This is the second in a series of posts about a panel discussion I attended recently at the National Association of Electrical Distributors’ Executive Summit in Hollywood, Florida. On the panel were executives representing both the distributor and the manufacturer’s point of view.
While the first blog was about the topic of order size, this one will be about a different topic. Who “owns” the customer? In industries that go to market through distributors, it’s critical that the “ownership” of the customer is handled correctly. Sadly, though, it frequently is not. Much of the distrust that arises between manufacturers and distributors is a result of the belief by each side that they – and only they – should own the relationship with the customer. The manufacturer wants to make sure that his products are receiving the appropriate mindshare. They fear that the distributor is positioning competitors’ products. The distributor, on the other hand wants to know that his supplier isn’t going to start selling directly to the customer.
Three specific points that were discussed by the panel regarding the ownership of the customer were: Branding, Advertising, and Sales calls.
It was generally pointed out by all of the distributors on the panel that branding must be the responsibility of the manufacturers. And, it would seem that the manufacturers are happy to bear this burden. After all, they do own the brand. However, the distributors must be willing to play a role here too. They benefit from being aligned with a strong brand because branded materials demand a premium price. Regardless of whether or not a distributor chooses to offer their own brand in competition with their suppliers’ brands, it’s this uplift in price created by the branding work done by the manufacturers that creates the opportunity for additional profit. One suggestion by a panelist was to use distributor advertising to support the manufacturers’ branding efforts by working to create a “brand pyramid” that educates the customer that they should go to “Distributor A” for “Brand B”.
Also discussed by the panel was the topic of sales calls. Is it ever appropriate for a manufacturer to make a sales call in the absence of the distributor? Should they make the sales call together? Clearly there are times when a joint sales call is a perfect solution to position a new product, or to help crack a net-new account. The manufacturers’ salespeople have more in-depth product knowledge and their presence can help the product get faster adoption. But, many distributor salespeople do not want the manufacturers’ sales staff joining them on calls to existing customers for fear that they might try to influence the mix of products or negatively impact pricing.
Finally, no topic of manufacturer and distributor sales processes is complete without at least a mention of the topic of chargebacks or SPA’s. (Special Pricing Authorizations). The NAED has issued a best practices in the area of SPA’s which can be found here:
When a manufacturer sets the pricing to customers, the SPA process is required to make sure the distributor’s profitability is preserved. The NAED is ahead of the curve in this area and other industry sub-segments would do well to adopt similar best practices for their chargeback processes.
In conclusion, the tension between manufacturers and distributors over who owns the customer is not going away any time soon. Each has their own best interests to preserve. The best we can hope for is a willingness to work together to define and uphold standards like those created by the NAED.