If a company decides to make a move in a new market, it typically does that through a distributor. He will lay the path, do the ground work and shape the market, at the right price. Here are a few considerations from my personal experience (Projects in Greece, Turkey, Serbia, Russia, Slovenia).
All too often a relationship between distributor and manufacturer turns sour and an environment is created whereby both parties try to gain a quick, effortless, short-term advantage.
- Invest lots of time in the development of the relationship. Understand their needs and challenges, they will repay it in kind. Put out dates and frequencies where you will be in contact and stick to it.
- Share your margin with them. You need to allow your distributor to make a decent margin. He needs it to develop your market. He will not want to lose you when times get tougher. And he will want to do something extra should it be needed.
- Develop them as if you would develop your own sales rep.
- Share success stories
- Think win-win. The manufacturer came to this market because there is growth potential. Share that growth and incentivize it.
- don’t treat them as a 3d party: this is not an agent working for his own good!
- don’t treat them as a customer: they are not. They cannot have the same demands as a real B-to-C customer.
- don’t just talk to the business head or owner. He is literally a professional to tell you what you want to hear. Get in contact with branch/marketing/sales managers.
- don’t overpromise and underdeliver. You’ll create a culture where that is allowed and where they will do that with you.
- don’t discuss pricing with end customers
- don’t pressure them on which customers and leads to go for
Think of this before the setup
- Determine if the distributorship is an intermediary step or a final setup. This will govern decisions around how much money to invest and how easy it should be made to change distributors.
- Simulate the costs you would incur when going direct. Not just the regular OPEX but also all the legal advice and setup costs. That will give the best indication on how much you want to drop your prices to the distributor vs the pricing you have to end customers. Simulate your distributor’s P&L and balance sheet.
- Run all checks possible before getting started. Work with the Chamber of Commerce or an organism from your country that specializes in that market. Buy credit reports on the company, seek where political and commercial ties lie. Does the distributor own subsidiaries? Is it a subsidiary itself?
- Keep in mind that if the distributor already exists and works for other manufacturers, taking your business on board might put a serious strain on the distributor’s resources and financial capability.
- Get to know the market. Read the Economist, follow blogs like http://blog.frontierstrategygroup.com/, contact a Chamber of Commerce or your country’s consulate.
Manage mutual expectations
It is important to determine the expectations both parties have.
Distributor’s needs would be, apart from low pricing and long payment terms of course,
- Demonstrations of the materials sold. Also free samples.
- Technical support if it concerns machines or bigger equipment
- Marketing support, including material and industry knowledge
- Manufacturer participating in national and regional meetings
- Respect, also in time management
What does the manufacturer expect from the distributor, apart from premium pricing and quick payments.
- Independence of the distributor, that way the manufacturer will save time.
- Hitting the targets and budgets
- Be as close as possible to the manufacturer in terms of style, communication, orientation, etc. Replicate the thinking and operations
- Accountability and Integrity. The manufacturer is letting go of a good portion of his profit because he does not want to deal with the crooks in the market place – he wants a mature, professional, Western-style partner
That is all for now, I will follow up soon with an article on how you change from an existing distributor to a new one. Not for the faint-hearted…