FINDING A DISTRIBUTOR WHO WILL SELL
Trouver un distributeur qui vend !
Michael Mendolia, Ph.D.
Business Crescendo PARIS
September 17, 2013
INTRODUCTION TO OUR COMPANY
is an international business
development consulting firm, well-positioned to
drive your company’s growth.
Services we offer
Projects we support
 Strategic analysis of priority
markets
 Implementation of sales
and marketing activities
 Coaching & expertise
 International expansion
 Diversification in new
markets
 Launch of new products
 Start-up support
Our Offices: Paris, Montpellier, and San Francisco (opening soon)
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2
THE SERVICES WE OFFER
BUILD
GIVE
Strategy development
Expert coaching
Opportunity analysis
Market segmentation
Action plan development
Business coaching/mentoring
Transfer of best practices
Meeting preparation & pitch fine-tuning
SPEED
START & SELL
Sales implementation
Start-up assistance
Customer prospecting & sales support
Improvement of promotional tools
Supply channel development
Distribution engagement package
SEPTEMBER 2013
Verification of market interest
Establishing initial sales
Commercial development support
NEW
3
B2B
Place
Coverage
Freight
Agent
Risk
SEPTEMBER 2013
Stock
Credit Risk
Channel
Sector
Representative
Commission
Logistics
TODAY’S TOPIC: DISTRIBUTION
Inventory
4
WHAT ARE DISTRIBUTORS?



Generally, distributors purchase goods from a supplier and resell
them for a profit (they “mark up” the product)
They are typically specialists in selling and delivering products
Distributors can do some or all of the following:
.
.
.
.
.
.
.
.
.
.
Negotiate sales (distributors typically control the selling price)
Engage and develop relationships with customers
Find new leads/prospects
Promotion: advertising, trade shows, etc.
Deal with export logistics and customs
Maintain physical inventory (“warehouse” the product)
Coordinate deliveries to the customer
Manage customer invoicing and payment collection
Assume credit risk of the buyers
Provide sales support, technical service, and after-sales support
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PRICING MODELS
Approach One (most typical)
 You provide a price list
 The distributor buys from you at your price and then is free to sell at
whatever price he can (he ‘marks up’ the product)
 If the distributor gets a higher price than expected from the customer, this
does not affect your sales
Approach Two
 You agree to provide the distributor a percentage of sales (sales
commission)
 In this way, you share the benefits if the customer pays a higher price
 You can provide a “suggested price” list for the final customer
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TYPICAL COSTS OF DISTRIBUTION
The percentage mark-up or commission varies widely,
depending on the details of the relationship
 Based on effort required, activities involved, product price and volume,
etc.
>> The more you ask of your distributors, the more you must give!
 High volume, commodity products command lower mark-ups than highpriced, niche products
In general, distribution mark-ups are typically 5-40%
 For the electronics sector, 20-35% is common
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ADVANTAGES OF DISTRIBUTORS
Advantages of distributors

Provide immediate access to a new market : network already
established, so development time will be reduced

Understand local culture, language, and requirements

Provide assistance with local rules and regulations

Maintain a stock of inventory near the customers

Manage delivery logistics and customer billing

Accept the credit risk of the customers

Are normally responsible for some of the promotional efforts

Reduce the resources/efforts of the producer in the sales process
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DISADVANTAGES OF DISTRIBUTORS
Disadvantages of distributors

Your success is linked to distributor performance

Your brand and reputation may be affected by distributor actions

You lose some control of the selling process

You get less market feedback

You may not know the identities of the final customers

The customer’s primary relationship is with the distributor, not you

The distributor’s attention and efforts are divided across multiple
products and suppliers

Costs of distribution
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SOME REASONS TO CONSIDER A DISTRIBUTOR

You want to expand into a new geography/market sector and don’t have
a good knowledge of the market or an existing network

You have a small number of products and the opportunity would not
justify a full-time salesperson or sales office in each country of interest

You have limited resources for sales, billing, logistics, etc.

The market is fragmented (many smaller customers) with a high level of
sales service required

Having inventory located near customers is critical (rapid delivery
important)

Customers have specific requirements that complicate sales (e.g. specific
delivery days/times, products grouped on pallets in a certain way, custom
labels on packages, etc.)

Your target customers prefer to buy from distributors
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IS A DISTRIBUTOR RIGHT FOR YOU?
Other alternatives exist…
Open your own local sales office : If your product portfolio and the
business opportunity justifies this.
Form a joint venture : If you identify a key partner and want to more
closely share risks and rewards
Partner with an OEM or integrator. For example, if you
manufacture a component which is mainly used in devices produced
only by a small number of players
Another option: Sales agents
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SALES AGENT
Sales Agents (or Sales Representatives or Export Agents) typically
 Act on your behalf to introduce products to customers and
generate sales
 Are not financially involved: They don’t purchase the product from
you -- the customer places the order with you directly
 Are not responsible for customs, delivery logistics, billing, etc.
 Are usually paid a sales commission (between 2.5% and 15%)
 Have a strong network in the sector/geography of interest
 Usually have exclusivity for a geography or sector
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DIFFERENCES BETWEEN AGENTS AND DISTRIBUTORS
Agent
Distributor
Your representative
Your customer
Not financially involved in the sale
Purchases the product from you, and
then re-sells it
Typically paid a sales commission by you
(following delivery and after you have
been paid)
Typically marks up the price to cover the
costs of ownership, logistics, invoicing,
sales, etc.
Generally not involved in logistics – you
are responsible for delivery
Responsible for delivery to customer
Does not physically own the product
Maintains an inventory at a warehouse
Not typically responsible for after sales
service
Can provide technical service, after sales
support, warranties, etc.
No control of resale price
Controls selling price
No credit risk assumed
Accepts credit risk of buyers
Uses your brand
May develop own branding
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CHOOSING BETWEEN AGENTS AND DISTRIBUTORS
Factor
Comments
Number of
Customers
Typically, a very small market could be better served by an
agent
Type of Product
In some cases, agents could have more technical expertise and
are more suited for large, one-time purchases
Logistics
If you need local stock available and don’t want to coordinate
deliveries, then distributors are appropriate
Degree of Control
With an agent, you control pricing and maintain the link to the
customer
Business Landscape
Who has the best network for the target segment?
What model do customers prefer?
What is the industry standard?
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WIN-WIN PARTNERSHIP
The best partnerships are based on “win-win” arrangements
For you:
 Your product portfolio and market opportunity do not justify a full-time
salesperson or local sales office
 You need market access
For the distributor:
 They can sell your products using existing salesforce and sales networks
 Your products help differentiate them from their competition and give them
a reason to meet with customers
The partnership should reflect an optimization of
resources and an alignment of strategy/vision
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HOW TO FIND A DISTRIBUTOR
DETERMINE SELECTION CRITERIA
Clarify what you are seeking


Do you prefer a well-established, “Best-in-Class” partner or a
new, hungry player who might spend more effort promoting
your products?
Do you want an order-taker or an order-getter?
Determine key criteria important to you
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CLARIFY YOUR NEEDS/EXPECTATIONS
For example….
What I want to do
What I want the distributor to do
Forward all new leads to the distributor Introduce my product to new leads
Attend all product demonstrations
Generate sales
Generate promotional brochures and
marketing materials to be used
Attend trade shows to represent me
Provide technical service
Coordinate all shipping and logistics
from France to the US, including
customer deliveries
Ensure branding is consistent with
corporate standards
Maintain inventory of my product at a
warehouse in California
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SECTOR FOCUS
Distributors generally focus on a specific market sector
Electronic Component Distributors
Avnet
Arrow Electronics
WPG Holdings
RS Components
Industrial Distributors
Wolseley Industrial Group
Grainger
MRC Global
Building Materials Distributors
ABC Supply
Beacon Roofing
ProBuild Holding
Chemical Distributors
Brenntag
Helm
Univar
Resinex
Schibley Chemicals
TIP: Seek specialists!
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HOW TO FIND POTENTIAL DISTRIBUTORS
Internet-based methods
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
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Google
Industry sector chat groups, blogs
Linked In groups and discussions
Expert matching services – Zintro, etc.
Trade associations/organizations
 Optics Valley
 UKLEO (UK Laser & Electro-Optics Trade Association), EPIA (European
Photovoltaic Industry Association), AMDM (Association of Medical
Diagnostic Manufacturers)
Trade shows and conferences
 Laser World of Photonics, Quality Expo, Expo Elettronica, Vienna
Conference on Instrumentation, Hong Kong Electronics Fair, Classe
Export Paris, etc.
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HOW TO FIND POTENTIAL DISTRIBUTORS (2)
Trade publications
 Industrial Laser Solutions, ChemicalWeek, Photon International, Classe
Export Magazine
 You can review articles, advertisements, or place your own ads here
Market studies
 Northern Light, Frost & Sullivan, Townsend Solutions, Integer Research
Regional economic development agencies
 UKTI (UK Trade & Investment), Germany Trade & Invest
Clarify customer preferences
 Informal discussions at tradeshows and conferences
 Ask your customers or potential customers!
Experts/Consultants
 Business Crescendo
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TIP: IDENTIFY COMPLEMENTARY PRODUCTS
Complementary products are other products that your
customer uses (not competitive with your products)
Identify the key distributors of complementary products. Why?
 These distributors already know the target customers
 They are already in touch with them, so selling your
products would be natural and highly effective
 Many customers prefer buying multiple products from one
trusted source
 The other products are not competitive with yours
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MAPPING THE CURRENT LANDSCAPE
1.
2.
Analyze the market to identify key distributors already in place
Prepare a table of complementary products (by region, sector, etc.)
Product categories, Suppliers and trade names of key products, distributors
3.
4.
This simple analysis may clarify which distributors might be key targets
(and what regions are of most interest)
Be sure to update the information regularly!
Country
Product Category: Camera
Product Category: Sensor
Product Category: Accessories
Mfr. A
Mfr. B
Mfr. C
Mfr. A
Mfr. D
Mfr. E
Mfr. A
Mfr. D
Mfr. F
USA
Distrib 1
Distrib 4
Distrib 4,
Distrib 5
Distrib 1
Distrib 7
Distrib 9
Distrib 1
Distrib 13
Distrib 15
UK
Distrib 2
Distrib 5
Distrib 2
Distrib 7
Distrib 14
Distrib 16
Germany
Distrib 2
Distrib 6
Spain
Distrib 3
Distrib 8
Distrib 11
Distrib 16
Distrib 12
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HOW TO SELECT A DISTRIBUTOR
PRE-SCREENING
Pre-screen candidates to develop a “short list” of key potential
distributors
Contact them to explore mutual interest and exchange
information
 Send a brief summary of your business background and proposition
 Follow-up by phone
 Interested distributors should provide an overview of their services
and experience
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GENERAL BACKGROUND
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Number of employees

Annual turnover
– Possible sources: Dun & Bradstreet, Hoovers, Capital IQ, Societe.com

Number of years in business
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Sectors served

Types of products represented

Geographic reach (territory)
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What is their customer base
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Location and size of warehouses
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Business strategy and positioning
. How do they differentiate from the competition?
. Mission statement
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EXAMPLE: RESINEX
Efficient
Logistics
Technical
Support
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EXAMPLE: SCHIBLEY CHEMICAL
Special
Delivery
Capabilities
Specific
Territory
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EXAMPLE: RS COMPONENTS
Global
footprint
Internet &
catalog sales
Breadth
of
products
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EXAMPLE: AVNET
Custom
assembly and
packaging
Technical
Expertise
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MORE DETAILED ANALYSIS

Detail on the product mix represented
. Broad or narrow? High or low value? Multiple similar offerings?
. All related complementary products?
. Multiple suppliers of similar products?

Sales history with similar products

Current market share

Typical distribution “mark-up” or sales commission

Standard delivery times and payment terms
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What support do they expect from suppliers?
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FOCUS ON SALES & MARKETING CAPABILITIES
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Number of salespeople
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Level of selling skills (are they experienced or new hires?)
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Technical competence (sales or technical backgrounds?)

How are salespeople trained?
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Turnover of sales staff
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Sales promotion efforts : Who pays for advertising and
promotion?

How do they generate new leads?

How is sales performance measured?
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GET A “GUT FEELING”

Knowledge of the market?

Good network of customers or contacts?

Ask about the biggest market needs
. Gauge their understanding of the market trends
. Do they sell primarily on price?

Ask which customers would be most likely to buy your product?
. Do they know? How would they target them?
. Get a sense of how much assistance/support they would need

What would be their 6-month plan?
. How many meetings/week do they envision? Trade shows?
. How many salespeople would represent your products?
. Is their market plan reasonable?
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ALIGNMENT WITH YOUR BUSINESS

Is the breadth of their product line consistent with your needs?

What is their assessment of the market potential for your
products?

Overall fit with your goals, strategy, business practices, values, etc.

Match of management style and vision

Level of enthusiasm in working with you

Do you like them?
Personal rapport is critical
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FOR FINAL SELECTION
Distributor interviews (preferably in person)
 Provide agenda and questions in advance
 Meet senior management and the team that would work
with your company
 Explore questions and confirm details
 Confirm alignment with your business
 Begin discussions on contract terms
Due diligence
 Credit reports, financial stability
 Reference checks: their customers, their other suppliers
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WILL THE DISTRIBUTOR WANT TO WORK WITH YOU?
Note that the distributor must be convinced to work
with you !
What they are looking for:
 An opportunity for increased sales
 Clear market need
 Good probability of success
Possible Concerns
Possible Solutions
You are a small company
Convince them that customers want your
products – sales history, technical performance,
pricing versus competition
You don’t have any existing
customers in the region/sector
Either first generate the initial sales yourself, or
offer a higher commission on first customers, etc.
It’s a complicated sale
Provide clear promotional materials to support
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DEFINING THE DETAILS OF THE
PARTNERSHIP
DEFINING AN AGREEMENT: GENERAL CONCEPTS
Product
 List of products involved, including descriptions
 Policy for new products
 Policy on competitive products?
Territory and Scope
 By geography/territory and market sector
Timeframe of agreement
 Trial period? Duration? Renewal terms? Termination clauses?
Pricing issues
 Price list
 Price modification policy
Relationship management
 Contact list, addresses
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EXCLUSIVITY AND EXCLUSIONS
Exclusivity can be by geography, sector, etc.
 Exclusivity can be both ways – you agree not to use another distributor
in the region; the distributor agrees not to carry competitive products
Exclusions could include
 Specific application sectors
 Existing clients or strategic partner accounts
 Large volume clients (but this can be sensitive!)
Need clear policies in place from the start




Is exclusivity linked to performance?
How are your online sales/leads via your website handled?
Address possible conflicts of distributors vs. OEM’s
Are there “finder’s fees” for excluded opportunities?
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DEFINING AN AGREEMENT: KEY DETAILS
Sales details
 Payment terms
 Minimum volume orders? Sales forecasts? Standard delivery times?
Sales promotion efforts
 Who pays for advertising? Training? Trade shows? Travel?
 Sample/demo policy (Who pays for demo units and shipping? Who attends the
demos?)
Performance targets
 Agreement on indicators, milestones, objectives, etc.
 Minimum purchase requirements
 Bonuses for exceeding targets?
Reporting requirements
 What information? How? How frequently?
Confidentiality
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ANTICIPATING THE PROBLEMS
Product quality issues
 What happens when there is a product return or defect?
 Damaged goods policy?
Legal Details
 Escape clause: provisions for terminating the agreement, “just cause”
definition, notifications of termination
 Which country’s laws govern in case of dispute?
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KEY MISTAKES IN AGREEMENTS
Proceeding too quickly
 Start with a limited region to ensure performance
Exclusivity without requirements
 Best to make exclusivity contingent on performance if possible
Price change policy not clarified
 Once/year; upon 30-day notice; at will
Automatic renewal
 Better to have options for termination based on cause, performance,
or changing business strategy
Not specifying what happens after termination
 Products returned for credit? Who pays shipping? Timing?
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AND THEN…
Signing an agreement is just the first step.
Maintaining an ongoing relationship is critical
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MAKING IT WORK
FIRST THINGS TO PUT IN PLACE

Establish one person as the key contact with the distributor

Publicize the partnership
. On your website, press release, etc.

Set up sales training

Plan to attend trade shows together
. An effective way to organize many customer meetings in a short
period of time
. A good way to monitor distributor success

Do some joint sales calls

Start the practice of sharing leads immediately and
automatically
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PROVIDE CLEAR, CONCISE MESSAGING
Strong messaging
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


Who would want to buy your product and why?
Focus on benefits rather than product features
Suggest responses to expected competitive arguments
Provide specific messaging linked to customer sectors
Support materials




Promotional materials and presentations
Technical datasheets
Business Cases
Answers to FAQs
>> If it’s not clear how to sell, the distributor won’t!
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SOME MISPERCEPTIONS
Once I find a distributor, I don’t have to do anything
else and my sales will increase
 FALSE! You will need to spend time and effort, especially
initially, to drive sales. You will always have to manage
distributors to some extent. It can be time-consuming.
I should expect the distributor to follow my strategy
and do everything I say
 FALSE! Distributors are independent and will manage their
time and efforts in ways they feel will maximize their own
profitability
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UNDERSTAND DISTRIBUTORS’ OBJECTIVES
Distributors make their money by selling products
Therefore, to maximize profit, they try to sell as much
as possible with as few resources as possible
 They don’t like spending time building a new network,
writing reports, having unproductive meetings, etc.
 They will be more focused on the short-term, and where
sales are easiest
 They will generally favor dropping prices to win sales
In some cases, your objectives will not be aligned!
SEPTEMBER 2013
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ESTABLISH A POLICY FOR PRICE SUPPORTS
Distributors will try to get discounts or “price supports”
wherever they can (since it’s easier to sell products at
lower prices)
You have to decide how/when to negotiate
Set the standard quickly
 You don’t want to negotiate pricing for every major sale
SEPTEMBER 2013
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FIND CREATIVE SOLUTIONS FOR DIFFICULT ISSUES
Example 1: Demo equipment
 Customer gets demo product free for one week, but if the period
exceeds one week, they pay a daily rate
 Manufacturer pays transport to customer; distributor pays transport
back (in this way, both players are invested)
Example 2: Policy for excluded, large accounts
 Distributor gets a one-time “finder’s fee” for opening the door to new,
large prospects that you want to serve direct
 Alternatively, you may agree to provide a sales commission at a lower
rate, or for a specific period of time
SEPTEMBER 2013
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FINAL THOUGHTS: KEYS TO A SUCCESSFUL RELATIONSHIP
Matching expectations
 Objectives, support, reporting
Prompt resolution of issues and problems
Availability of both parties
Treat distributors like members of your own company
Keep the distributor interested
 Give discounts, bonuses, prizes, T-shirts, golf balls, etc.
SEPTEMBER 2013
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CONTACT
Michael MENDOLIA
Business Crescendo PARIS
30 rue Médéric
75017 PARIS
T +33 (0)1 42 27 26 40
M +33 (0)6 40 40 63 56
[email protected]
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« Trouver un distributeur qui vend ! »
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