One of the traditional ways that companies have used distributors is to find the best ones, educate and train them, and provide generous com-
missions and support. The distributors, in turn, went forth into their ter- ritories or assigned markets and represented their manufacturers to the next channel member and/or end market and sold. Only infrequently did a manufacturer bypass the distributor and directly communicate to the end user (other than through advertising), as this level of contact was the preserve of the distributor. This model was a relatively good one up until the mid-1990s, when the groundswell for database direct market- ing began. At the very same time that manufacturers wanted to receive more end-customer information to feed the database, the distributors became more protective of the data, fearing that the manufacturers would cut them out.
In part, this situation was caused by aggressive use of the Internet, allowing end users much better access to the manufacturers and, of course, vice versa. There’s even a formal term to denote the “cutting out” of dis- tributors—disintermediation! I first heard it applied to the travel indus- try, where airlines basically tried to cut out the travel agent by selling tickets directly on the Internet. Frankly, disintermediation worked for the airlines, causing concern among distributors that the same thing that hap- pened to travel agents could happen to them. Therefore, a new paranoia grew, in concert with the growth in manufacturers’ desire for information about the distributors’ customers. In some cases, the manufacturers began to communicate to end users and prospects without even letting the dis- tributors know. This did nothing but confirm their fears and their belief that they had to protect the customer information.
There was some real justification for a manufacturer’s wanting more information about what was happening, particularly with leads, in a dis- tributor’s territory. It’s sad but true that sometimes when distributors had been given leads, they either did not follow them up or sold competitive products. This happened at IBM when leads were passed to business partners who sold Sun, Compaq, and other competitive products. The change that began to brew in the mid-1990s has culminated today in the development of a new push/pull model by most companies with their distributors.
Here is the basic outline of the push/pull model that should be part of the new sales coverage model if it fits your company’s market situation:
• Manufacturers educate, train, and motivate the distributors just like before.
• Manufacturers then target end markets through the use of database techniques.
• Direct marketing programs are launched to these markets, inquiries are generated, and leads are qualified by the manufacturers.
• A decision is made regarding to which sales resource the leads will be passed, based on a preset series of business rules.
• The leads are passed to the selected distributor and are accepted by that firm.
• Follow-up is required within an agreed-to number of days.
• The distributor proceeds to call on the lead.
• Feedback is then sent to the manufacturer within the set number of days.
This procedure may seem a bit strict compared with the laissez-faire days of push marketing. However, what is really happening is that man- ufacturers are now realizing that they can no longer rely on the distribu- tors to achieve ever-increasing sales revenue by using the traditional push strategy and therefore must exert more marketing control.
Much of the traditional distributor model that is appropriate for the new sales coverage model relates to the nature of the relationship between manufacturers and distributors. Following are the most common types of distributor-manufacturer relationship. Remember that the original reason for distributors was to perform a “time” and “place” function. The func- tional responsibility that distributors now assume has expanded since those days to include total sales coverage, adding value, and servicing.
• The distributor sells only the products of the manufacturer and, in essence, is an extension of the company, even though they are sepa- rate corporate entities. The distributing company may even be a franchise of the manufacturer. Usually these distributors have “exclusive” or assigned territories that do not conflict with other distributors used by the manufacturer.
• The distributor is an exclusive representative of the manufacturer, as the distributor does not handle competitive products, but the distrib- utor sells other, noncompetitive products to the same or different cus- tomer group(s). These distributors may have “exclusive” territories but also may well be in competition with the company’s other distributors.
In metropolitan areas like Chicago it is not uncommon to have multiple distributors representing the manufacturer.
• The distributor handles the manufacturer’s product as well as products of direct competitors and also directly competes with other dis- tributors handling the same products.
Obviously, the closer the relationship, the better the push/pull programs will work and the more effective the database and direct marketing can be for both parties. That said, the fact remains that, no matter how close the relationship is today, distributors have a real fear that at some point in the future, the manufacturer will decide to “go direct.” Do not under- appreciate this fear.
Many changes are occurring in the manufacturer-distributor rela- tionship, and many new programs are being developed. Here are several examples:
• Agreements are being rewritten to include the distributor’s respon- sibility to share feedback with the manufacturer on leads and sales. This clause needs to be within the “primary area of responsibility” section of the agreement due to precedent-setting legal judgments. (I’ll not try to be a lawyer, so consult your counsel on distributor law.) This puts teeth in the requirement for distributors to provide the feedback so desperately sought. In return, manufacturers are agreeing to termination clauses and penalties that are more favorable to distributors. It’s a two-way street.
• Depending on the closeness of the relationship, sharing of pros- pect and customer information is more frequent than in past years. If the distributor is concerned that the information may be compromised or mis- used, then a third party, such as a computer or marketing service firm, may be called on to hold the data.
• Manufacturers are developing and testing direct marketing pro- grams that can either be executed for distributors or given to them as a
“turnkey” program. In these cases, distributors are sharing their pros- pect lists with the manufacturers.
Changing the “push” marketing strategy to “push/pull” is one of the most difficult goals any marketing person can attempt. Great resistance and sus- picion will be met today. However, depending on your distribution model, there may be no other choice to achieve your sales revenue objectives.