Question

Topic: Strategy

Importer/wholesaler Going Direct?

Posted by adammjw on 5/24/2005 at 10:45 AM ET 500 Points
I wonder if your experience in a well-developed market can indicate any successful examples of importer/wholesaler going directly to industry customers?The trade my client is in is promotional products and business gifts on a relatively young market in a new U.E. country.So far the company as many others have been importing, stock-keeping and reselling products building up its sales to bigger accounts last years.The reason why they took those two ways was that the purchasing power and competence of distributors was far from satisfactory and trying to grow they opted to hit left and right.Now building up their stocks and confronted with local and international competitors they are a bit stuck in their way.The brand they use has not had enough exposure in the public, despite the fact that the sales is balanced: 50% reselling and 50% bigger industry accounts.So there are two questions? First can you go direct under the circumstances or maybe you can eat the cake and have it by reselling and going to the industry?
I will greatly appreciate your input.

Adam
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  • Posted by adammjw on 5/26/2005 at 12:37 PM Author
    Jo,

    Thanks for your valuable remarks.I do share same doubts as you do.Sticking to fair pricing policy would not be a problem here.Going direct only poses a problem since as I mentioned it could mean losing 50% of turnover with distributors.On the other hand,distributors bring another 50%, also work with other suppliers and have a lot of cash-flow problems.Still you cannot grow really big if you decide to do it all by yourself. As to specializing in one sector only I find it highly questionable as the market as a whole is worth US 280 million per year only.

    Regards

    Adam
  • Posted by adammjw on 5/29/2005 at 6:32 AM Author
    Conrad,

    Many thanks for your input.Of course what makes things even more complicated is the fact that European maket is quite different from that of North America.You can find here a couple of examples of companies in that industry( promotional products&business gifts) which try to do both.They either do it using their own daughter-distributor, which they have taken over or setting up a company which apparently should seem a totally different entity.In a word the market as it's called is more" flexible" though not that honest and fair.I personally do not fancy that way of doing business and that's not my recommendation to the client.Therefore in my opinion the client has following options:
    1.Go directly only so give up on the wholesale
    2.Build up a strong distribution system covering all distributors and give up going direct
    3.Keep up wholesale and go directly to bigger accounts only
    4.Keep up wholesale and go directly to small companies only

    re.1 They show one face only to the market, which is very good, though cannot grow really big with their own sales only, but can have all the leads as to their customers needs and requirements.

    re.2 They play fair and honest but still are exposed to direct competition from other Pan-European suppliers.Moreover have to live with their customers' cash-flow problems, which is quite a problem over here.

    re.3 It's possible though all major distributors are fighting for larger accounts, so inevitably it means lower margin.

    re.4 Also workable though it would mean more workload for the company, but graced with higher margin.The good point is that the company has been working on a sophistciated DIY design tool which will make possible good interacting with any customer and a sound CRM will shortly be in place.
    Are you with me, Conrad?

    Regards

    Adam
  • Posted by Mushfique Manzoor on 5/31/2005 at 9:13 AM Accepted
    hi adam

    interesting problem you are having. great answers so far you have received. here is my 2 cents..

    A. i think, make it a rule of thumb, that your price to bigger industry accounts will be not be less than what the distributor will give to that account had it got the opportunity. i mean your pricing when selling directly should not make the distributor a competitor.

    B. alternatively you can segment the industry account market and service it by both importer as well distributors. one sub-segment can be serviced by importer while the other can be serviced by distributors. this is like account portfolio management. rather than going directly to all consumers and risk losing 50% of total sales that comes from distributors, give them a share of that other 50% that you want to earn.

    C. you have mentioned that the distributors performance has not been upto expectations in the early days. how are they performing with increased European competition?

    D. if your distributors performances are not improving, then stealthly and gradually replace the non-performing ones with new ones.

    my comments on your 2 scenarios...

    1. if you go directly to consumers and give up distributors, then firstly ensure that you have enought set up to embark on a path like that. even if you have enough sales and distribution network to go directly to consumer without your distributors, then again, calculate whether the revenue income is satisfactory enough for such a setup. and you are right that you might not be able to grow big, and your competition will be fierce from your previous distributors. they have a range of brands to cater to consumer demands where as you have only your brand, that limits your playing capacity.

    2. if your distributors performances are now upto expectations then you can give up going direct to consumers. but like you mentioned, you will face stiff competition from other importers/manufacturers and this might come down to a price war. the distributors then will try to push the brand that gives them more margin/profit. in this case you might not be able to tighten your belt like a manufacturer can do due to you being a importer (who is basically making a profit when selling to you, while might not making that and giving that to distributors if its marketing on own).

    3. like i said earlier, if you go into a price competition with your own distributor to get a bigger accounts then you risk of alienating them and might loose them (ref Point #A).

    4. this is almost similar to what i mentioned in the begining (ref Point #B), you fragment the accounts segment, into bigger and smaller or even some more distinctive niche which will be serviced by you and your distributor separately. but to do this you need to have a quite a sizable sales and distribution force.

    hope this helps. do let us know with your thoughts on this.

    cheers!!
  • Posted by adammjw on 5/31/2005 at 11:44 AM Author
    Hi Mushfique,

    Lots of thanks to you! I'm really looking forward to the critique and recommendations.It is a great help to me!

    Let me say something general abt. the market.It is new and not fully developed despite the fact that you got plenty multinational industry customers and new E.U. arrivals-importers/ wholesalers.Their week point is that they do not stock products locally and cannot offer personalized products as yet.They only resell or can do ex Far East orders.The company is practically the only one though of course not the largest to stock goods locally and offer customized most of the stocked products to its clients.

    Now let me go one by one:

    A.Provided that the decision is taken to embrace both distributors and big account end-customers that's the prerequisite to be able to still operate on the distributors' market.However I personally do not strongly support that solution as still lots of price-fighting is going on on big accounts' desks and soon we will also feel the presence of larger international business gifts and ad specialties which service multinationals.Moreover perfect communications and trust between the company and its prime distributors is vital, which quite often is not the case.



    B.That's my preferred solution using the combination of distributorship and trying to concetrate on smaller accounts end-customers.Of course, going directly to all customers is hardly possible even on a market not so large as the U.S. one.

    C&D. The competition you see and feel mostly affect importers and wholesalers.Distributors try to gain as much as possible capitalizing on price-wars between importers.

    As to 2 scenarios:

    1. You are more than right saying that we are supposed to face stiff and very fierce competition from our distributors.What has to be mentioned here that the distributors apart from this brand, offer quite a lot of staff from other importers/ wholesalers.Altough the brand covers most promotional products and business gifts categories, honestly we have to admit that generally speaking these are open items- meaning that they are coming from the Far East therefore substituting them with other brands by distributors is a danger not to be minimized.

    2.You hit the nail as now the price war is going on between importers.Manufacturers hardly come to that market even in biggest countries.I cannot say that distributors fulfill perfectly.If it were the case, then the natural solution would be to offer the best possible to distributors and totally concentrate on this market.

    3. I personally hate from both practical and moral point of view.Then you can lose face and as a result -revenue.

    4.Yes, that's right.As I said before that one is my favorite due to a couple of reasons:

    - you do not have to face such fierce competition from your distributors with big accounts
    -sales is more balanced as compared to one-sided way( meaning dsitributors only or end-users only)
    -higher margin with sales to smaller end-customer

    As to sales force then I would opt for:
    -providing for top key-account service for distributors dealing with big accounts
    -end-user customer service call- center would be centralized and based on sophisticated website allowing each and every customer to create their products using the graphical interface and then order on-line.
    This seems to be quite workable as you follow the innovative and trendsetting companies such as branders.com and the like.In my opinion whatever would not work with really big accounts where you have to be personally and on-line service is not the their favorite choice so far can be a hell of an advantage for smaller accounts as they are located in small places with minimum options to buy premiums.

    What's your opinion?

    Regards

    Adam
  • Posted by adammjw on 6/1/2005 at 7:10 AM Author
    Dear Jo, Conrad and Musfique,

    I would like to thank you again for the feedback I got from all of you.It is great help to me!
    Now let me tell you what my thoughts and ideas are:

    1.My proposition will be to segmentalize the market in the following way:

    a/ company goes directly to smaller customers only, bigger accounts will be left untouched

    b/ a number of regional distributors with a power to service larger accounts would be selected to closely work with as company's' partners rather than distributors

    c/ for all major accounts the company works with ,a set of joint meetings with choice prime distributors will be organized in order to introduce them as their servicing partners in the future

    d/ the company's DIY GUI along with good analytics tools as soon as ready will be offered against an annual token fee of US 150 as possible and recommended integration into the partners' own Websites giving them cutting-edge technology to better service their clients.

    Looking forward to hearing your kindly comments,

    Best regards

    Adam
  • Posted by adammjw on 6/1/2005 at 8:51 AM Author
    Conrad,

    This is great piece of advice- especially that one with consulting new roll-out with distributors.I would love to but my prime fear is that if it's presented ahead of time then we run the risk of competition doing the same time and we lose the competetive edge as it's more than sure that the news would spread like wildfire.
    Let me explain you something more saying distributors I mean rather independent agents who buy left and right from any supplier who means something on the market.Nobody really uses distributors on this market.Everybody sells to hundreds of companies.Thus the share of importer's/ wholesaler's offer in agents' sales is from 10%- 15%.Same goes for Pan-Eoropean suppliers who first started with a couple of distributors and then went for the whole market of agents.So to be more precise this is not a distributor market.As a result suppliers offer no marketing support except for catalogs you can buy from their and discount systems getting flatter and flatter every day.
    So in plain words the intention would be to offer best marketing service to those selected agents-partners and attend to the small industry customers directly with the use of the platform and without the intervention of smaller agents.Thus we could stick to those who are competent enough and still control cash-flow a way better than when partnering with all agents in the industry.
    In my opinion the only workable way to cover the world of agents would be to make them partners sharing with them all the know-how, marketing tools etc.But then again we have to face their incompetence and live with their cash-flow problems.
    Do I make myself clear?

    Adam
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