The value of distribution as a marketing method has been established for many years. The underlying benefits of distribution for you as manufacturers are enormous. Many of these, because of the continually changing market conditions we faced in the 1990's, are becoming the basis for long lasting marketing partnerships between manufacturers and distributors. As our technology gets more complex, manufacturers are concentrating their sales and support on fewer accounts. The distributor takes on a larger share of the responsibility to support the balance of this growing customer base, as they offer customers more value added services. This document examines those benefits as well as some of the 'fads' and 'myths' about distribution. It is our sincere hope that it will help you judge the effectiveness of distribution for your manufacturing operation, and serve as a reminder to you of the value of distribution as THE most effective marketing method of the 21st century. Major benefits of channel marketing via distributors include:
COMMON MYTHS ABOUT DISTRIBUTION MYTH: Distribution is just a way to go to market offering no competitive advantage for manufacturers. FACT: On
the contrary, marketing through an educated and trained distribution
network is one of the surest ways to gain a competitive advantage.
With the number of vendor reduction programmes growing across Europe
distribution is becoming a growing primary channel of purchase for more
and more customers. The distributors' ability to offer a more
complete package of services is not only an inventory support, but also
an administrative, technical and logistic support. This ability,
together with the quick delivery of components to the myriad of
customers that manufacturers cannot afford to support, makes
distribution a marketing channel of primary consideration. MYTH: Gains in market share or cost savings through distribution don't outweigh the cost, time and effort required to make a manufacturer-distributor partnership successful. FACT: If you were to ask manufacturers using distribution today if it's worth it and affordable, the overwhelming response would be 'YES!' to both questions. Distributors provide an increased market share for the manufacturers! in fact, a well managed distribution network should he more profitable to the manufacturer than direct sales to OEM'S. MYTH: It is easy to set up and manage a distribution network. FACT: Selling to a customer or selling through distribution to a customer are both complex marketing methods. Any successful distribution programme will require an understanding of all the market forces involved, of the distribution industry and the needs and wants of customers and prospects. It's no small task to develop such successful marketing programmes. However, the rewards totally justify the effort involved. WAYS DISTRIBUTORS HELP INCREASE YOUR SALES 1. Distribution brings your message to a larger customer base. You simply cannot 'afford' to be everywhere, all the time. With a distributor network, you can! Distributors economically take your products and communications to places you cannot go, thereby increasing the demand for your products and services. 2. Distributors handle business you would refuse. It's not profitable to handle each of your customers the some way. In fact, there is just some business that is too small for you to handle, or too much trouble because of its location. A distributor network will take this burden and change it into on opportunity. Because the distributor is service oriented, that distributor makes it a point to work with business regardless of size or scope. And that's just good business for you. 3. Distributors' inventories help prevent lost sales due to your lead-time logs. They also help in other ways, more suitable, but just as real. Distributors provide flexibility that manufacturers do not, such as delivery reschedules and small quantity requirements. The distributor is actually an extension of your company, and his positive approach to service will have a positive effect on what the customer thinks about you. 4. Distributors provide manufacturers with local identity. Your customers may be remote from you, but your distributor is there, on the scene. This is important to many of your customers, to have you represented there, when they need you. 5. Distributors promote your products. This provides you with additional exposure. In addition, it tells your customers and prospects that their local source, an independent organisation, believes enough in the product to invest funds to promote it. Distributors add credibility to your own promotional efforts. 6. Distributors con provide a competitive edge when no other advantage can be gained. In commodity products, the service value of distributors can be the single point of differentiation between you and your competition. 7. Distribution can increase the efficiency of your field sales force. By helping relieve your field sales people of the task of order taking, calling on small accounts, answering common technical questions and expediting, a distributor can make you that more efficient. This frees up your sales force to do what they do best, sell and create a demand for your products and support your major accounts. 8. Distributors provide a valuable function supporting your 'covered accounts' in times of supply shortages. In addition, more and more major accounts are demanding 'kitting' of multi-supplier items. This service is being provided by component distributors. HOW COMPONENT MANUFACTURERS CAN SAVE MONEY BY USING INDEPENDENT DISTRIBUTION Lower finished goods inventory With a strong distribution programme, your inventory is where it belongs; near the customer on a distributor's shelf, not in your factory. With annual carrying costs in the 25% to 30% range, a reduction in finished goods inventory translates into a very substantial cost reduction for a manufacturer. Continuity of production If you sell only direct, you have to follow the peaks and troughs of customer demand. Periods of idle machinery and layoffs may be followed by capacity problems and overtime. Distribution demand, which is based on a large customer base, tends to be more consistent. The result is lower and more predictable manufacturing costs. Less bad debt When you have strong distribution you tend to have tough credit policies. Distributors handle the startups and other high credit risk accounts for you. Shorter day sales outstanding When the distributor handles slow paying accounts, you benefit. Besides, the distributor has no choice but to pay suppliers in a reasonable, timely fashion. A customer con 'shop' for credit, whereas a distributor can not. Lower paperwork costs If manufacturers who market through distribution had to handle every order their distributors handle, they would be buried in paperwork. Order entry, shipping, accounting departments would be in chaos. If manufacturers hired enough staff, it would still not be as cost effective as distribution. Manufacturers have to organise to fit the needs and disciplines of manufacturing, where distributors organise for fast, efficient handling of a large number of daily transactions. Lower communication cost The more customers handled, the more communication costs. Quotations, expediting and technical enquiries are all burdens that distributor helps alleviate. Lower marketing costs No manufacturer can afford to call regularly on all accounts covered by distribution. A distributor has the advantage of multiple product selling, which makes small account coverage economically feasible and assures better account control at these and medium size accounts. WHY "END-USERS" OF COMPONENTS BUY THROUGH DISTRIBUTION Local source You may be too remote to a customer because of their size, location and structure. The distributor, on the other hand, is a quick convenient and known entity. On-time delivery Customer production lines must he kept running. Management wants a minimum inventory investment. Distributors help resolve these conflicting requirements. Quality services Customers get what they want and the services they need from distributors. They can choose who to buy from. Technical support Customers who may never see a manufacturer's sales engineer use distributors as a communication channel to the manufacturer. Distributors also provide customers with catalogues, data sheets and samples. Minimum purchasing and order progressing Placing and expediting (if necessary) multiple product orders with a single phone call means purchasing departments will he more efficient. Open account status Customers con get credit from distributors because of their 'local' status. Many companies in business today would not have survived without distributor credit to support their early days. Value-added service Distributors have become proficient at assembly modification and reconfiguration of standard products. this 'additional' value' translates into better service. Economic influence By being a significant percentage of a supplier's total soles, customers become important to suppliers. The customer ordering through a distributor gains a feeling of confidence and security. THE BOTTOM LINE Beyond being a marketing method, distribution offers you a way to gain all the benefits of having a true partner in business. After all, regardless of what you manufacture, it always comes down to the bottom line; people make the difference. Today's distributor offers
you people who strive to keep up with market shifts and manufacturing
marketplaces. They understand margin pressures and productivity
demands. Also, because they look upon themselves as your partners
in business, today's distributor will provide you with added value which
often is the determining factor in whether your product, or your
competitor's, is purchased. And while distribution is not for
everyone, those utilising distribution and those embarking on
distribution as a marketing method will gain a tremendous benefit from
the trust that evolves from the true partnership of manufacturer and
distributor. You may join afdec by submitting a request to join in the appropriate category of membership.
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