If distribution is treated as a separate function, it can become an entry barrier for your competitors
By Vikas Marwaha
When Hindustan Unilever Ltd (HUL) surprised the world by tapping into woman power and multiplying its sales with Project Shakti, no one had predicted that distribution or channel could play such a decisive role in organisational growth. Project Shakti today has 70,000 sales agents serving 165,000 villages. The parent company Unilever has been known to come up with out-of-box distribution modules. In Pakistan, they introduced the concept of Guddi Bajjis (good sisters) to promote their makeup, shampoos and other beauty products. Similarly, in the Phillippines, they tapped into small retailers, where the module is known as Sari-Sari stores and now contributes 36% of the company’s national sales.
There are around 50 unique distribution modules that have been adopted by industries across the globe. But this article focuses on modules that are suited to the building materials industry. The following three types can be considered:
- Direct Distribution: company-owned channels (COCO) – selling directly to customers
- Indirect Distribution – third party channels (DODO) – selling to retailers & customers
- Hybrid Mode – both COCO and DODO
The distribution strategy for each organisation varies as per their overall objective. COVID has exposed the weak distribution of many companies, resulting not only in financial loss but also loss of revenue and good customers. The playing field has changed drastically, and organisations are revamping their distribution modules and realigning their focus.
“Distribution is a set of independent organisations involved in the process of making a product or service available for use or consumption” – Philip Kotler
Distribution strategy usually differs for leader and challenger brands, but the basics remain the same. Here I list out some of the key criteria for selection and appointment of distributors, which is often a long term relationships like marriage.
1. Finance (creditworthiness) & Infrastructure: This is the backbone of any business. Covid has exposed many distributors who were operating on company funds. This is a critical factor, so due diligence should be done before getting into this relationship. A quick reference check with other companies that the distributor prospect is dealing with, as well as his bank account statement (to look for cheque bouncing) can reveal a lot.
2. Vision: Imagine playing football and not knowing which goal to put the ball in! Vision (growth, customer retention, goodwill, service etc) acts similarly. The technology a prospect is using and his team formation (centralised vs decentralised operation) can reveal a lot. I have found that asking questions about five-year goals and listening more can give you, the brand owner, complete clarity. Don’t invest in people who lack vision; this dents your brand image the most.
3. The expectation of Profits: A long term relation will work only if the business has the potential to generate reasonable profits, or ROI. This expectation needs to be discussed upfront; I have seen salespeople shy away from questions on ROI and profits. Even channel partners are not clear on what exactly they want. Most of the times they confuse ROI with profit margins. It should be a win-win equation and not one-sided.
4. Wholesale & Retail Mix: This may be a subjective issue, and depends on the overall goal of the organisation. In case the objective is to use distribution as a service point, then retail sales from the distribution point should be avoided, as it kills the confidence of dealers.
5. Market Coverage: Length and breadth of market coverage are the backbones of distribution. But I feel that depth is another important dimension. Depth means a share of the account. Usually, sales teams measure coverage in terms of the number of retailers a distributor has, and they do not go into the depth of each retailer’s capability. Assessment of the calibre of each retailer would provide a true picture of the market coverage that a distributor offers.
6. Brands associated with: Your personality is a reflection of the people you hang out with. This applies to channel partners too. If you don’t want to be a second wife, analyse where you stand in the prospective distributor’s overall matrix, particularly with respect to challenger brands. I have seen sales leaders wanting to sign up the most prominent channel partner in a market, little caring that he may already have several brands on his plate and may fail to do justice to their brand. Very often they aim to simply block the prospect from going over to the competitor. This may seem strategic but does not yield significant benefits in the long run.
7. Attitude: A positive attitude will help both the prospective distributor and your company become partners in the real sense. If a distributor cares only for himself and not for the brand he markets, eventually he will become baggage. Similarly, the company should care for the financial and emotional wellbeing of the distributor to retain his loyalty.
Engaging Dealers and Distributors
The keep their relationship with channel partners fresh and vibrant, companies must invest in distributor and dealer engagement. Some techniques for keeping channel partners engage are:
1. Uderstand the Distributor’s Business & Add value: Some years back when I was working for Apollo Tyres, we made sure that our relationship with channel partners was not restricted to business only. We used to do lots of joint campaigns. This collaborative working enabled us to offer service empowerment to distributors, and complete automation at the channel level. These approaches helped in reducing several pain points of the channel and gave us a significant competitive edge in the market.
2. Be Transparent and Respectful, and make them part of Decision Making: It is common to see companies hiding information from their channel partners. Even trade inputs are designed to favour a few. Quoting the tyre industry again, we printed our policies as a manual and handed every channel partner a copy. This created a feeling of belongingness and loyalty towards the organisation. Think-tank groups were created to make distributors a part of our decision-making process.
3. Offer Distributors New Ideas to Grow: When I was at Nilkamal, our distributor in Ghazipur (rural UP) was struggling to grow. Products of regional brands were being pumped into the market by wholesalers based in Varanasi. We took a leaf out of the FMCG book and started a van operation called Khoj. We would load ready stock (never heard and tried in durables) and take the van on a fixed beat. This helped the distributor add 180 new retailers across the district and our business grew 300% in three months. This distribution module was eventually rolled out in all our rural markets.
4. Offer them Product Innovations: MDF (medium density fibre) was a very simple and linear product in India till 2010. When I started operations for Greenply MDF, I realised that new applications would have to be added to scale up the business. This gave birth to some path-breaking product innovations like new sizes and various grades, to replace alternate products in the market. Our plant was at 100% capacity within a few years, and distributors could multiply their market share and profits significantly.
5. Help them add New Customers: You may have heard of Pareto’s Law, also known as the 80/20 rule. In simple words, 20% of your customers contribute 80% of your business. But most of the time we run after 80% of customers who contribute very little to the business. The smart thing to do is to help distributors get to those 20% cream customers. During my MDF stint, the biggest differentiator that we created over others was mapping all big and small accounts and tagging them to our distributors. This created a system of pull sales rather than push sales.
6. Upgrade them with Technology and Concepts: I was invited as a speaker during this lockdown. The session was conducted via zoom and I could see that several channel partners were struggling with the technology. Since the session was about changing business needs during and post-COVID, I had designed a workshop for imparting hands-on training on the latest digital tools that would help them grow their business. Believe me, the session got extended by one and a half hours. Everyone wanted to learn, they just needed a bit of hand-holding. Be the one to initiate this.
The author is a seasoned sales and marketing professional with three decades of experience in companies including TVS Motors, Apollo Tyres, Nilkamal, Jaquar, Greenply. He is currently serving as Head Sales & Marketing at Everest Industries Ltd (B&P). He is considered a thought leader in the building materials industry. As a hobby, he runs a blog for the sales fraternity and trade. He has been instrumental in disrupting the wood panel industry (MDF). He has an MBA degree and has also undergone a programme in strategic management at IIM-C.