Mind Your Distribution Channels

Tom Peters

Harvard business professor Tom Bonoma coined the term “global mediocrity.” He argues that a sharp marketing plan is compromised when “management attempts to make up for poor-quality distribution relationships with more distributors.”

Most firms make the mistake of paying too little attention to the somewhat attenuated members of their marketing team. “Sales” staffs who work with distributors or franchisees are too few and too low in the corporate pecking order. By such treatment, a golden opportunity is lost.

Companies that mind their distribution channels reap tangible rewards. Steelcase Inc. in Grand Rapids, Michigan, has $1.2 billion in sales and a 20 percent market share in the highly fragmented and competitive office furniture market. Its products are fine, but it really distinguishes itself from the pack by having earned a solid reputation for delivery, timeliness, and service quality. Steelcase works exclusively through dealers and lavishes exceptional attention on them.

By contrast, American auto makers have sorely neglected their dealers in the past few years, compounding a poor quality record (in the consumers’ eyes) with poor delivery via the dealers. I criticized one auto company for its poor ratings in a consumer satisfaction survey. An executive’s lame excuse was that the survey was weighted heavily with dealer satisfaction measures, and after all, they couldn’t be held responsible for that!

Can you imagine McDonald’s responding: “Our Big Macs are great; the cleanliness of the stores is not our responsibility?”

Contrary to the auto experience, Deere.& Co., Caterpillar Tractor Co., and Clark Equipment Co., among others, have been buffered a bit by their superb dealer relations. All three, like Steelcase, have poured attention on their dealers even in the worst of times.

Attention is one part of it; the willingness to weed out bad actors is another. I believe that one’s distribution channel should be purged of the bottom five to ten percent of performers every year. David Ogilvy, the advertising legend, bragged that he fired many more accounts than had fired him. At some point the behavior of these clients began to seriously affect his staff morale. Likewise, franchisees or distributors whose quality and service are sub-marginal can pollute the entire company and its customer base.

The decision to weed out is a tough one. It is a vote against a customer and a vote against volume, the holy grail for so many. Examination of the long-term successful franchisee operations, though, clearly suggests that the winners focused as much on quality of operation as on volume. When franchisees didn’t measure up, they were canned or their territory was bought back.

And yet, time and again, I find hotel or fast food chain managers who haven’t dumped a franchisee in years. In the auto business, General Motors Corp. is moving belatedly to rectify the problem, exercising rights that have been theirs all along. To gain the right to apply for a Saturn dealership, for instance, any current GM dealer must have a superb customer satisfaction rating. It’s about time.

Incidentally, this prune-and-focus-on-quality strategy applies to the middlemen, too. The smart (profitable) wholesalers or manufacturers’ representatives will weed out brands and companies that offer suspect quality products or fail to meet warranty claims. The rep who allows a portfolio to be marred by a poorly performing supplier is at risk.

The process of focusing on the relationship between producers and consumers was nicely summarized by the head of a $60 million electronics company. Explaining his decision to quit some of his biggest customers, he says, “Our focus is on value rather than price. Customers who squeeze their suppliers to get the maximum price discount are the same ones who give the most problems after they purchase. They cut corners on maintenance and cleanliness. They push equipment beyond its specifications. In short, they run the rest of their business in the same fashion as their purchasing.”

I’ve written several times about profits associated with producing and delivering the highest value-added products and services. The logic that guides such a strategy is exactly transferable to relationships with distributors, franchisees, and trade in general. Frito-Lay found that it could afford nearly 10,000 salespersons to nurture its relationships with retailers of all sorts and sizes. Its nearly half-billion dollars in pre-tax profits on $3 billion in sales suggests that it’s on to something.

How much are you investing in your staffing to support distribution channels? Are you focusing primarily on the quality of performance your channel members offer as much as, or more, than on their volume? Do you regularly prune poor performers from your franchisee or distributor lists, even if their volume is high? Answering these three questions and looking for bold-new approaches to channel management are vital keys to your future profitability and growth.