Viewpoint by James D. Roumeliotis
If you are involved in B2B and are in manufacturing then your firm needs to carefully assess the most beneficial B2B distribution channel. It goes without saying that this should be done along with strong marketing support. A reasonable sales promotion budget should be put aside in order to foster brand awareness.
This also should include choosing among distributors, agents, retailers in addition to the firm’s own sales force (aka ‘direct model’ of distribution). The main advantage of a direct sales force is “control” and the ability to give direction to the sales team. The major disadvantage is overall cost.
Take the case of Novero. The following example highlights what can happen when the pieces of the puzzle do not gel coherently.
Novero, headquartered in Düsseldorf, Germany, is a manufacturer of premium and contemporary Bluetooth accessories. It was founded in 2008 via a management buyout from Nokia’s Mobile Enhancements division.
At the launch of their initial products, Novero had outsourced their sales team. This route delivered mixed results, directly proportional to the quality of the candidates hired by the outsourced sales and marketing services firm.
On the other side of the coin, Novero did not allow sufficient time (~ 4 months) to play out, or devote sufficient marketing resources, to making this approach work. On a short-term basis (>3 years) with uncompetitive products, high overhead, and lengthy sales cycle of outsourcing the sales team, the project was doomed from the start.
When Jarrod Stark, Director of Sales at Novero for North America, was asked which distribution channel to-date was the most effective, he replied:
“The distributor we signed up with, which specializes in consumer electronics and O.E.M partnerships, has been the most effective by far, and I would have gone with them from the start. The problem is that when we first started looking for distributors, Novero wasn’t willing to give them the necessary margin. It capped the ‘distributor margin’ at 12% globally, meaning that the higher percentages that certain distributors charge (off of wholesale) was a non-starter.”
He further added, “That distribution margin isn’t high because the distributors are being greedy, it’s the reality of a market where retailers demand significant MDF (market development funds) co-op programs and where sales commissions, warehousing, logistics, billing, and operational costs all need to be paid.“
Following lackluster sales, Novero relented and was finally able to put together a workable deal with its present distributor – at which point it shed its entire sales force.
However, it’s important to point-out that a manufacturer should avoid contracting with a distributor that uses more sub-distributors and layers in more costs. Since they carry so many brands and manage so many SKUs, products can get lost in the mix.
In 4 months time, Novero’s North American distributors were able to have their products in two big box stores in both the U.S. and Canada, as well as in about two dozen independents in both countries.
It’s not enough for any manufacturer such as Novero to simply focus on placing their products on the retail floor. An additional challenge is with ‘sell-through.’ Products can be placed on the shelf, but with inadequate marketing or advertising, and with products that haven’t generated ‘buzz’ on their own, overall product sales can remain below expectations.
The Novero’s Case teaches that if a manufacturer does not have a branded name in the market place then partnering with a well-known reseller and/or a major distributor is a viable option. This should allow a firm to gain entry in the market place quickly and presumably at an optimized cost.
“So, where does Novero go from here?” Jarrod Stark pointedly asked.
“Steady as she goes. We’re concentrating on promoting the products that have the most traction at retail, build out our retail network, leverage social media sites to generate buzz, develop stronger sales partnerships, increase our online presence, and work with our retailers and distributors to respond more effectively to their feedback.”
One must keep in mind that resellers are usually selling other vendors products – and perhaps competing products. That said, manufacturers should be quite selective on who they choose as a reseller/distributor. The selection criteria should be by geography, customer type, industry or value proposition.
Needless to say, choosing separate reselling partners avoids overlap coverage.
As for compensating the resellers and/or distributors, they require a list price discount or volume scaled prices for the products that need to be sold. This reduces the manufacturers’ margin in the short-term, if not for long-term gain. These include promotion, training, returns, tradeshows/events, resellers’ activities, and marketing collateral. They are merely a few areas that should be factored into the overall financials to determine the actual profitability.
Controlling the flow of products and services from producer to customer requires careful consideration because it can determine success or failure in the market place.
Distribution strategy is influenced by the market structure, the company’s objectives, its resources and its overall marketing strategy. To take this scenario lightly is to put the firm at risk no matter how seductive or unique the product offers are. Careful planning and thought should go into the details to achieve the objectives, which should be clearly articulated from the start.
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