Relationship between Manufacturer and Distributors

Relationship between manufacturer and Distributors!

Sales executives need to maintain suitable working relationships with the distribution networks or rather the intermediaries in the distribution network since that will add to creating a favorable impression about the products and company in the minds of the final buyers.

There needs to be smooth flow of products through the distribution channels else the channels will be clogged and that will add on to unnecessary inventory buildup. It needs to be understood that the distributive networks are basically extensions of the manufacturer’s sales organizations and it is the distributive network outlets that are on the spot representatives of the manufacturer.

Suitable relationships with the distribution channels help to maximize selling efficiency, costs and profits as far as the sales executives are concerned.

Relationship between manufacturer and Distributors

Establishing Relationships:

To further the goal of a sales organization, the organization requires the cooperation of distributive outlets. In case of consumer goods, retailers need to stock adequate amounts of a particular brand prior to its launch through the national level campaigns. Support of the retailers is required as far as tie-in displays and local advertising is concerned; the initiative has to be taken by the manufacturer as far as establishing and maintaining cooperative programs are concerned.

There are many manufacturers who recognize their inevitable dependence on distribution networks but then the distribution networks often do not recognize their dependence on any one manufacturer.

There is another issue involved that relates to the size of manufacturing organizations where the infrastructure and the size of sales force is large and thus have the capacity to implement various cooperative programs.

There are some manufacturers who are found to achieve success without the cooperation of outlets handling their products. One example to be cited in this context is Dell and also other MLM companies who basically work with the business associates.

The sales force of the manufacturing organization are not just representatives of the products they are selling but are also the ones who are found to spread the working philosophy of the organization. The opinions of the distribution channel members regarding the products are found to be influenced by the conduct of the sales people.

They are to be skilled in interpersonal relationships. The sales people of the manufacturing organizations should not act undiplomatically since that can negatively alter the attitudes of the channel members regarding the products they are dealing with.

Since direct communications with the distributive outlets is maintained by the manufacturer sales force, they need to be suitably selected, trained and supervised so that consistency in communication quality is maintained.

It is absolutely bad for the reputation of the manufacturing organization when salespeople are unable to convince customers or project themselves in bad light. Forging durable relationships with distribution channel members is as important as securing orders for the company.

Objectives of Establishing Relationships:

At one level, the manufacturer and the distributive outlets share a common objective and that is to sell manufacturer products at a profit. To achieve the said objective, manufacturers are found to set certain extremely specific objectives.

Manufacturing organizations have been found to undertake certain cooperative programs to fulfill certain purposes viz. building distribution network loyalty, stimulating distributive outlets to greater selling effort, developing managerial efficiency in distribution organizations and identifying the sources of supply for a certain product line.

There are various methods used to achieve the objectives and the selection of the methods depend upon the specific problem of the manufacturers.

Regarding building distributive network loyalty it has to be understood that a lot depends upon the relationships forged between distributive networks and the sales force of the manufacturing organization. The better the relationships forged, there are greater chances of the manufacturer securing active promotions.

Merely stocking products by a channel member will not help a company as that is simply not snowball into enhanced opportunities for the company. Yes there are instances where through heavy pull advertising techniques, a company ensures that customers ask for the products themselves and the channel members hardly needs to pitch the product, but then in today’s competitive era, such instances are very few in numbers.

Forcing outlets to stock large volumes of products often ends up being a costly proposition for a company and hence it is solely cooperation that can ensure lesser costs for a company and higher returns. The worst scenario in the context of relationships with distributive channels is when they become hostile to stocking the products of a certain company.

Often such issues crop up when the sales force of the manufacturing organization have little personal contact with the outlets. Those companies that believe in the philosophy of only creating positive perceptions in the minds of the final buyers about the products and bypassing the channel as such are at fault of reducing their long term sustenance in the market.

Often there are irritancies where higher advertised products might be pushed to the outlet’s backyard and some other brand might be given a prominent shelf space in the outlet since that other brand has been successful in forging cooperative partnership with the channel member.

There are many other instances where a manufacturing organization can face resistance from a channel member in terms of selling the product to the final buyer and it such cases it is the sales executives who have to play a key role in resolving such conflicts. There are two important components to enhance distribution outlet loyalty.

The first is that there must be appraisals of the policies of the manufacturers and the manner they are implemented while secondly, there must be analysis of the communications system with the distributive network.

We study the components in further detail. As far as appraisal of the policies of the manufacturer and their implementation is concerned, the manufacturers require critical appraisals of the product and the services rendered in connection with the product. Further the manufacturer has to determine the degree to which a product matches the requirements of the distributive outlets in terms of merchandising.

There are instances where the manufactures need to render certain services like repairs and installation and in such cases the policies of the manufacturer need to be fairly understood by the distributive outlets. The interests of the distributive channel members to improve relationships with manufacturing organizations differ from product to product.

In the case of products that are distributed widely, distributors often see little reason to favor one supplier over the other since there are lots of suppliers targeting the same distributor for stocking the products and in such cases, conditions do not favor the forging of close relationships between manufacturers and distributive agencies.

Moreover in such cases as the products are supplied through multiple layers of distributive outlets, it might so happen that close relationships might be forged with the wholesaler but not with the retailer. In case of specialty goods, such close relationships are possible.

In such cases, programs for improving distributive network relations are highly useful and relevant. In case of industrial goods, manufacturers are often found to distribute their products directly to industrial users and those who utilize non direct marketing channels have greater opportunity to improve relationships with the distributive networks.

The manufacturing organization need to appraise the impact of its promotional policies on the distributive network since that will allow understanding how much coordination has been possible between the distributor and the sales force of the organization. The manufacturer should have sound policies in dealing with the dealers. Favoring one channel member over another is a strict ‘no no’ for manufacturing organizations.

As far as analysis of communication systems is concerned, it is often found that there is insufficient contact between distributive outlets and the manufacturer and this contributes to disloyalty. When any marketing channel includes several layers of distributive outlets personal selling plays an insignificant role in promotional program.

Despite a manufacturer’s marketing mix being great, its remoteness in terms of communication systems can create distance between the distributors and manufacturer. In certain cases, where a product has established demand, dealers might keep stocking the products but then they are definitely not found to be totally committed to the product.

Improvements in communication systems with the channel members can take many forms. There can be a scenario where the manufacturer makes drastic change in distribution policy that allows it to get closer with the retailers or it might opt to back the efforts of wholesalers with its force of missionary sales people.

Company sponsorships of national or regional seminars for distributive outlets also has been found to help matters. It is the ineffective handling of correspondences with the distribution channels that leads to strained relations with the distribution channels.

As far as stimulating distributive outlets to greater selling effort is concerned, dealer apathy is a common observation. There are many dealers who are least moved by the promotions or they fail to understand that why they should push a product more compared to other brands in that same category.

Coordination of promotional effort becomes a challenge in such cases. There is a two-step process to counter the problem. The first is to overcome dealer apathy and the second is to take positive action to increase dealer’s selling effort. There are ways and means of implementing the same.

1. Changing Policies:

Dealer apathy is often caused by improper sales policies. There are companies where the management may hold on to certain policies for sentimental reasons and it requires bringing polices in line with marketing conditions that can stimulate dealer efforts. Companies that use multiple marketing channels often encounter problems in obtaining support from distributive outlets in some channels.

There are companies who are supplying their wares directly to large retailers and at the same time to small retailers via the distributors and the sales force of the manufacturing organization needs to establish suitable rapport with both the forms of distribution.

Moreover, focusing on pricing policy is of utmost importance as because wholesalers and retailers expect that margins will be in line with the marketing tasks that they are expected to perform for the manufacturer.

Reformulation of other policies has often been found to motivate distributive outlets to greater selling effort. Wholesalers and retailers are often offered far more promotional programs than they can handle and they are generally found to accept such promotions with which they had good experience in the past.

2. Sharing Promotional Risks:

When manufacturing organizations share very little promotional risks with distributors, the distributive channel is no very enthusiastic but then when manufacturers perform a lot of selling tasks on behalf of the distributor and this brings revenues to the outlet and profits subsequently, it motivates them. But then the other distributors might view the same as unfair.

Manufacturers are often found to devise strategies for greater selling effort. One such strategy is where the manufacturer attempts to persuade dealers to invest time, effort and money in promotional programs and thus manufactures who would provide free point of purchase display materials to retailers charge for the materials.

3. Using Forcing Methods:

There is another option to motivate channel members and that is to compel them to extra push for a particular product. The technique is called ‘forcing method’ that has been found to overcome distributor indifference by providing additional incentives. The incentives are meant to appeal to the distributors, sales people or even the final buyers.

Dealers are offered special prices on orders that are larger than the average and these offers persuade dealers to increase the size of their inventory investments. This puts them under more pressure to promote the product. There are also other methods of accomplishing the result like packing premium coupons.

Manufacturers often combine dealer incentives with sales volume quotas set for individual dealers. This is done to see if the dealers can meet or exceed their sales quotas, they receive rewards for their performance.

There are incentives to trigger sales personnel of distributive outlets. Certain incentive schemes like trading stamps are used frequently. Manufacturing organizations are often found to conduct certain sales contests for dealers and their sales personnel. The points for the contests are awarded based on the number of units sold by the dealer.

There are also incentives meant for the final buyers. One method is to stimulate dealers indirectly by using forcing methods to promote purchases by final buyers. Methods like couponing, sampling, price offs are often used for the said purpose. However care should be taken not to implement the incentive schemes too often else the product will lose its capacity to sell on its merit.

Enhancing Managerial Efficiency at Distributive Outlets:

Dealer efficiency is actually going to benefit the manufacturers and hence it is required that manufacturers focus on building managerial efficiency within dealer outlets. Normally it is understood that the primary concern for the dealer should be to make sales and enhance profits but then it is often beyond the capacity of the dealers to witness profits in a business.

It is over here that manufacturers just do not find methods for the dealers to use but it also must be seen by the manufacturer that the dealers learn how to use the operating methods so that they can themselves command high profits for their businesses.

Managerial efficiency at dealer organizations can be enhanced by adopting various methods like dealer training programs, assistance in sales force management, advice and assistance on general management issues, shelf allocation programs and missionary sales people.

1. Dealer Training Programs:

Dealer training programs do not always serve as the right method to enhance managerial efficiency. It is often to do with the product that the manufacturer deals with. It is only in such cases where a product requires extensive personal selling that dealer training programs are required.

Such programs are also not useful in cases where the final buyers buy a product as habitual buying behavior or as impulse buying behavior. In case of premium priced products too, dealer training programs are quite useful in establishing symbiotic relationships with dealer organizations.

2. Assistance in Managing Sales Force:

To reach out to end users of a product, a manufacturing organization has often to depend heavily on the sales force of the distributor. In such cases, it becomes crucial that the sales force of the dealer is adequately equipped to sell the product. To ensure that proper recruitment and selection of sales personnel has to happen and methods to ensure that can be advised by the manufacturer’s sales force.

Also advice can be offered regarding proper sales compensation plans. In case of various industrial products, sales training assistance is provided to the dealer organizations. Training regarding improvement in selling technique is also offered to dealer sales force for improving the approaches to prospecting and also steps involved in the selling process.

It is however not a good practice to standardize dealer sales training programs since each dealer is unique in various ways. Decentralization/customization of training programs is found to be a good ploy to manage dealer sales force effectively.

3. Advice on General Management Issues:

By providing advice on general management problems, efficiency of distributive-outlets is often enhanced. Counseling services to dealers are often offered by manufacturing organizations regarding store locations, layout, display of fixtures etc. for better returns. In such cases, the manufacturer expects only to be paid for the actual service rendered in case the dealer is required to pay.

Advisory services are often offered as a part of a promotional program offered by the manufacturer. Proper and time to time evaluation of distributive outlets by the manufacturing organization helps to locate the inherent problems that might cause stagnating or declining sales and offers scope to fix them.

4. Shelf Allocation Programs:

This mainly applies to the retailing entities where items of manufacturers are sold through self-service retailing entities. A manufacturer is interested in securing reasonable amount of shelf space at the retail outlet to minimize stock outs and to attract impulse buyers.

There are retailers who often tend to offer more space to private labels or slow moving items and end up making losses due wrong shelf space management. Manufacturers can assist such retailers by offering unbiased consultancy services in the area of self-space allocation in cooperation with the store managers.

5. Missionary Sales People:

Manufacturers are often found to use missionary sales people to enhance efficiency of distributive outlets. In case of consumer goods, these type of salespeople are found to coordinate with the sales force of the distributive channel along with auditing the inventory levels of the distributive channel and making suggestions on improving the quality of the sales force at the distributive channel.

The missionary sales people are often found to work with the retailers and suggest them about methods to increase the flow of certain products. It is not just about consumer goods but also in case of industrial goods, the missionary sales people re found to perform similar functions.

These sales people often offer customized solutions to improve the manufacturer’s relations with the distributive network and they also perform the role of educating the channel members on certain issues related to their area of business. Missionary sales people are often used by manufacturers to plug in certain loop holes in the existing system of distribution.

Apart from the various strategies adopted by manufacturers to improve their system of distribution, they are also found to contribute to effective local advertising where the final buyers come to know about the availability of a certain product and the outlet(s) where it is available.

Such advertising contributes to the increase in footfalls at the distributive outlet and that also increases the number of queries made over phone or on the internet. Manufacturers also invest in designing suitable point of purchase (POP) materials for distributive outlets.

In many cases, it is at the retail store that customers often make the final decision and these POP materials serve to reinforce their belief in a product or informs the availability of a certain product and again this strategy is aimed at improving the performance of the distributive channel.