Getting the Most out of Your Distribution Relationship
Have you ever been sitting in a quarterly business review with your distribution partner and thought, "What can I do to energize my partner to grow sales and market share?" Or, have you ever thought, "Why can't my distribution partner just grow sales or ship products faster so that we can beat our sales target?"
There are ways to leverage your distribution partnership in order to achieve your personal or corporate objectives with respect to distribution sales. There are several techniques you can learn and implement in order to achieve greater sales, faster sales growth, improved market share, or any other goal you might have of your distribution relationship.
The first principle that you must understand if you want to extract more out of your distribution relationship is the correlation between partnership relationship and partnership success.
Virtuous Distribution Cycle
When your distribution relationship grows, your distribution partnership becomes more successful. When your distribution partnership becomes more successful, your distribution relationship grows. This is the Virtuous Distribution Cycle. That cycle repeats, and repeats, and repeats. That relationship is like a marriage. It can evolve and grow. Or, it can wither and die. More attention helps it grow. Less attention speeds its demise. Few distribution relationships are static. They're either growing or decaying. Understand where each of your distribution relationships is in their life cycle. The health of the relationship is within your control. Improve the relationship, and hence its success. Ignore the relationship and watch success wither.
Distributors and suppliers usually do more for their partners when they feel an emotional relationship with their partner. Think in terms of how you can become the emotional favorite of your distribution partner. This applies to exclusive and non-exclusive relationships, equally. The objective in a distribution relationship is to become the emotional favorite business partner. You may promote this technique by doing whatever it takes to demonstrate that your distribution partner is your emotional favorite.
Why should a distributor or manufacturer work hard enough to have its distribution partner believe that it is its partner's emotional favorite? In any high-performing distribution relationship, both partners are each others' emotional favorites. Although taking action to improve the relationship with your distribution partner is hard work, that action yields great returns. Typical outcomes include improved sales performance, higher margins, and customers that are more satisfied and loyal.
How does a partner improve the distribution relationship? Improvement requires the application of three forms of input. A partner has the opportunity to apply time, miscellaneous resources, or money to the relationship. When a partner is relatively cash rich, it can choose to invest time, resources, or money. Financial pressures in lean times might prohibit application of money to the relationship and time might be the only available resource. A partner has the opportunity to adjust the relative share of time, miscellaneous resources and money applied to the relationship.
Customers are more likely to buy from a distributor if it believes that there is a solid relationship between supplier and distributor. Seasoned customers understand that when a problem arises (wrong parts shipped, late delivery, quality issues, etc.), resolution occurs fastest when there is a healthy relationship between the distribution partners. Conversely, customers learn from experience that when the relationship is poor or strained, problem resolution occurs more slowly.
In recent years, with constant pressure on margins and resulting thinner organizations, it's easy to fall into the trap of minimizing personal contact. A recent survey by the Industrial Performance Group concluded that one-half of all distributors and one-third of all manufacturers indicate that there is a low level of cooperation in the working relationships between distribution partners. Communications is the glue that holds the working relationship together. A distribution relationship thrives on personal intervention. You must converse frequently and clearly. Partners may improve the relationship by increasing the frequency of communications between partners. Executives of the distributor must communicate frequently and clearly with executives of the supplier. Line managers of the distributor must communicate frequently and clearly with line managers of the supplier. Although email and text messaging has increased as a share of overall communications in recent years, it's important to remember that face-to-face communications is the best and most effective method of developing or expanding personal relationships among distribution partners.
Not all messages need to be about monumental events. If your company has just done something to enhance the relationship, whatever that might be, pick up the phone and tell your partner. While on the call, ask the question: "What else may I do for you?" People easily forget one phone call. A series of calls fall into a routine. That routine can differentiate you from other business partners, and reinforce the notion that your distribution partner is your emotional favorite; and that you are your distribution partner's emotional favorite. Business runs on emotion. Take advantage of it. Leverage the emotional relationship in order to get more out of your distribution relationship.
Here is something worth remembering.
People do business with people they like and trust.
Become the people with whom your distribution partner likes and trusts to do business. Since it's about an order of magnitude more difficult to get business from a new distributor or customer than it is to get the same amount of business from an existing distributor or customer, building your likeability and trustworthiness with your distribution partner is well worth the effort. That effort pays big dividends.
Five-Point Management Meeting
Distributors and suppliers meet frequently. Those forums might be monthly, quarterly or annual business reviews. All distribution partners have preferred formats for the material exchanged in those reviews. Several years ago, I prepared to meet with the CEO of a large distributor. Once I completed the material that I planned to share with that CEO, I called his vice president of marketing and asked that he review my presentation, critique it, and offer amendments so that I might guarantee a successful meeting. After presenting the material to the vice president, he suggested that I discard the entire presentation and replace it with a simple five-point format. Although his suggestion shocked me, I had great respect for him and proceeded to create a completely new set of presentation material. I now take this opportunity to share those five points with you.
- Let me explain what we've done for you since our last meeting.
- What priorities would you like us to engage in during the months ahead?
- Your sales of our products are very important to us and here's why.
- Here is what we would like to see from you in the months ahead.
- Let me explain what we plan to do for you in the months ahead.
The five-point program is simple and easily understood. It reinforces the people-to-people nature of the distribution relationship, as opposed to a less personal company-to-company relationship. Feel free to add numbers, charts and graphs to support each of these five points. Don't lose sight, however, that the five points drive your presentation. Data merely supports your five points. During and after my first use of this plan, I determined that the process works much better than a program in which both distribution partners pass stacks of data back and forth across a table. Routine use of the five-point plan differentiates one partner from all of the rest. More importantly, the more personalized program allows partners to reinforce their likeability and trustworthiness.
Is a Distribution Agreement Necessary?
Young (and sometimes older), companies frequently ask: Do we really need a distribution agreement with my distribution partner? My answer is simple. A contract is not terribly important when you begin the distribution relationship. It becomes critically important when the relationship decays and dies, since it explains the rules for both parties upon termination. The distribution agreement grows in importance over time. If you can't accurately predict when your distribution relationship will die, I recommend that you always have a signed distribution agreement.
Four Eyes v. Two Eyes
Most distribution agreements benefit from review by people experienced with creating and negotiating contracts. Sometimes attorneys review the contracts. Sometimes sales managers with contract experience review the contracts. The best results come when a both legal professional and a seasoned sales manager review the distribution agreement simultaneously.
When a legal professional (and not a seasoned sales manager), reviews a contract, the resulting document can be legally acceptable, but commercially ineffective. When a seasoned sales manager (and not an attorney), reviews a contract, the resulting agreement can be commercially effective, but legally unacceptable. When only two eyes review a sales channel agreement, problems can arise. When, however, four eyes review an agreement, two from an attorney and two from a seasoned sales manager, the probability of a legal skirmish upon termination diminishes greatly. Four eyes are better than two eyes.
In order to get more out of your distribution relationship, remember these five steps: Place increasing amounts of energy into the relationship. Become the emotional favorite of your distribution partner. Ensure that your distribution partner likes and trusts the people in your organization. Ensure that your distribution partner believes it is your emotional favorite partner. Use the five-point management meeting outline at every opportunity.
Glen Balzer is a management and forensic consultant involved with domestic and international marketing and sales. He advises parties involved in relationships and contracts between manufacturers' representatives, suppliers, global customers and industrial distributors. He promotes conflict resolution between parties involved in distribution and representative agreements. He has considerable experience integrating and rationalizing companies upon merger and acquisition. For more than 30 years, he has served in executive roles with both suppliers and distributors throughout America, Europe and Asia.
© 2013 Glen Balzer.