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In Part 1 of this two-part article on building and sustaining a great distribution chain, you’ll learn about the need for distribution chains, the types of distribution channels to consider, and how the locations of distribution partners and their potential types of leads and customer interactions determine the makeup of your distribution chain.
Now, in Part 2, you’ll learn how to align your channel partners with your business, what kind of things can go wrong, and the steps to fix incompatible relationships.
How to Create and Align Channel Partners with OEM
It looks like you can’t open a trade post without seeing the word “align” (or “alignment”). When I did a Google search for “business alignment” I got 735,000,000 results.
Look at this definition of In effectand you’ll see why it’s everywhere: “Business alignment refers to a process that organizations use to improve collaboration between different areas of their organization and streamline their business efforts.”
Considering all the touchpoints your channel partners can impact, you can see why your business and its partners need to act as one unified organization. Here are the high-level steps you need to take before you start selecting and naming channel partners:
- Thoughtfully define how your business wants to be perceived by prospects and customers. All of your company’s leaders and key employees must agree or you will fail.
- Create unique legally binding contracts for each unique type of channel partner. You don’t have to create all of the contacts at once, but you should have at least one complete document and a designated person to ensure that no deal is ever negotiated without its unique contract. Don’t forget to include a non-disclosure agreement with duration if you separate. Also try to anticipate changes to your business models, like XaaS, that you might implement in the future.
- Develop a process to certify everyone who interacts with your prospects and customers, both in your business and throughout your distribution chain, to ensure that everyone receives the same messages, in the same way, using the same documents and software.
- To plan a compensation arrangement that will work for you and the partners. Land on typical numbers because you want the flexibility to swing real money back and forth if your recruiting doesn’t exactly match ideal profiles.
At this point, you can release a map of your first country or global region to market. Start with the metropolitan area with the highest long-term projected product density. Decide how you will sell and service your products and what kind of partner you want in both roles. Build your map from there and decide the order in which you will fill the different roles.
Don’t be frustrated if you can’t always follow the plan because sometimes the type of partner you want in a particular place doesn’t exist. Be flexible and make sure you have a certified person or team in place when you need them. Don’t let “perfect” be the enemy of “good enough”. You can always modify both the plan and the distribution partners.
How can a timing chain go wrong?
If you don’t define your expectations with your potential partners before discussing how responsibilities and revenues will be shared, you risk being locked into an arrangement that destroys, rather than creates, customer value. Here are some examples.
Example 1: The Overprotective Channel Partner
Our VP of Sales managed a group of direct sellers in the United States. When one of them moved, he decided to hire a well-respected sales agent who was well known in our industry and who had recently been fired by one of our competitors. His training time was minimal and done remotely in an era before Zoom.
After about six months, our VP asked him to enter his sales pipeline into the system used by all direct sellers. The VP received a brief “no” note that explained that his prospects were his own and that he did not want us to interfere in his sales process. He told us that he would update our CRM system once he received the sales order from the prospect.
As you can imagine, the relationship quickly deteriorated and we soon broke up. We lost about a year of sales in this territory. It was a hard way to learn that lesson.
Another example of an overprotective distribution partner is the department manager of a full-service distributor. While they were required to send us a signed copy of every closed service order, they withheld any documents that made their employees, or the customer, “fresh”. Without this knowledge, the OEM was limited in refresher training and continuous improvements.
Example 2: Channel Partner Offers Discounts
An industrial equipment manufacturer has hired a new aftermarket salesperson. One of his first analyzes was to look at parts sales by asset for all installed products. She found nothing abnormal.
Then she grouped them by region and noticed two things: (1) one systems integrator (SI) had much higher sales per asset than any other systems integrator in the country, and (2) the End users in this region had the lowest sales per asset of all regions.
This salesperson must have been part detective because she learned that IS was buying spare parts from us at their normal discount and selling them to all customers for 10% less than our established list price. In this case, the OEM took some of the blame because they didn’t have a written policy on keeping list prices and also poaching the OEM’s sales.
Example 3: Channel Partner Sells Non-Genuine Parts
The same aftermarket seller also identified a dealer who purchased a lower than average quantity of spare parts. Upon further investigation, she discovered that they did not sell genuine OEM replacement parts, but rather parts purchased from industrial distributors and even a local machine shop.
In this case, they terminated the relationship and notified the affected end users. And, of course, there were many nasty conversations with end users about who would be liable if one of these unauthorized parts failed in a way that damaged the asset.
Example 4: The distribution partner without documentation
An individual distribution partner has decided to shut down their business without giving us much notice. He kept most of his business information in his head.
Therefore, while we knew where the equipment was, we had no idea about his broken promises, the “handshake” deals he made, and even his evaluation of his employees. The OEM was left hanging and customers were very upset because the OEM refused to honor undocumented agreements.
Replace a partner or limit what they do for your customers
No matter how meticulous you are, you will make mistakes. If you need to separate a partner from your business, you need to remember that the person or team will still be in the same business as usual, and you don’t want them to speak ill of your business to prospects or to customers. Be as fair as possible and remember that sometimes a good recommendation will be more valuable to them than the money.
As part of a separation agreement for a business organization, you can include a clause that if they meet an ideal prospect, they must immediately provide you with all contact information and that if the prospect becomes a customer, they will receive a fair commission. You still want former distribution partners to always speak positively about your organization, your products, your services and your people.
The advantage of a large distribution chain
Developing a distribution chain with strong and reliable partners will set your business apart from your competitors. However, don’t expect things to go smoothly every day.
Since the beginning of time, sales and service managers have described themselves as professional fire hoses rushing to put out fires. The advantage of having a good timing chain is that fires are usually small and happen less frequently than if you hadn’t spent the initial time doing all the planning.
Sam Klaidman is the founder and principal advisor of Middlesex Council. It helps its B2B product manufacturer clients to increase the turnover and profitability of their services by applying the methodologies and techniques associated with the Customer Value Creation and Customer Experience businesses to support its customers in the design and the marketing of new services and the associated business transformations. Contact Sam here.
Image Credit: Branislav Nenin / Shutterstock.com