The Manufacturer-Distributor Relationship: Can This Marriage Be Saved?
Every time I find myself talking to people about their distribution channel issues, it feels like I’m knee deep in marriage counseling. Once upon a time, both parties had looked forward to an exciting journey together in which they’d grow and be successful. But instead many growth-seeking business leaders say they feel trapped in punishing distribution partnerships. There’s no bigger downer in channel relationships than suffering through non-distinctive service levels, shrinking margin pools, escalating conflicts, and plummeting prices. After years of inattention, we end up with simmering discontent from misaligned goals, un-kept promises and in the worst cases, mistrust and extra-curricular affairs.
The result of all this strife is mutually unsatisfying manufacturer-distributor partnerships, which invariably leads one or more of the parties to ask the question, “Can this relationship be saved?”
Sure, relationship problems are easy fodder for lunchtime jokes and water cooler banter, but the manufacturer-distributor stakes can be high. Consider the channel dilemma faced by South Korea’s Samsung as they launch a new generation of Galaxy tablets and other smart devices in North America, where women buyers now account for the majority of purchases. A recent article at Retail Customer Experience.com, Fifty shades of frustration: Why do women hate Best Buy? exposed what has long been known about the state of consumer electronics shopping environments: Visually intimidating aisles, ridiculously unhelpful information displays, more employees trying to prevent theft than answer questions, little help getting bulky purchase to the car, and draconian return policies than make the whole process feel risky. Any guesses how this marriage is likely to impact the success of Samsung’s new products?
In over twenty-five years of counseling senior marketers on designing and managing their routes-to-market, I’ve learned a few things about how why these critical business relationships so often get to the edge of a cliff, and how to help redirect them back to being profitable and productive. More than anything else, a simple outward re-directing of attention to winning with customers - and away from finger-pointing, economic threats, marketplace punishments, or just avoidance - is the most powerful path to a healthy and productive partnership.
Herman Miller, the premier office furniture maker pushed out of its distribution comfort zone by uncovering frustrations that its end business customers had with the way their office solutions were delivered and installed by furniture dealers. Frustrations that other competing furniture makers had not yet addressed. By working closely with its channel partners, Herman Miller launched the revolutionary program named Last Mile, a proprietary new distribution service solutions that addressed those customer frustrations and spurred profitable growth for the company and its dealers. Twenty years ago Miller was at the top of its industry. It’s still there, in large part because it knew that status quo thinking wouldn’t be enough to maintain its position.
So the bottom line for most companies looking to improve under-performing distribution channels is this: Your distribution marriage can indeed be saved. But just like our personal relationships, positive change comes roaring out only when we’re willing to move beyond the familiar and comfortable.
A renewed ability to win together gets sparked when both sides of a distribution relationship accept that their most deeply held truths about the marketplace - and each other – are counter-productive, incomplete, or more than likely outdated. And in distribution relationship therapy it’s important to manage emotions by keeping the conversation focused and straight-forward: What buying experience outcomes are end customers seeking? What activities are needed to deliver improvements to these experiences? What channel model is best equipped to perform them?
Truth on the Wall
The best way to reinvent a distribution partnership is to follow a straightforward path, and thankfully, the basic steps are not mysterious. What it requires is fresh customer insights, objective analysis of current distribution experiences, enough hard facts to piece together a reliable view of opportunity risk and potential, and a dash of creativity. Most importantly, successful distribution partnering requires alignment and agreement at every juncture.
The first step in putting a channel system back on a healthy growth trajectory is realigning all the parties on an updated and revised truth, “on the wall” for everyone to see, about how distinctive value can be created for end customers. The most difficult challenge in building a customer-focused distribution system is keeping our own biases and implementation anxieties at bay. Early in the process, the intent is to be an exceptional listener, without screening what we hear through the lens of conventional wisdom about what can be done.
Then both parties get real with one another and make a brutally honest comparison of this truth about customer desires to what customers actually experience from the different channel options available in the market today.
Then these two assessments lead to the heart of the matter: How much separates the customer’s ideal distribution experience from the existing one? What distribution activities and competencies must be built, borrowed, or bought to come closer to what customers desire than our competitors do? And how much time, investment, and skill will it take each partner to arrive there together? These are the kinds of critical relationship questions that a distribution gap analysis seeks to answer.
As with any therapeutic relationship-building process, involvement by everyone involved is key and we want to be sure our distribution partners, or at least a representative sample of them, are actively engaged with us in developing a range of options for joining forces to improve the customer’s current experience reality.
In the end, the manufacturer-distributor strategy improvement work concludes not at some imaginary customer experience ideal, but at the design of an optimal distribution structure. Optimal defined as a channel system that is attainable, profitable, and closer to the customer’s desired experience than competitors. It also specifies who in the relationship is to perform each channel activity and how to equitably share compensation and rewards.
Improving Relationship Dynamics
But going after new distribution whitespace and improved customer experiences is only half of what’s required, and it’s the easier half. The hard part, just as in a faltering marriage, is getting our partner to work with us despite all the baggage of the past. And we should add, our own entrenched attitudes are part of that baggage. If we’re willing to own up, and open up to the possibility of something different – and better – we have a chance.
So, how do we go about improving our channel relationship dynamics and building more trust and commitment to actually acting on a new optimal distribution approach? The process, if it’s even a process, is necessarily less systematic than generating clever Powerpoint presentations or drafting detailed execution timelines. And that makes it a messier, squishier business. It’s more of an operating style, a mix of art and attitude, distilled from companies that have succeeded (and sadly, sometimes failed) at their efforts to coax system-enhancing actions from their partners.
Here then are six fundamental levers for stepping up to the relationship-building side of distribution channels. Think of these as the six vows of a successful manufacturer-distributor relationship:
1. We Collaborate with You (our channel partner) on Voice of the Customer research. There’s nothing that partners, domestic or commercial, hate more than surprise ultimatums. Any chance for cooperation vanishes. The companies that I’ve seen do it best invite their partners in right from the start.
2. We Listen to You. Then after listening, we go to great lengths to respond to the needs we hear and then incorporate your thoughts in closing marketplace gaps. Helping our partners solve their own challenges, some of which may not be obvious to us at first blush, is key to alignment, productive collaboration, and mutually profitable growth. And let’s admit it, our partners do have valuable facts to contribute, ideas that are sometimes better than ours, and legitimate points to make. It makes as much sense to honor our partners in business as it does in marriage.
3. We Share Costs and Rewards Equitably with you. It no doubt helps channel partners when a supplier pitches in with advice, marketing collateral, and web-based support. But it means even more when a supplier goes to the trouble of factoring in the partner’s likely ROI on any new distribution model or initiative. And it speaks volumes when the supplier puts its money where its mouth is through co-investments in the relationship. Leading chainsaw maker Stihl USA did that by financing 30% of the cost for each of its thousands of independent dealers to install new showrooms. Later as returns began rolling in, Stihl was fair in apportioning margins that fully recognized partners’ costs and contributions to end-customer value. Stihl’s exclusivity at dealerships grew, and market share for their premium-priced products climbed in the midst of an economic recession.
4. We Deliver on Our Commitments at the level of performance we agreed to with you. Establishing trust is essential to earning the right to expect partners to execute their part of the bargain with equal drive. Action and good-faith effort speak louder than words. They overcome deep-seated suspicions and anger. They create optimism; “our problems are surmountable if we make the leap together”. It’s the marriage theme all over again.
5. We Protect Your Investments from others intent on free-riding off your value-added services and customer experiences. This doesn’t mean all channel relationships have to be exclusive arrangements. We can still work with other partners. But it does imply that we won’t be opportunistic and cut our partners off at the knees. “We pledge not to allow discounters to lure away customers who have just helped themselves to your high-value services.”
6. We Build a Reputation that generates admiration, respect, commitment and trust – for us in your eyes and for you, our partner, in the eyes of your customers. There are essentially three kinds of glue that hold a marriage together: Morals – we don’t believe in divorce. Calculation – we can’t afford to split the family unit. And Affection – I love you and want to be near you. It’s amazing what possibilities begin to materialize when we look at our channel partners through the same sort of lens.
Ultimately our goal isn’t to save every distribution marriage at all costs. It’s to do what’s best for the kids, our shared end customers. More often than not, if we focus on the customer, our old channel relationship recriminations will start to fade away, and we’ll see movement towards a shared goal that’s larger than either of us. And if we’re empathetic, smart, diligent and inclusive about it, customers will open the door to increased value that we create together, and profitable growth will inevitably follow. n
Richard E. Wilson is managing director of the advisory firm Chicago Strategy Associates, and a former clinical professor of marketing at the Kellogg School of Management and Director of the school’s Center for Global Marketing Practice. firstname.lastname@example.org