Despite any consumer pull that you may create for your product, you need the sales channels. And channel loyalty can only be secured by the maintenance of stable and if at all possible, predictable returns.
In the management of third party distribution, it is key to maintain the channel margins; both for your partner and but also for the wholesaler and retailer.
If you do not do this, the trade will do exactly that, they will trade your product and erode any price premium you have sought to create, they will increase the channel and partner inventory levels; which in turn will start the spiral of reducing margins and the more the erode, the deeper the problem becomes and it is a self perpetuating cycle.
Timing however is the most important.
When trying to secure your share of the market, perhaps it is best to shoot for maximum penetration. But once you reach a critical mass (which would vary depending on the competitiveness of the category), it becomes fairly easy to implement. But if you neglect it, you run the risk of starting the downward spiral in margin and instead of pro-actively setting the terms and conditions of sale, you end up becoming a reactive. Your actions will become post-event damage control, which in turn may further contribute to the erosion.
So what are some of the tools that can be used to shape 1st tier channel partner behavior?
When trying to secure your share of the market, perhaps it is best to shoot for maximum penetration. But once you reach a critical mass (which would vary depending on the competitiveness of the category), it becomes fairly easy to implement. But if you neglect it, you run the risk of starting the downward spiral in margin and instead of pro-actively setting the terms and conditions of sale, you end up becoming a reactive. Your actions will become post-event damage control, which in turn may further contribute to the erosion.
So what are some of the tools that can be used to shape 1st tier channel partner behavior?
- End point delivery - who provides last mile logistics?
- Package differentiation
- Defined and measurable KPI's in your partners incentives that are aligned to your short term business objectives
- Time based exclusivity - time to market advantage
- Preferential access to new product lines
- Access to constrained product
- Ensuring that trade price protection, actually makes it to the channel that has the stock
- ....there are obviously more, but ensure they align to your channel strategy and goals
Be careful to use ones that develop your business according to your agenda; as apposed to pandering to partners cries for more benefits that stays in their pockets.
Ultimately there needs to be stability, and the only way for you to maintain that is to involve yourself fully in the sales function. Not just to ensure sell through into the channel, but more importantly to ensure sell out into the hands of your consumer. A sell-in only focus begins the cycle of cannibalisation of margins.
Cross-Functional cohesion
Too often there is a disconnect in objectives within the same company. It is immensely important to run one cohesive cross-functional team that is focussed on the same end goal.
The cross-functional teams should act as one unit and not silos. The customer interface team should hold representatives from sales, marketing, retail and where appropriate sufficient consultation with your finance team and internal logistics.
If you operate via third party distributors, then your same team should must also include your distributors sales manager and they all need to call collectively on the retailers and 2nd tier wholesale.
If you place all the responsibility on the distributor to execute your idealistic strategy....... then accept the roulette wheel outcome. Strategies need to be driven by the principal; monitored and reviewed as often as possible without becoming bureaucratic in their process. (see previous article on Bureaucracy, itself a competitor to your success)
In less than a two year period, I have seen market share in a country for a particular brand rise from 58% to 92%. And this is the pure result of an effective and efficient cross-functional/collaborative team.
In less than a two year period, I have seen market share in a country for a particular brand rise from 58% to 92%. And this is the pure result of an effective and efficient cross-functional/collaborative team.
