Synopsis: Specialty Chemical Channel Erosion
We worked with a specialty chemical manufacturer several years ago that was the leader in the industry and had been introducing new product categories every few years. In spite of this, revenue growth, as defined by gallons of product sold per year was flat and had been flat for ten years.
While they had worked diligently on their product strategy, their channels strategy had not changed for decades. A key reason for this was that over the years the channels evolved, even creating private label brands that competed with our client’s, but loyalty and inertia had kept our client from seriously looking at its distribution network.
Our research identified the problems with the competing private label product lines as well as limitation in how well these channel were serving different customer segments. The client had several key challenges.
The first was to win a bigger share of the business that his existing distribution channels were seeing. This essentially required taking share from their private label brands. The second challenge was to expand market coverage to underserved customer segments.
Both of these challenges required major changes in channel strategy and the role of the sales force. These changes were very painful for the sales force, sales management and senior management, as they broke the status-quo that had existed between our client and his dealers that had been in place for decades. The result was that the manufacturer began to exert more control over the channel. The channel fought back and nobody was happy, except for the fact that the company started to grow again!
The strategy, while painful, was necessary as the client had lost its position within the channel. While still the leading supplier, their share position had eroded over the years. Their biggest historic mistake was not addressing the channel’s movement away from their product line when it first happened. This was the time the client could have develop product lines and marketing programs that would have met many of the channel’s needs, and minimized the erosion of sales that was taking place with limited channel disruption.
The lesson for marketers is to keep a keen focus on their channels to assure they will be long term sustainable partners – both your share of your channels’ business and also their share of the markets you have assigned them to serve.