The 5 Biggest Mistakes Manufacturers Make in Channel Management

Manufacturers have many valid reasons for changing channels in an updated go-to-market strategy. However, it may be unnecessary to make expensive and disruptive changes to a channel design when the easy answer could be as simple as not doing one (or any) of the deadly sins listed below.

No. 1: Failing to have enough market coverage

Channel design 101 states that manufacturers must sell to customers the way they want to buy, whether that’s through distribution, online or another method. To meet the customer where they are, incorporate those channels into an aligned go-to-market strategy and broaden your market coverage.

A strong indicator of poor market coverage is a lack of channel conflict. Rather than avoiding this conflict, manufacturers should embrace it and manage it. This can take the form of selling through Amazon (for a slightly higher price) in addition to your distributors. By selling on Amazon and letting customers get their orders faster, especially in times of crisis, you not only maintain customer loyalty but also provide benefits to the entire channel.

Consider these two questions as you analyze your market coverage:

• Do we have enough channel conflict, indicating effective market coverage?
• Are we reacting to channel conflict, or are we managing channel conflict?

No. 2: Failing to have clear rules of engagement

To successfully manage channel conflict, manufacturers must share guidelines that remove uncertainty with channel partners. Reducing uncertainty increases distributors’ willingness to grow your line.

Clear rules of engagement avoid situations where a distributor might feel betrayed by a manufacturer suddenly going direct. Outline specific conditions under which you would take business direct, making sure every party is aware in advance of what those conditions are and what would trigger a change (no retroactive changes here).

You want to provide your distributors with enough confidence to invest in growing your line with the knowledge that they won’t have the rug yanked from underneath them. When they have enough certainty around how you’ll behave, trust is established and maintained.

No. 3: Failing to let field reps manage channel conflict

All partners should see their local rep making powerful decisions. Why? Because it enhances their market power. While headquarters handles national relationships, they won’t be as effective at the local level. In fact, changing priorities or direction in the field by telling a local sales rep to invest more effort with a specific location of a national distributor is bad practice.

If local reps have been ignoring locations of national distributors, it’s usually because they aren’t in the local rep’s group of most desirable partners. The national distributor often knows that this location is underperforming and may ask suppliers to help improve performance. When the real issue is weak management and the distributor team doesn’t welcome feedback, this issue is best ignored. Unless the product is a pure commodity, the rep can’t have every distributor location representing the product. 

Ask your field sales team to rate how often their priorities are changed by corporate around local branches. Then, ask the same to the sales executives. If these two scores are significantly different, a discussion needs to take place.

No. 4: Failing to cultivate trust and transparency

Sharing information ensures effective alignment around growth opportunities for both manufacturers and distributors. This loyalty goes both ways, and the resultant trust has significant economic value to both sides: It dramatically lowers resource misalignments, reduces surprises and conflicts, and supports mutual investments in growth.

With trust and loyalty, when a distributor says, “You’re not competitive on that product, so I don’t want to put a lot of effort into it,” you can respond with, “We’re working on it, but where can we grow? Let’s both find something specific to invest in that helps both of us.”

It’s good practice to behave based on your position within your distributors’ overall resale volume. If you aren’t in their top 20 suppliers, you most likely don’t require annual planning from them. Your appropriate role is to be easy to do business with. On the other hand, national distributors are investing millions of dollars into their innovation efforts, so a healthy level of trust could open some powerful doors to collaborate.

No. 5: Failing to keep up with market changes

The cost to fix a major channel realignment is much more expensive than the costs of tackling the bumps in the road as they come. Manufacturers and distributors should communicate transparently and regularly.

One of the earliest signs that this is an issue is when your sales force increasingly complains about their channel partners doing bad things.

Let’s say a market change occurs that requires a small policy or practice change. Any market change can threaten one or more existing channel partners. If one of your partners decides to retaliate for your inability to keep up with fluctuating market demands, you risk losing market power.

Remember: Poor channel design and management is often the root cause of low revenue growth. Now is a good time to evaluate your channel management and Mike Marksask key stakeholders to privately rank the sins based on your company’s level of guilt. A lack of appropriate channel management can leave your sales team unprepared, which will only cost you money and potentially channel partners in the long-run. 

Mike Marks is the Founding Partner of the Indian River Consulting Group, focused on B2B channel-driven markets. Prior to founding IRCG, Mike worked in distribution management for more than 20 years. Reach Mike at ircg.com.