FOR CHANGING CHANNELS OF DISTRIBUTION
Many manufacturers, who have been
going to market through established channels that date back to the late 60's or
earlier, are experiencing, today, growing stress with their channel partners
which usually includes reps, distributors and/or dealers. These relationships
have been historically cemented together by the memories of the good years
together in the 60's and 70's when growing up with America was easier
and more profitable. During this period, partners steadily invested resources
in supporting one another to reach significant levels today which are difficult
to abandon. And, the top managers are often close friends who grew up doing
The stress within these
relationships has been caused by a number of trends that accelerated in the
World supply of manufacturing capacity aimed at the U.S. market has
continued to outpace a domestic demand that has leveled off. The U.S. has created
the first post-consumer society in which a majority of people have run out of
waking hours to consume. Total consumption of all things is dropping towards
the 1% growth rate of the population.
Instead of a
growing demand pulling products through the channel profitably, many
manufacturers are now trying to ram-and-jam too much supply through channels
even at losses thinking perhaps that someday they will make it up on volume.
Channel power has switched from manufacturers to
end-users. Consumers, for example, had to buy white refrigerators and black phones
at book prices from authorized sellers until the late 60's. These were symptoms
of supply being less than the demand.
global-glut supply and saturated demand, end-users express their growing power
in many ways. We, as consumers for example, now expect perfect quality goods
and service, unconditionally guaranteed forever. We want over choice in product
selection, and we want flexibility in the types and quantity of services
available. We want convenience, user-friendliness in buying; speed in delivery;
and lower prices. We are steadily getting more of these needs met by more
Manufacturing technology and methods continue to move
towards the make-anything, in-any-quantity-now factory. This will please
end-users, but it creates the growing problem of how to market micro-segmented
products through traditional commodity channels and mass media.
New manufacturing suppliers, often foreign, who can't
find qualified intermediaries to distribute their products aren't hindered.
"Channel blocking" stills keeps U.S. firms out of Japan and other
markets. In the U.S. the new
entrants might: sell direct; set up their own distribution in the biggest
markets; or sell a new breed of intermediary that traditional suppliers are
afraid to sell for fear of retaliation from existing partners. The U.S. business
infrastructure is so accommodating and Americans are so quick to experiment
with new brands and new intermediary suppliers that penetration happens and
With too much supply, and not enough demand all players
in the channel are experiencing profit erosion, so consolidation of players at
each step in the channel continues. Instead of selling through lots of small,
independent agents, distributors and retailers that could be controlled,
manufacturers are faced with selling big chains or cooperative groups that
control market share or shelf space and can push the manufacturers around.
Intermediaries used to have to please just the
manufacturers and pass the prices, policies and terms on to the end-user. Now
the big end-users are dictating terms too; the intermediaries are getting more
anxious about who and how to serve.
Progressive manufacturers would like to sell their
fragmenting line of goods to more and smaller segments of potential customers
which their existing intermediaries haven't pursued and may not be geared to
serve. The logical solution should be for the manufacturers to sell niche
products through alternate channels that some of their intermediaries might
create. Many intermediaries, however, don't see the need to change or don't
want to change and threaten retaliation if manufacturers should sell alternate
channels. Other manufacturers will then, unfortunately, sell their equally
excellent products to the alternate channels. Traditional-thinking
intermediaries are, in other words, asking progressive suppliers to join them
in- putting their heads in the sand, managing the past, and also suffering
market share decline.
Because of the enormous diversity in
both products and the channels through which they are sold, there are only a
few specific conclusions that can apply to most stressed channels:
Manufacturers and their partners should stop being volume
and product-driven and become end-user or customer-needs driven. If partners
can more precisely target segments of customers and give them exactly what they
want in products and services, then they will be able to penetrate and retain
them better and more profitably than the competitors. Volume and market share
will then grow as a by-product; partners must make volume the caboose not the
All partners must become niche marketers. If
manufacturers can successfully micro-segment both end-users and their matching
product lines, then they will probably have to use new marketing methods for
reaching specialty buyers.
Let the end-user be the final arbiter of what and how
they want to buy. If intermediaries understand these niche customer needs, then
they should be glad to reinvent themselves to be part of the solution or stand
aside and let their manufacturing partners sell in alternative ways.
If channel partners can stop managing the past and share
a common strategic understanding of what it takes to succeed in a global-glut,
post-consumer demand economy, then they can work successfully with the trends.
If one or more partners are still operating with outdated, unspoken assumptions
for how the partners should be going to market, then tough decisions will have
to be made. The partners who push on with forward-thinking strategies do not,
however, usually suffer much retaliation. The resisters, instead, begrudgingly
start to follow along and can eventually become quite enthusiastic about the
new order of business.
ãMerrifield Consulting Group, Inc.,