Synopsis: Environmental Products – Channel Conflict
A road construction accessories manufacturer was experiencing a tremendous amount of channel conflict between its distributors and called in QDI to help him better understand why this conflict was taking place, the severity of the conflict and solutions to overcome the conflict if it was hurting sales.
It is common knowledge in distribution that conflict is a requirement for market coverage. As the saying goes, “If you don’t have conflict, you don’t have coverage.” This is fundamentally true as distributors would prefer exclusive territories so they have no competition on your products. However this creates a situation where the distributor can start to “cherry-pick” the market and “maximize pricing and his profits.” This type of distribution makes sense when the market is in the early stages of development, where the costs of sales and marketing are high, justifying the effort to minimize inter-brand competition. However, as the market begins to grow, the result of this coverage model is that the manufacturer’s share will always fall below its potential.
QDI conducted research with a cross section of distributors from large to small in each of the company’s sales regions. Our research revealed the client’s 300+ distributors competed 40% or more of the time with the company’s other distributors. The result of this level of competition was that our client’s large distributors had moved to handling competitive product lines so they would have alternatives to sell against distributors with our client’s line.
This was surely an example of “too much conflict.” The conflict was reducing our client’s presence to the sale, as sales reps would bid competitive products instead of ours to assure they don’t have direct price competition.
QDI proposed a strategy to our client to focus on selective distribution, which would reduce distribution to 30 distributors who could provide adequate geographic coverage and minimize conflict. QDI proposed a “full line partner” program which provided more attractive market opportunities to distributors in exchange for greater focus on our client’s product lines.
As a result of this select distributor partner program, several larger distributors that previously worked for the competition switched to our client’s products. Since the client initiated this program, the channels no longer bid against other distributors carrying our client’s products and therefore make a greater effort to sell the clients products. Overall sales and increased and costs have decreases as the client is supporting fewer distributors.