As added value shifts from manufacturing to marketing distribution channels, the benefits of commanding a network of loyal resellers are magnified.
The objective is to build a reseller network that focuses on your products rather than those of your competitors.
Most suppliers spread their resources across too many resellers in an effort to achieve short-term sales volume objectives. It appears easier to sign up more resellers, thereby capturing a small proportion of their business, than to increase the amount of business generated from existing resellers.
As a result, Pareto’s Law applies to most reseller networks – 80% of sales are derived from 20% of resellers.
Resources deployed to manage unbalanced networks are inevitably spread fairly evenly across them.
The alternative is to develop a loyal network of high quality resellers who focus on your products at the expense of competitors’.
Selling through a focused reseller network enables suppliers to reduce resellers’ percentage margins while enhancing their absolute margins by increasing the size of their business.
Generating reseller loyalty
Resellers are loyal to suppliers who:
- Enhance their capabilities
- Increase the amount of business they generate
- Cut their costs of doing business
- Make it easier for resellers to do business with them
1. Audit competitors’ offers
The first step in building loyalty is to learn the strengths and weaknesses of competing offers through a comprehensive audit which considers factors such as:
- Training (not just in relation to products)
- Delivery performance
- Technical support
- Sales support
- Marketing initiatives
- Buying services, and
- An understanding of costs in switching to new suppliers
- Other key support services, e.g. information technology
2. Segment resellers by need
Within most reseller networks, individual resellers usually have differing characteristics; their differing skill levels, strengths and weaknesses provide an opportunity for suppliers to tune their offers to meet the different needs of resellers.
3. Build a support program portfolio to address resellers’ needs
Develop a portfolio of support services which can be selectively applied to generate reseller dependence and improve performance. Support services may include activities which do not relate directly to a supplier’s product or service but addresses specific resellers’ needs and enables the supplier to exploit gaps in competitors’ offers.
4. Launch and implement support programs
Communicate the strength of the new offer through a launch program. Communicate implementation time scales to match resellers’ delivery expectations with delivery capability. Design the implementation process to focus on delivering practical benefits.
5. Audit performance regularly
Many industries carry out regular supplier performance surveys, undertaken by independent industry organisations. In contrast, most companies do not have performance measure of their performance in relation to their resellers. Excellent channel managers earn loyalty by constantly measuring their performance against key indicators which their resellers also believe are important.
6. Continually improve support programs
Excellent channel managers also offer development plans which outline how their offers will be upgraded over time. Plans are communicated to resellers so that they can share in the supplier’s vision for the channel and both parties’ objectives can be aligned.
A leading tyre manufacturer secured 40% of target dealers’ stockholding by improving their brand loyalty. Specifically, in a highly fragmented channel in which a few major chains were taking market share from independent dealers, the manufacturer identified a need for stronger marketing for independents. As a result, the manufacturer positioned itself as a prime source of support for independent dealers – providing them with strengthened branding, merchandising and advertising.
A computer manufacturer successfully displaced industry leaders as the main suppliers in target channels by positioning its offer to address the key cost drivers of its resellers’ businesses. By enabling resellers to cut their costs of doing business, the computer manufacturer was able to grow its market share in a market characterised by undifferentiated products.
A leading automotive paint manufacturer positioned itself as the champion of the independent bodyshop and developed a portfolio of over 30 support services designed to address specific bodyshop needs. The services help bodyshops to become more effective by enhancing their management skills – ranging from financial and marketing management to reducing job time. As a result, independent bodyshops increasingly depend on the manufacturer and are prepared to pay premium prices to ensure that support is maintained.
The benefits of increased loyalty
The ultimate benefit for both sellers and supplier is increased profit. Other benefits are:
- Shared goals
- Less reseller churn
- Reduced reseller network management costs
- Higher network standards as resellers gain experience and focused resources generate results
- Reduced training costs
- Smaller discounts as resellers trade discount for higher support levels
- Greater willingness of resellers to respond to supplier marketing/promotional initiatives
Howard Bellin established IF International in 1969 as a one man franchise consulting organisation. Today, IF is a specialist marketing channel strategy practice which works with Fortune 500 size companies throughout the world.