A large potential customer base. A distributor is unlikely to do as good a job selling a product with appeal to only a handful of customers as the producer will do.
Yet producers often allow custom-tailored products to become distributor items. The broader the customer base with standard requirements, the greater the need for a distributor network. A stockable item. Most customer-designed parts, chemicals, or machinery are easily eliminated as possibilities for distributors. The product should be easily stocked and serviced locally, as is a catalog item that is manufactured in large quantities and sold a few at a time.
Small-quantity sales. Items sold in bulk are usually not sold through distributors. The small quantity sales rule applies especially to heavy equipment items like construction machinery and trucks. The customer buys one or a few at a time and is concerned about the subsequent availability of service and parts. Replacement parts selling for a few dollars each can be sold by distributors.
Low-level customers. The lower in the organization the responsibility for buying an item, the more likely it will be sold through a distributor. The flat organizational structure of an owner-operated business has little or no buying specialization and therefore buys often from a distributor. Some products, such as certain aircraft control mechanisms, are bought directly from the producer by high-level managers in the buying company.
However, other products being sold to that same airplane builder, such as O-ring seals or fasteners, are standardized and can be sold through distributors to purchasing officials to whom off-the-shelf service is important. During the introductory stages of most industrial products, they are specified by and sold to design engineers. The selling effort often requires engineer-to-engineer type relations. As the product becomes more widely known, the purchasing department assumes the principal buying role.
Rapid delivery and service. If the product is needed immediately because of an equipment breakdown or an operating supply shortage, speedy replacement is essential.
Minutes can be a matter of life and death when a hospital operating room needs a small piece of surgical tubing or parts for a life-support machine.
In all these situations, the longer the downtime, the more costly the situation and the greater the need for prompt delivery and possibly for technical service by a local distributor. If a product fails to meet any of the previous five qualifiers, it probably will not succeed as a distributor item. Yet merely meeting them all does not guarantee success. There are many pitfalls to avoid in the selection of distributors.
Many industrial producers think primarily in terms of geographic coverage before considering distinct market or customer segments. Such thinking leads to limited sales. For example, parts of the marine- and forest-product industries are located in the Pacific Northwest. But customers in these two markets frequently buy the same product from different distributors in the same region. Among the needs is having products with U. Thus, the wood products customers residing in the same geographic area and buying some of the same products as marine customers use a distributor who serves only the forest products industry.
In many cases the customers and distributors in the two industries do not know of each other. Deere employs different distributors to serve the agriculture and construction equipment market segments. Caterpillar uses different distributors to serve the construction equipment, lift truck, and diesel truck engine markets in the same geographic territories. The wise producer thinks of different types of distributors to serve different or specialized market segments. If one manufacturer is already penetrating a market segment, the second or third entrant to that market segment should carefully consider the type of distributor the successful first entrant chose.
Finally, producers should be aware of total market potentials for each market segment and geographic territory. This information should help them develop annual distribution quotas around the local market size and growth rates.
Decisions about directing and adding distributors become easier. Many companies fail to recognize that selling requirements for a product change over its life cycle. To justify all the time spent educating prospects, the distributor will probably demand an exclusive territory.
As more applications for the product develop, the technical know-how becomes more widely available in handbooks and manuals until finally it is common knowledge. The journey for a given industrial product from innovation to obsolescence ranges from 10 to 50 years.
The trick now is to find a really good distributor. If handled wrong, even a really good product can end up in the pits. While it is good to have a distributor that is profit oriented, focusing only on profits will take your product nowhere. What you need is longevity and a brand recognition when you decide to branch out. At the same time, you need to make it worthwhile to the distributor to come forward and buy from you and build a relationship.
Only if you meet certain requirements from their side will it make sense for them to invest time and effort into selling and distributing your wares.
They are quick Unless you are making luxury products and want to maintain an air of exclusivity, you need to move product fast. The fastest way to go about this is to make use of distributors.
They know all the locations of stores, supermarkets and other such outlets and also know the fastest way to reach them. If you really are interested in moving quickly and efficiently, Distributors are literally the fastest way to do this. Wide customer base The whole point of a distributor is their wide customer base. They have built up a variety of markets and know exactly how to reach them.
The information that they have us highly valuable and not something that you would want to build by yourself. It is also just not worth the time and effort to start from scratch and attempt to establish this base by yourself. Let the distributors do all the heavy lifting. They need to understand how their new partners are different from the ones at home. An established corporation looking for new international markets makes a foray into an emerging market, carefully limiting its exposure by appointing an independent local distributor.
At first, sales take off, revenues grow pleasingly, and the entry is praised as a smart move. But after a while, stagnation sets in and sales plateau. They soon settle on what they perceive to be the main obstacle to sustained growth: the local distributor that got the company off to a flying start has run out of ideas and is now underperforming. This pattern is repeated again and again as multinationals expand into new markets in developing countries.
They rush in and make major changes, in some cases buying the local distributor or, more often, reacquiring the distribution rights and starting their own subsidiary.
A transition from indirect to direct sales is usually costly and disruptive. The frustrations are summed up by the CEO of a major U. But we still need local distributors for entry, and we are still searching for strategies to get us through the transitions without battles over control and performance.
I examined this pattern of imbalance and correction in a two-year field study of eight corporations in the consumer, industrial, and service sectors. These companies had entered almost new country-markets, and I looked at their international distribution strategies in these markets. I learned that a corporation could avoid this scenario by overseeing marketing strategy from the start. In the long run, multinationals come to see that it makes sense to continue working with independent local distributors who handle sales and a distribution system, even after the international companies have taken control of marketing strategy and major global accounts.
Most multinationals stumble onto a stepwise strategy for penetrating markets in emerging countries through a series of unplanned actions to reinvigorate sales. On the surface, the strategy makes a certain amount of sense. Multinationals start from scratch in sales and distribution when they enter new markets.
Since markets are nationally regulated and dominated by networks of local intermediaries, corporations need to partner with local distributors to benefit from their unique expertise and knowledge of their own markets.
The multinationals know that on their own, they cannot master local business practices, meet regulatory requirements, hire and manage local personnel, or gain introductions to potential customers. At the same time, the multinationals want to minimize risk.
They do this by hiring local distributors and investing very little in the undertaking. Thus, the companies cede control of strategic marketing decisions to the local partners, much more control than they would cede in home markets.
In the eyes of many corporations, the independent distributor is an endangered species. Virtually all executives of multinationals I interviewed bemoaned the lack of strategic marketing by distributor organizations, and many predicted that the gradual globalization of competition would lead to the disappearance of many such distributors.
The track record of distributors in new markets seems to support this bleak view: in the great majority of cases, multinationals bought or fired their distributors at some point during the partnerships or created their own direct-sales subsidiaries. A few distributors have managed to continue as representatives of multinationals over the long run in some cases, for more than ten years.
But the surviving distributors shared two other characteristics. But, at the very least, a distributor whose leaders participate actively in strategic marketing will be valuable to the multinational and will be able to command a high price if the corporation seeks to buy back its sales and distribution business.
More generally speaking, though, the future of independent distributors will be influenced by the growing regionalization of marketing management. Many companies are developing international marketing organizations structured around product groups or market sectors, and regional management of marketing strategy flows naturally out of that reorganization.
This happens for two reasons. First, networks of directly owned national distributors are inefficient; they duplicate managerial resources at the country level and lead to missed opportunities in areas such as information systems and promotional expenditures. Second, regionalization gives multinationals greater strategic control. For now, the effect that regionalization of marketing control has on national distributors is unclear. But it seems probable that some national distributors will become part of a mixed distribution system, in which the multinational corporation will manage major customers directly, while other, independent, distributors will focus on discrete segments of national markets or smaller accounts.
The emergence of global accounts, served directly by multinationals, highlights an economic truth of which many multinationals lose sight in their battles for control: independent local distributors often provide the best means of serving local small and medium accounts. Instead, they find fault with the ways local distributors run their businesses. In addition, corporations and local distributors sometimes negotiate contracts stipulating minimum levels of marketing investment by the distributors.
The mutual finger-pointing overlooks a point that seems obvious as the same themes repeatedly emerge: neither party—the multinational nor the distributor—invests sufficiently in strategic marketing or in aggressive business development in these less-developed markets. It may be smart for corporations to minimize risk when entering the markets, but a subsequent lack of investment and managerial attention can seriously hamper performance.
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