Distributor Selection - Mastering the Assessment Phase

In my last Article and Post I presented a Simple Guide to Selecting and Engaging Distributors using the the A-B-C of Route to Market. 

As a reminder of the A-B-C of Route to Market, my aim is to simplify the world of RtM into a series of three steps that any RtM practitioner can execute.  I would like the message to be actionable by all professionals be they small business owners trying to find new export markets, commercial heads of large multinationals or RtM management consultants.

Regarding distributor selection, for example with a new market entry, it is vital to use a systematic approach.  Where many companies make a fundamental error is that they go straight to distributor selection.  This often results in choosing the wrong distributor partner and the market entry fails to meet expectations.

Fortunately using the A-B-C to Route to Market offers the recipe for success.

The first step is the Assessment Phase – or Where to Play as we sometimes call it.  I will describe some of the detail of this phase.

The assessment phase is crucial for evaluating the potential distributors and their suitability for your market entry strategy.  However we must look at the external market and our internal capability first.

External Perspective

Market Analysis:

• Market Size and Growth: Determine the overall market size, growth trends, and potential opportunities. Identify key customer segments and their specific needs.
• Customer Preferences: Analyse customer behaviour, preferences, and buying patterns. Segment the market to tailor strategies for different customer groups.

Channels:

• Distribution Channels: Evaluate the effectiveness of various distribution channels such as direct sales, modern trade, traditional trade, speciality channels, e-commerce, and third-party distributors. Identify the channels that best align with your target market.
• Channel Partner Capabilities: Assess potential channel partners' market reach, reliability, and alignment with your brand values.  See later.

Geography:

• Regional Demand: Understand geographical differences in demand, cultural nuances, and customer preferences. Identify key regions and population centres with high market potential.
• Infrastructure and Logistics: Evaluate the infrastructure quality and logistics capabilities in different regions. Consider transportation, warehousing, and distribution challenges.

Cost to Serve:

• Cost Analysis: Calculate the costs associated with serving different market segments and regions. Include distribution, logistics, marketing, and sales support costs.  Understanding cost to serve is critical before commencing distributor negotiations.
• Profitability Assessment: Compare the costs to serve against the revenue potential to determine the profitability of each segment and channel.

Competitor Analysis:

• Competitor Strategies: Analyse key competitors' strategies, strengths, and weaknesses. Understand their market positioning, pricing, and promotional tactics.
• Market Gaps and Opportunities: Identify market gaps where competitors are underserved or where you can provide superior value or service. Look for opportunities to differentiate your offerings.

Regulatory Environment:

• Legal Requirements: Understand the regulatory and compliance requirements in your target markets. Ensure your strategy adheres to local laws and industry standards.
• Regulatory Changes: Monitor potential regulatory changes that could impact your market entry or operations.

Trade Incentives and Restrictions:

• Incentives: Identify any trade incentives available, such as tax breaks, subsidies, or grants that could benefit your market entry.
• Restrictions: Be aware of trade restrictions, tariffs, and non-tariff barriers that could affect your ability to enter or compete in the market. Plan strategies to mitigate these challenges.

By conducting a thorough external assessment that includes market analysis, channels, geography, cost to serve, competitor analysis, regulatory environment, and trade incentives and restrictions, you have completed the first step in your assessment.

In other words, you now know where you have a right to play.  Critically it is not always in the largest segment, where the competition can be strong.

Internal Perspective

The next step is the Internal Perspective and your companies capability.

Resources:

• Human Resources: Assess the availability, expertise, and readiness of your workforce. Determine if your sales, marketing, and operational teams are adequately staffed and skilled to support market entry, for example.
• Financial Resources: Evaluate your financial capacity to invest in market entry efforts. Consider the budget for marketing campaigns, distribution setup, technology upgrades, and supply chain improvements.

Competency:

• Core Competencies: Identify and leverage your organisation's core strengths and capabilities. Determine how these competencies can provide a competitive edge in the new market.
• Training and Development: Assess the need for training programmes to enhance team skills and competencies. Plan for training initiatives to address any skill gaps and ensure your team is prepared for market entry challenges.

Technology Infrastructure:

• CRM and ERP Systems: Evaluate your current Customer Relationship Management (CRM) and Enterprise Resource Planning (ERP) systems. Ensure they are capable of supporting your market entry strategy, including handling increased data and facilitating efficient operations.
• Data Analytics: Assess your data analytics capabilities to ensure you can gather and analyse market data effectively. Utilise insights from data analytics to inform strategic decisions and optimise performance.
• IT Support: Ensure you have robust IT support to handle technological needs and troubleshoot issues promptly, maintaining smooth operations.

Digital:

• Digital Marketing: Evaluate your digital marketing capabilities, including your website, social media presence, SEO, and online advertising. Identify areas for improvement to enhance digital engagement, reach, and conversion rates.
• E-commerce: If applicable, assess your e-commerce platform's readiness for the new market. Ensure it supports local payment methods, currency, and shipping options, providing a seamless customer experience.
• Digital Tools: Evaluate the use of digital tools for communication, collaboration, and project management within your teams. Ensure these tools are optimised for efficiency and effectiveness.

Supply Chain:

• Logistics and Distribution: Assess your logistics and distribution network to ensure it can handle the increased demand and geographical coverage needed for market coverage. Identify any potential bottlenecks and develop strategies to address them.
• Inventory Management: Evaluate your inventory management practices for efficiency and scalability. Implement systems to optimise stock levels, reduce lead times, and manage inventory across multiple locations.
• Supplier Relationships: Review and strengthen relationships with suppliers to ensure they can meet the increased demand and maintain quality standards. Consider developing new supplier partnerships if necessary to support market entry.

By conducting a comprehensive internal perspective assessment that includes resources, competency, technology infrastructure, digital capabilities, and supply chain, companies can identify their strengths and areas for improvement.

We are now ready for the third step in the Assessment Phase – consideration of potential Distributors.

Distributor Selection

It is only now that we are ready to consider our search and selection of distributors.

Model Distributor:

• Model Distributor: Define the characteristics of your ideal ‘Model Distributor’, including market expertise, financial stability, and alignment with your brand values.
• Size: What is the minimum size (turnover and profitability) of your Model Distributor? They will need to be profitable enough to invest in their business, for example. Ideally, translate this data into an outline Proforma P&L Statement and Balance Sheet.  Consider if you have a desirable target size of distributor in terms of your business as a proportion of their overall sales.  There is always a proportion above which you will command more of the distributors attention and resource. Conversely a very high proportion can be risky.
• Experience and Reputation: Look for distributors with a proven track record of success in your sector. Evaluate their reputation within the market and their relationships with key stakeholders.
• Cultural Fit: Ensure the distributor’s business practices and culture align with your company’s values and operational standards.

Distributor Capability:

• Operational Efficiency: Assess the distributor’s operational capabilities, including warehousing, logistics, and inventory management. Ensure they can handle the volume and complexity of your products.
• Sales and Marketing: Evaluate their sales force size, experience, and effectiveness. Consider their marketing capabilities and how well they can promote and sell your products.
• Technological Integration: Check their ability to integrate with your technology systems, including CRM, ERP, and data analytics platforms. This integration is crucial for seamless operations and real-time data sharing.

Distribution Coverage:

• Geographical Reach: Determine the distributor’s geographical coverage and their ability to reach your target market segments. Ensure they have a strong presence in the regions in which you are aiming to compete.
• Channel Access: Assess their access to various sales channels, including retail, online, and direct sales. Ensure they can effectively distribute your products through these channels.
• Customer Base: Evaluate their existing customer base and the potential for cross-selling and upselling your products to these customers.

Distributor Macro Assessments:

• Long List: Now that you know the kind of distributor that fits your needs, you can draw up a list of potential distributor partners.  Clearly good local market knowledge will be needed to identify candidate distributors.  Do not, repeat, do not, rely on an internet search.  If in doubt, contact an expert firm such as Enchange.
• Macro Assessment: Conduct an overview assessment of potential partners.  This can generally be done remotely. Start with some Assessment Criteria, possibly weighted, and measure potential partners against your chosen criteria.  
• Initial Contact:  Make initial contact with candidate distributors and schedule a call with the Owner and or General Manager.  
• Short List: You should now have identified your short list of candidate distributors.

In conclusion, by conducting:

• A thorough external assessment that includes market analysis, channels, geography, cost to serve, competitor analysis, regulatory environment, and trade incentives and restrictions, undertaken.
• An internal assessment of your organisation that includes resources, competency, technology infrastructure, digital and supply chain and
• Having defined your model distributor, identified a long list of candidate distributors, and undertaken a macro assessment of each …

You will have identified your short list of Distributor Partners.

You are now ready for the Blueprint Phase of Distributor Engagement.  I will deal with this in a future Article.

Finally and hopefully it should now be clear why you should not rush straight to distributor selection.

 #enchange #sales #routetomarket #distributors

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