B2B International
 

December 2, 2014

Are your channels to market set in stone? In reality, they need to be revisited periodically to make sure that you’re responding to changes in market conditions. Just one in four business-to-business companies has a channel strategy in place.

Channel Strategy: Developing a strong route to market

Developing a strong route to market

Traditionally business-to-business companies have sold direct to customers using their own sales force or distributors. They have their advantages and disadvantages.

Direct selling gives a company much greater control over its marketing. It provides direct access to the decision makers and specifiers at its customers, it allows prices to be negotiated directly and it yields the entire margin to the seller.

On the other hand distributors earn their money by winning sales, absolving the manufacturer from the burdens of credit control and providing a wide geographical spread of stocking points. Distributors are highly suited to markets where there are many small customers and where the level of required sales service is high. They provide an efficient means of selling car parts to garages, tools to industry or components to electronic companies. They may not be appropriate for selling complex industrial plants, aircraft or castings.

Today it is easy for companies to sell products online and yet it is surprising how few business-to-business companies trade and take payment on their websites. They worry that doing so will alienate their merchants. They may also worry that sales from websites are too transparent in exposing their prices to all and sundry. Historically, manufacturers have managed to make money with opaque pricing policies that are not visible to everyone in the market place.

Dow Corning, a manufacturer of silicones, based in Midland, Michigan, provides an interesting case study of a company that successfully adjusted its channel strategy to changing market conditions. For many years, Dow Corning, like many business-to-business companies, sold its products direct (and also through distribution) and suffered considerable pressure from American, German and Japanese competitors. It found it hard to discipline its sales and technical teams to limit service levels to small buyers or those that bought mainly on price.

In 2002 Dow Corning took the bold step of setting up an online channel from which customers could order and pay for their products. They branded this website Xiameter to make sure it was clear to customers that purchasing through this route meant different terms and conditions than would be enjoyed through the traditional Dow Corning sales teams. The self-service, low cost, online option has been hugely successful and today 30% of sales originate online, nearly three times the industry average.

The Dow Corning example illustrates the importance of recognizing changing market needs and the courage to have bold strategies that will meet them. We can expect distributors and direct sales forces to manage the bulk of sales of business-to-business companies for some years to come. There is no single recipe for the successful appointment and management of distributors, but here are some ingredients that are worth considering.

  • Seek specialists. Distributors specializing in a narrow field are likely to have the best understanding of the needs of their customers and know where the potential lies.

  • Regard distributors as an extension of your own company. Regular conferences and visits to distributors bind them together and sort out problems.

  • Provide training. Distributors’ staff should be trained in both sales and technical service.

  • Set codes for merchandising. This is extremely important in franchised operations where the many privately run merchants can present themselves as a single company to the market place.

  • Provide marketing assistance. Tool kits should be provided that will help distributors place entries in directories, show where to look for prospects, organize direct mail campaigns and place ads in journals.

  • Offer good margins. Distributors need margins to survive. Their margin should be sufficient to cover all their marketing, servicing and stocking costs and provide a healthy profit incentive.

  • Keep the distributor interested. Distributors are under constant pressure to take on a new range or a new supplier. Distributor incentives and prizes, newsletters and constant support in the form of visits are important in keeping distributors interested and stop them being tempted away.

To learn more about this topic, please visit the following publications:

The Changing World Of Industrial DistributionThe When & How Of Using Distributors