reach without significant costs. Beside access, distributors do however also provide value, for example logistics services or offering solutions to customers by combining the products of one principal with that of another. In many high tech companies nevertheless, complaints do exist challenging the effectiveness of distributors. To address this though, principals need first to look at themselves.

Advantages of distribution channels

  • They have an established network of customers and can deal with a wider range of customers. 
  • They disperse the cost of selling and keeping inventory over multiple lines and consequently can operate on a lower cost than a supplier operating alone can.
  • They bridge the terms and conditions between the principles and customers – thus less capital requirement for the supplier.
  • They have special expertise like an existing niche customer base, technology knowledge, a geographical coverage or logistic, cultural or country specific expertise.
  • In many cases, they have multiple products from different suppliers, sometimes even competing, therefore more reason to talk to, or serve a customer.
However, not all is perfect when engaging with distributors and there could be conflicts of interest.

Disadvantages of distribution channels

  • Distributors can be both a channel and a competitor and as a principal, you have less control over, or insight in, what happens at the customer, since it is not in their best interest to give you this information. 
  • They are less committed than the principal is in selling a particular product. If the customer wants an alternative product that they have in their portfolio, they can and will switch and follow the road of least resistance of highest financial benefit.
  • Often the distributor expects that the principal will do much of the promotional work e.g. advertising, adding to the overall cost of selling your product.
  • They frequently have effectively fewer resources available than what they promote or promise the principal. You share them with the other principals.
  • They can have a product portfolio that is too broad, lowering the effectiveness of their front line people. E.g. some of the broad line distributors in the semiconductor market have 100,000 product in their portfolio. No sales manager or FAE can deal with that variety.

Leveraging more on your distributors

How distributors perform depends for a large part on how the principal manages them. Some of you may disagree with that, but ask yourself the following questions:

  1. Do you have a clear strategy and specific plan in place for each channel that is an integral part of your GTM strategy? If you have a broad product portfolio for example, the overall strategy may be clear, yet specific plans down to sub segments of your product portfolio for each channel could be missing.
  2. Did you select the right distributors? Not an easy question and depends on which type of customers you want them to address (see also the key account selection process), the type of products you sell, the value they add to your business, the competitive landscape, the expertise they bring to the table and most importantly your own organization.
  3. Are performance indicators, targets and expectations, clearly set, communicated and understood by everyone involved? This is one of the most common issues and whilst they might be ‘set’ and in one way or another ‘communicated’, they are often not clear enough, not clearly communicated or understood. In addition, it is quite often not clear what the consequences are, if any, if a target or KPI is not met.
  4. Do you manage and monitor your distributors? We are not referring here just to a quarterly, monthly, weekly or even daily review. Do you incorporate specific channel focused (e.g. marketing) activities, allocate resource and support appropriately according to the account classification and agreed targets and frequently review that?
  5. Are you creating true leverage by providing proper information, motivation and support? It is not uncommon that after some initial training, the distributor is left on his own. Like your own sales force, he needs a continuous stream of information to better sell your products. He needs support at the right time with the right resources to close deals and he needs sufficient incentives to run (for) your business.
  6. Do you further leverage by combining the efforts of your direct sales force and your distributors? In many companies, the direct sales force and the channel management team are managed independently resulting in internal competition. One solution is to integrate channel management with the direct sales force at the lowest level logically possible. 

Final words

In almost all high tech industries, distributors are a necessity to reach customers and to generate growth. In true cooperative relationships, they can bring a lot of value to you and you customers. Their performance depends on a lot of factors, some outside, but many directly under your control. Having a clear channel strategy as integral part of you overall GTM together with a plan and diligent execution throughout your organization.

(c) EnFeat 2011