Question

Topic: Strategy

Competeing Against Your Channel

Posted by Anonymous on 7/22/2005 at 9:32 AM ET 500 Points
We are a B2B manufacturing company in a market where the customers are nearly all large companies who rely on just a few large distributors for all purchasing services (ordering, invoicing, stocking, delivery). These customers effectively require supply to go through the distributors, so the distributors have a chokehold on the channel. They also have private label or self-manufactured products that compete against the products of their branded suppliers. Sales reps for the distributors are paid 3-5X for sales of the PL or self products as for those of branded suppliers. Net: customer companies require that we use the distributors, but they are selling against us.

Has anyone else had success in such an environment, or have any suggestions? Do any distributors have suggestions as to how a manufacturer can succeed in such an environment?
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RESPONSES

  • Posted by rustyk on 7/22/2005 at 9:41 AM Member
    It can be a beast to tame but I have had nominal success in the technology industry. What industry is this?

    Rusty Korhonen
    email address DELETED by staff
  • Posted by rustyk on 7/22/2005 at 10:22 AM Member
    I've seen companies overcome these constraints with a heavy direct sales initiative but that depends on how the customers react and it can be expensive.
  • Posted by adammjw on 7/22/2005 at 10:40 AM Accepted
    Peter,

    My first question is do all of the distributors have adopted the same policy?Is it say " public knowledge" that the sales reps are paid on the formula you cited?
    Then do all your products irrespective of its low-end or high-end nature go via the same distributorships?
    I would seriously consider starting with a new niche branded products and trying to go direct to consumers.
    In a word having a shot at your first direct contact with consumers with no distributors in between.Try to find out how strong your brand really is and what options you can have.I strongly believe that you have to try to reach a balance somehow.That would be your first step.
    The disadvantage is that most probably you counted too heavily on distributors so far and might not have really good knowledge about consumers' expectations.
    You have your back to the wall and should start to sell your brand on your own.
    By the way have you talked tou distributors about the problem or just both parties do not say anything about it.They can as they push their own stuff, but you cannot go on like that.

    Regards

    Adam
  • Posted by adammjw on 7/22/2005 at 10:52 AM Member
    Peter,

    How do you know that customers insist on distributors carrying your products? How did you find it out?You never tried selling otherwise and customers never bought via different channel!
    They could find it more delighful buying directly with you.

    Adam
  • Posted by mgoodman on 7/22/2005 at 10:43 PM Member
    I'm sure you understand that yours isn't a unique situation. I've had to deal with distribution issues like this for a number of clients, and there don't seem to be any great solutions.

    D4Demand's suggestions are pretty good. We've solved the problem a few times by recommending that our client buy a stake in a large distributor. In one case they listened and did it. It seems to have worked pretty well for them. Not sure if that makes it a great solution, but in that specific case it looks like it's working out.

    In the other cases, that sounded like too ambitious a project for the client, so they are still struggling. That doesn't mean that our recommendation would have worked, but it seemed to us that they couldn't do much worse than keeping the status quo.

    Your decision will have to be based on the specifics of your situation, industry, target market, etc., AND on your management's state of mind. If they really believe the current situation is untenable, they'll be more willing to take some risk to change things. If they are comfortable and risk averse, they'll probably reject anything that sounds like a bold move.

    Hope this helps.
  • Posted by Mushfique Manzoor on 7/23/2005 at 8:38 AM Accepted
    hi Peter

    great response from experts.

    my 2 cents and some queires are...

    1. you have not mentioned the price of your brand vs. the Private Labels. how are the PLs priced against your brand?? and also how about distributor's profits, is he making more profit by selling his PL than your brand??

    if your brand price is too high against the distributor PL, then you can develop a Value-for-Money brand (to compete against the PL head-on). try to rationalize the commission/profit of distributors for your brands.

    referring to buying stakes in distributors, as mentieond by experts; IMHO, it depends on the total no of distributors and the clout of the distributor has on the market. if you have only one or a few large distributors in the entire market, then it makes sense. other wise it will have very little impact.

    2. talk to your distributor whether he is willing to do a contract manufacturing of your brand, rather than your self developing a PL yourself. this will enable him to earn more (manufacturing charge from you, and selling commission, combined, is more than the only commission you are giving him currently).

    3. or alternatively if the distributors margin is lower,then you can increase the margin to induce him to sell your brand.

    4. another way is to develop a your own Distrbutor-Location-Sales Team. Your DLST will go and talk to customers, make sales call and sell the brand to them. then DLST team will come to the distributors premises, place the order and the distributor will supply your brand to the customer. the distributor is earning his commission anyhow. What you also do is develop a DLST incentive program competitive to distributor's one.

    5. you can create 2 types of alliances. one alliance can be of all the brand manufacturers. under this alliance, you cooperate with each other in selling your brands to the customers and ensure this is distributed from the distributors. for this mechanism to work you need to collaborte in sales and distribution monitoring. this method also benefits you all in manipulating the prices to curb the distributors PL. this alliance is difficult to acheive as multiple brands will overlap for each category/segment.

    the downside is the distributors might create an alliance of thier own and all together rejecting your all brands.

    6. alternatively, you can create the alliance with your distributors. the new portfolio will consist of your brand as well as distributors but not overlapping. the segment serviced by your brand will not be served by the PL, rather a different segment. As a result of this you can concentrate on making high-end brands and sell/give the distributor your low-end brands to distribute or thier PLs (refer to Point#2).

    i hope this gives you alternative scenarios to contemplate. btw, the following is the link to a similar question asked before.

    https://www.marketingprofs.com/ea/qst_question.asp?qstid=7439

    hope this helps. do let us know what you think.

    cheers!!
  • Posted by vinay.rwt on 7/25/2005 at 5:29 AM Member
    Hi i understand your question very well as I hav also been in the B2B industry.
    For any Business to flourish the key factors lie in the channelising of resources and services within the MAnufacturer,Distributor,Dealer.. So its very important to choose the right people at the right time.I would suggest you can choose distributors on the following points- credibility,market capture,pricing.the intermediateries-dealers&distributors help in effecive sales so cant be ignored.So its better to PLAY SAFE than NO PLAY..
  • Posted by ReadCopy on 7/25/2005 at 5:37 AM Member
    Thought of setting yourself up as a distributer yourself ? buying an exisiting one or simply becoming one.

    I have seen similar models to yours operate in the UK, the rewards for selling PL wasn't as great as yours though. Manufacturers just did/do their best to promote their brand/products and helped the channel to sell their product better.

    I presume you have channel managers who hep your distributers sell ? Do you have channel award systems to reward channels that sell the best (sell more and provide great customer service) ?

    No quick solution I guess to this one!
  • Posted by ReadCopy on 7/26/2005 at 4:46 AM Member
    The rebates idea and channel management options are hugely successful in most of the channels I have come across in the UK, one of the largest and best run being that of Cisco.

    They DO NOT sell direct, but instead offer key account managers who work within the channels to pass on prospects and work with the channels to promote to the end user, I guess the advantage is that they may actually be pitching twice to one end customers rather than the once they would do with the traditional direct selling!
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