Why Do Manufacturers Use Distribution? Really…why?
As you may have heard me say before, manufacturers choose to use distribution for 4 primary reasons:
1) The distributor’s knowledge of the market.
2) The execution of market and channel plans to get product to market thoroughly and efficiently.
3) Access to customers known by the distributor–where relationships flourish and penetration is deep.
4) The volume of business a distributor can deliver to a manufacturer.
But let’s add some of the more tactical issues to that list, shall we?
5) Distributors provide customer service and order fulfillment.
6) Distributors maintain inventories in the desired geographies next to the end-use customers.
7) Distributors provide logistics into the market.
8) Distributors absorb the credit fluctuations and the AR role throughout their markets.
Hold on—what’s wrong with this picture?
How about this? Number 1-8 above can ultimately all be figured out and executed by manufacturers themselves. But before the customers of distributors get too excited about the possibility of “cutting out the middleman” and buying direct from manufacturers, we need to keep in mind that there are costs associated with all of these—at some level. So—the price is the price is the price. What an end-user pays for products will likely be the same whether they buy from distribution or from manufacturers direct—because there is a cost to all of these services.
Or….the customer CAN buy direct and receive less service.
Now, let’s look at the last two services distribution can provide.
9) Sales and Marketing, through excellent value-added sales representation and sales promotion into the market, and…
10) An unbeatable value proposition for customers. Distribution must create such a compelling reason for its customers to buy from them—that the customers could not even imagine carrying those particular products if it were not for the unbeatable value proposition the distributor provides.
These last two are the most challenging for distributors to figure out, design, pay for, and execute. But they are the key to a lasting dominance in the channel. And together, all of the areas above are a 10-point plan for sustainability and long-term success.
Out of everything written above, #10 bears the most examination. Distributors, how are you doing?