Wednesday, September 2, 2009

No time to be cocky if you sell through the channel

In a previous recession, a former client, the president of a multinational company, had a business that was down 20 percent. He felt it was time to take his dealer network up a notch and demand more from the dealers. I didn't disagree with him that the dealers could do better.

He then said, "Since our business is down 20 percent, that means the dealers are down, too, which means I can play hardball with them. They need me more than ever."

That I disagreed with, but he didn't listen. He went ahead and crafted a new policy toward dealers that included reduced commissions and reduced territories. It went over very poorly and was a disaster. Why? Because he didn't understand the dealer mentality.

The average dealer is a small business person. He or she is important in the community and is not, generally, not in awe of a corporate exec. Many dealerships are family businesses, which means the current dealer principal is second- or third-generation, is used to living pretty well and is not interested in losing a hard-earned position in the community or at the country club or wherever. The focus is on protecting his or her wealth.

Upon hearing the threat from the president, several dealers quit and joined up with his competitors. The vast majority did not quit; they did something worse. They gave lip service to the president and then went about protecting themselves by dabbling in other small business ventures that would add a little money to their coffers. All that activity took the focus off my client's business and, in turn, he saw his sales and market share plummet further. His career with that company ended soon after that.

The corporation that sells through channels such as dealers or reps needs to make it as attractive as possible for the dealer (or rep) to focus all its energy on selling its products or services.

Just because sales are down doesn't mean the dealer is more focused on your product - in fact, it may mean the opposite.

Barry LaBov
LaBov and Beyond

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