The Plight of the Distributor
Carlton Hoyt
Let’s be frank: if you are a laboratory products distributor, you have a ton of competition. With inexpensive digital marketing at anyone’s fingertips and drop-shipping increasing in prevalence, it’s incredibly easy for almost anyone to start a distribution company with little up-front investment. As the laws of economics would predict, if something is cheap and easy, lots of people will try to do it.
That doesn’t mean it’s easy to succeed, however. In fact, it may be more difficult than ever.
The Value Squeeze
There are way too many distributors out there and differentiation is hard to come by. Distributors are facing increasing pricing pressure, and while it is certainly in part due to heightened competition and simultaneous tepid growth in research budgets, eroding margins also have a much more fundamental reason.
As a whole, distributors simply don’t add as much value as they once did.
Information used to be time consuming to find, and often difficult or impossible to find. Distributors were once viewed as a critical source of knowledge on various equipment. Today, for many purchases, it’s very easy for scientists to obtain the large majority of the information they need on their own. Doing so is often significantly easier for the scientists than subjecting themselves to a sales rep. We see evidence of this in the increasing delay of when customers are contacting suppliers within their buying journeys. The value of distributors to customers has eroded.
Geography used to be a massive barrier to the flow of information, and a local distributor was critical to allow customers to even know a product existed. Today, according to BioBM’s own research, 100% of users perform an internet search at some point in a buying journey (unless their goal is only to purchase a known product from a specific brand). Any company anywhere in the world can get in front of that customer with a simple search ad which costs all of a few dollars. Email can connect any two people in the whole world. Even product demonstrations are becoming increasingly virtual. The result: the value of distributors to suppliers has eroded as well.
The Four Models for Successful Distributors
The old rules are no longer relevant. Being a distributor in today’s business environment means assuming a particular role and providing a particular value. As such, there are a limited but highly defined number of business models which can reliably provide long-term success to both new entrants and incumbents alike.
- The Price Competitor. The Price Competitor attempts to be as visible as possible for people who are looking for a specific product, offer as many products as possible, and offer them at the lowest price. They seek the value buyers – people who know exactly what they want and only want the best price – and provide value to those customers by sacrificing margins to provide discounts. Their advertising is minimal but effective, as their razor thin margins simply don’t allow much else. They generally will deflect as much of the responsibility for support back to the manufacturers as they don’t want to spend the resources to do otherwise. For The Price Competitor, reducing cost as much as possible becomes almost a singular focus. The distributor who can obtain the best prices from their suppliers while operating on the lowest margins is most often the winner. The smart supplier, however, will avoid the price competitor, as they add little to no value to the supplier so long as the supplier’s list pricing is competitive
- The Exclusive Rep. The Exclusive Rep fills their product portfolio with unique items that they obtain exclusive rights to resell within their territory. Being beholden to their product lines, their success is often based on the products which they represent and their ability to maintain favored status with suppliers. To obtain their exclusivity, The Exclusive Rep will bear additional responsibility for developing the market in their territory, stock inventory, offer demos, or perform other services which are of value to the supplier. The additional value to the customer comes in the form of convenience – having someone local who knows the products well.
- The Relationship Builder. A difficult model for new entrants and one that is arguably the most endangered, The Relationship Builder relies on person-to-person relationships between their sales team and researchers. They rely heavily on an outside sales force. Acquisition of business is based on trust, extremely high levels of service, and loyalty. Because of this, they break the trend of the customer taking control of their buying journeys and instead customers may involve The Relationship Builder earlier and more directly. Relationship Builders used to be able to be effective in all types of sales, however due to easing access to information are presently most successful for complex purchases. These types of distributors add value to the supplier by having existing relationships with potential customers and add value to the customers by being a trusted source of information to aid them in their purchasing decisions.
- The Decision Engine. The Decision Engine provides a superior customer experience which makes the buying journey easier and more fulfilling for their customers. Their success is based on their ability to claim ownership of as much of the customers’ buying journeys as possible. They are adapting to a declining ability for salespeople to influence customers by providing the platform on which customers make their own decisions. The Decision Engine provides value to customers by enabling them to make purchasing decisions more quickly and easily, and provides value to suppliers by drawing in potential buyers.
Note that these business models are mutually exclusive. The price competitor generally does not have sufficient resources to take on any of the additional duties required by the other business models. The exclusive rep cannot be a decision engine due to lack of choice within each product category. The decision engine and the relationship builder have conflicting approaches to serving the needs of the customers’ buying journeys. The relationship builder will have a difficult time being seen as a trusted advisor if they are only promoting a single type of solution for each customer need, and therefore cannot reliably be an exclusive rep.
Lacking the ability to meaningfully differentiate aside from by their product offerings (and only the exclusive rep can reliably secure a differentiated product line), distributors must pick one of these business models and execute it better than the competition. That is the only mechanism to ensure success. Even then, the changing nature of scientists’ buying journeys puts business models themselves at risk.
Ready to start your journey to success? Let us guide you."
Why MAPs Are Good Business
Carlton Hoyt
I’ve heard a number of manufacturers say that online sales are “a race to the bottom.” That’s a bit like hearing a dinosaur tell you that being warm blooded is overrated. While online sales certainly aren’t right for all types of products, e-commerce often provides a superior experience for purchasers – usually because it’s easier and faster. Research from Forrester has shown that 49% of B2B buyers have intended to buy a specific product then purchased another product because it was easier to buy online. 88% of executives purchase products online. $1.1 trillion of B2B sales are projected to move online by 2020. This will likely only accelerate with generational change, as younger purchasers are far more likely to make B2B purchases online.
There is, however, a legitimate concern that e-commerce, with its much more public pricing, causes downwards pressure on prices. This is strongly exacerbated when selling through distribution – particularly if you have multiple distributors in the same country or who sell in the same currency. Especially in the United States, there is an endemic of discount, online retailers who add little to no value while encouraging price competition and therefore decreasing margins and disincentivizing other distributors from spending on marketing or support. They are effectively leeching off other distributors and, if domestic, off the supplier itself. This creates a situation where pricing is no longer based on value (which has been proven to capture more value) but rather based on cost, with distributors selling at the lowest margins they are willing to accept regardless of the magnitude of the discount the supplier provides. Low margins erode your distributors’ ability to spend on marketing and provide quality support.
Fortunately there is one simple solution to all of these issues; One that prevents the “race to the bottom,” disadvantages distributors who cannot add value to the sale, and potentially allows suppliers to recoup value for themselves. That solution is a strong and enforced minimum advertised price policy. We strongly encourage minimum advertised prices any time where there is competition between sellers of the same product, be it distributor-distributor or supplier-distributor.
MAPs: Encouraging Good Competition
A minimum advertised price (MAP) policy is either a contractual or informal agreement not to advertise products below a specified price. (We strongly recommend that MAP policies be written into distribution agreements to increase their ability to be enforced.) The MAPs may be individually specified for each product or they may be a fixed percentage of all product prices. Distributors who are found to violate the policy are usually given notice and have a specified amount of time (set in the agreement) in order to bring their advertised prices in line with the MAPs. Those who do not may be subject to a range of penalties, varying from reduced discounts to immediate suspension of the distribution agreement.
An enforced MAP policy protects distributor margins, enabling spending on marketing and support, which help drive demand and improve customer experience. It disadvantages distributors who are not adding value to the sale, since by eliminating price competition it forces distributors to compete based on customer experience. These improved customer experiences are positive not only for the customer but also for the brand, since an improved experience will lead to increased overall satisfaction with the brand.
If your distributors are giving deep discounts in the absence of an MAP policy, that probably means you’re discounting more than necessary to begin with, and therefore throwing away value. If you are confident that your pricing is competitive, there should be no need to discount. By discounting, your distributors are affirming that they have more margin than they need. You can therefore reduce distributor discounts and retain more value, or institute a higher MAP and give more value to the distributor, thereby encouraging sales. As most suppliers advertise their own list prices by default, any distributor discounts in areas where you sell direct potentially allow your distributors to undercut you. (We’re big proponents of setting competitive list prices then having MAP set to the list prices.)
Competition based solely on price is detrimental to the distributors, the supplier, and the supplier’s brand. By establishing and enforcing a minimum advertised price policy, you’ll largely eliminate bad competition and replace it with good competition that elevates the brand by requiring competition be on the basis of enhanced customer experiences. You’ll reward your best distributors, discourage the discounting “leeches” who don’t add value, and potentially be able to claim more value for your own company as well.
Case: Distributor Incentives
Carlton Hoyt
Case studies from BioBM are fictionalized, although the situations are faced by leaders at real companies.
LabTherm, a small, US-based manufacturer of laboratory incubators and ovens, had developed a proprietary heating technology that allowed them to provide a very high degree of temperature accuracy and uniformity more inexpensively than other high-end manufacturers. While they had a price advantage compared to other manufacturers that competed on quality, they still competed at the high end of the marketplace. LabTherm had been founded by Calvin, an enterprising engineer, about 7 years prior. After an initial period of slow growth and very modest revenues, LabTherm seemed to be starting to take off and was growing rapidly. They had recently made their 20th hire and moved into a larger space to accommodate their growth, although they remained a very engineering-focused organization.
New Responsibilities Bring New Ideas
John had been a sales associate within LabTherm but expressed an interest to do more, and was recently granted new responsibilities and a new title. He had previously dealt primarily with end users in the US as well as some independent US-based sales reps, but was recently promoted to business development manager, a position which expanded his responsibilities to managing distributors internationally, under the supervision of Janice, LabTherm’s VP of Marketing and Sales.
On the recommendation of Janice, LabTherm had recently undergone a big push into Asia, adding many distributors across East and Southeast Asia. One distributor in particular, MegaLab, which operated in Eastern China, was proving to be a star. MegaLab’s sales had rapidly eclipsed those of many dependable, long-time distributors in the US and Europe. Between the new distributors and a new marketing push, LabTherm was growing rapidly and had more than doubled in size over a two-year span.
John saw what MegaLab was doing and wondered how the other distributors could be influenced to do the same. While there were some distributors who did no more than address international leads that came in directly through LabTherm, many were competent, seemingly interested distributors who actively promoted LabTherm’s line, John thought they were not doing as much as they could. An analysis he performed and presented to Janice supported that belief; yes, China was a large research market that was surpassing that of many European countries, but compared to the respective market sizes MegaLab was still far outperforming LabTherm’s european distributors. Furthermore, MegaLab had done this without exclusivity in China (they were only very recently granted exclusivity), while many of the European distributors had exclusive rights to sell the LabTherm line in their territories.
LabTherm already knew they were leaving a lot on the table internationally. Although the number was much lower than it was a few years ago, about 75% of their sales still originated domestically from US customers and reps. MegaLab had grown to account for one-quarter of all sales that came in through LabTherm’s distribution partners.
While Janice was happy with the direction that LabTherm’s international sales were heading – international sales growth had slightly outpaced the very high rate of domestic sales growth – she recognized there was a problem. Janice and John went to Calvin, the founder and CEO of the company, to propose they rethink their distributors’ incentives. After John presenting his case, Calvin gave the project his blessing, provided they don’t do anything that would interfere with business from LabTherm.
Managing Incentives to Increase Distributor Performance
Being a small company, LabTherm didn’t find it necessary to formalize their distributor incentive plan, but they had an informal plan which was applied to all distributors. New distributors were given one-year non-exclusive agreements. After the first year they may be given exclusivity, dependent primarily on their sales. Discounts were provided based on order quantity within any particular order. LabTherm’s sales and customer service support to both the distributors and their customers were excellent, but they didn’t offer much marketing support beyond putting the distributor name and contact information on brochures and other marketing assets.
John was confident that failing to provide more support in marketing was probably a hindrance to the success of a number of distributors, but he also didn’t believe there was much he could do about it. Calvin, who retained direct control over new spending, was very conservative with marketing spending. John and Janice had once lobbied him for a simple Google AdWords campaign, and Calvin didn’t like the idea of buying traffic – even traffic that was seemingly highly relevant. Calvin believed that organic search, word-of-mouth, and their relatively new email marketing efforts were enough. They walked away from that meeting without even a modest budget for search advertising.
Another non-starter was public pricing. LabTherm posted all their prices online and also had online ordering to make it as easy as possible for domestic customers to place orders directly. While this was a source of discontent from MegaLab and many of LabTherm’s distributors, Calvin, Janice, and John all believed that they would hurt themselves by removing pricing from their website. Not only would that be a significant blow to their e-commerce sales, if not render them implausible altogether, but it could also cost them their price advantage. After all, they thought, if the domestic customers can’t see that LabTherm had lower pricing, they wouldn’t be nearly as likely to buy LabTherm.
That didn’t leave them a lot of room to work with. John suggested that they change their order size-based discount incentives to discounts based on total order value over the past year. “What we want to do is encourage total sales, not just large orders,” John said to Janice. “Having discounts based on order volume doesn’t incentivize greater total sales, but rather fewer amounts of larger orders; it encourages stocking inventory. Plus, otherwise good distributors who don’t want to stock inventory may be turned off if we’re effectively trying to push inventory on them based on our discount scheme.”
“But we want those big orders,” Janice replied, “and we want distributors to keep inventory. Not only does it help reduce prices for end users by greatly reducing the effective per-unit shipping costs and also reduce order fulfillment times by having units locally available, but if distributors are sitting on inventory they’re going to want to get rid of it as soon as possible. That means they’ll be more motivated to promote and sell the LabTherm products.”
“What about a hybrid solution?” John asked. “It doesn’t have to be all one way or another.”
“True, but I don’t want to create a situation that’s so complex no one knows what any given distributors’ discount is at any point in time. Imagine poor Laurie having to keep track of all that,” Janice said, referring to LabTherm’s bookkeeper who also processed orders. “And it’s not going to be any better on the distributors’ side. A lot of our distributors are smaller companies than we are, including MegaLab. They’re not going to want something that complex either.”
They sat in silence and pondered for a while before Janice turned her chair around and looked out the window. “Perhaps we’re thinking about the problem too one-dimensionally. There has to be something other than discounts that we can use to create incentive for our distributors … and that Calvin would approve of.”
What do you think?
What should John and Janice do to incentivize LabTherm’s distributors and continue to fuel growth? Join the discussion on LinkedIn.
Distributor Selection
Carlton Hoyt
Having worked with a large number of manufacturers, it seems that there’s almost as many different processes to grow distribution networks as there are companies looking for distribution. However, there does seem to be one method that’s all too frequent: find a distributor that’s “good enough” and run with it.
This admittedly sounds counter-intuitive – after all, why would anyone want a distributor that’s only “good enough” – but it happens surprisingly frequently. It’s easy to get a bit lazy when it comes to distribution. Identifying and qualifying distributors is a tedious, time-consuming, and sometimes difficult process. Many manufacturers don’t have a good understanding of the distribution landscape in many geographies. There’s always a large amount of uncertainty when it comes to distributor selection, so many people turn to gut instinct. Whatever the reason is for not vetting a sufficient pool of distributors, it can carry a huge opportunity cost.
Think about the difference in performance between one of your very good distributors and an average one. For most companies, the 80/20 rule is in full effect when it comes to distributors – 80% of their distributors are mediocre, while 20% are very good or exceptional. (I’ve heard a number of manufacturers state this rule should be changed to 90/10 when applied to distributors.) While it’s a stretch to say that all of a manufacturer’s distributors will ever be exceptional, this indicates that there is a very large amount of room for improvement. Not all of this improvement can come from better distributor management; some improvement needs to be rooted in better selection of distributors.
The first critical step to selecting better distributors is to create a profile of what a high-performing distributor would be for your company and product line. What are the most important strengths and capabilities you need them to have? What functions will you need them to perform? What skills and knowledge must they possess? What signals will you look for that would indicate a distributor would meet these needs?
The second critical step is to ensure that you’ve successfully identified all of the relevant distributors for evaluation – and engage with them. With success being dependent on a such a broad array of factors, it’s important to engage with many distributors to learn more about them and feel them out. Unless you’re literally using distributors as order fulfillment centers, their interest in distributing your product line is often the most important factor in their success. Interest is something that you can only gauge by speaking with distributors, so it’s important to engage with a number of distributors to enable you to accurately weigh your options.
Distributors are central to the success of many life science manufacturers. Depending on the market and the product line, the difference between an excellent distributor and a mediocre one could be anywhere from thousands to millions of dollars per year. With so much at stake, isn’t it worth the effort to ensure that you’re selecting the best distributor available?
Motivating Your Distributors
Carlton Hoyt
Last week, we discussed how the key to a distributor successfully selling a given product line (from the supplier’s standpoint) is how motivated they are to carry, promote, and sell the line. There is simply no substitute for effort. The responsibility for maintaining the motivation to put in that effort, however does not fall solely on the distributor. As we mentioned last week: “The effort that distributors will give to a product line is not solely dependent on the distributors themselves; the supplierâs distributor manager is responsible for keeping the distributors motivated as well.” So, what can (and should) a manufacturer do to help motivate their distributors and keep them selling?
Of course, this question has some obvious answers such as price / discount rates, exclusivity, etc., but it’s the less obvious answers, and therefore the less commonly diagnosed and remedied problems, which we are interested in.
Previously we discussed how distributors should play a role in executing suppliers’ marketing strategies but suppliers should not shift too much marketing responsibility to distributors. By treating marketing as a collaborative effort between supplier and distributor, you are actually creating an excellent opportunity to improve distributor motivation over a long time frame. By providing marketing support to your distributors you will both achieve more holistic and better integrated marketing campaigns and also demonstrate that you are committed to the success of your distributors.
Another often overlooked tool for motivating your distributors is fostering relationships between them. Highlighting the success of some distributors will demonstrate that distributors can successfully sell your products, and creating and fostering channels of communication between them will help them learn from each other, increasing the effectiveness of your entire distribution network.
The implementation of a system to enable and foster easy collaboration on both of these levels does not need to be time consuming nor expensive. While there is existing channel management software, it often focuses too much on the supplier-distributor relationship and not sufficiently on fostering communication between distributors. So long as you do not require that a system to manage this process is integrated with many other enterprise systems, an effective solution can be constructed relatively inexpensively using mostly free, open-source tools.
Life science tools manufacturers need to take an active role in fostering the success of their distribution networks; “set it and forget it” type strategies are very rarely effective. Improving distributor performance does not need to be difficult, but it is the distributor manager’s job to ensure that the distributors stay motivated. By enhancing collaboration and communication with distributors, suppliers are investing in their distributors’ long term success while helping to ensure their own.
Qualities in a Distributor
Carlton Hoyt
We find that life science companies have very different ideas of what qualities are most important when looking to partner with a distributor. Some focus on the size of the sales force, some focus on technical / scientific expertise, some focus on complementary products (or lack of competing products) in the distributor’s product offerings, some focus on the extent to which a distributor has existing customers that would fall into the supplier’s target market … the list goes on. All of these focuses are reasonable and should be given focus, but I would argue that they overlook the most important quality that any distributor could demonstrate: the desire to sell your product and the willingness to put in the effort to properly promote it.
I should mention that this doesn’t apply to situations where you’re using distributors solely or primarily for local fulfillment capabilities. In those situations there is very little effort required by the distributor as you’re not relying on them for marketing or sales. They just warehouse the products, ship orders and collect payment. I also don’t mean to play down the importance of qualities which, in certain situations, may be a hard requirement; an example of this may be repair and / or maintenance capabilities for certain kinds of instruments.
That said, the importance of the willingness to sell your product cannot be understated. In most circumstances, a distributor which is otherwise a poor match – one that does not have the right scientific expertise, does not sell complementary products, and does not have a large sales force or existing customer base – but which has a strong desire to sell your product and puts in the effort to do so will sell more than a distributor who looks like a perfect match on the surface but does not prioritize your product and puts in little effort. I have witnessed one-person distributors who had practically no existing customer base outsell far larger and more established companies which have over 20 outside salespeople. This kind of performance is admittedly the exception, but it illustrates the value of desire and effort. Of course, a distributor that demonstrates a genuine willingness to put effort into promoting and selling your product and also is a good match in all of the other important ways would be ideal, but such ideal matches rarely occur.
Determining the level of effort that a distributor will put into promoting and selling your product line is very difficult to do in advance. It is most often ineffective to directly ask how much effort a distributor will put in, as most will either exaggerate in an effort to impress the supplier or will not want to verbally commit to any particular courses of action. Responsibilities should be discussed in advance of an agreement and this will help, but expected levels of effort are rarely written into distribution agreements and are almost never binding. Discussions must be had which allow the supplier to gauge the interest of the distributor indirectly, as these discussions will be more telling than asking directly.
The effort that distributors will give to a product line is not solely dependent on the distributors themselves; the supplier’s distributor manager is responsible for keeping the distributors motivated as well.
When recruiting distributors, identifying distributors who will place an appropriate effort into the promotion and sales of your products is invaluable. More than any other distributor quality, the effort put forth by the distributor will determine the level of success your products will have in a particular geography.
Amazon Supply’s Positioning
Carlton Hoyt
Amazon Supply has been making some waves in the laboratory products market since they got into what they refer to as “Lab & Scientific Products”. A lot of manufacturers have asked us what we think about their entry into the market and we have generally responded anecdotally that it’s most likely an extension of their current business model: Sell a huge variety of products, inexpensively, with easy ordering and fast shipping. The assumption is that Amazon, with all its efficiencies, would be able to offer lower prices than could its competitors. We said that enough that we started to wonder if it’s actually true.
To settle this once and for all, we did a little mini-study. We compared the stated online cost of 10 products sold by Amazon Supply vs. 5 of the major US distributors: Fisher, VWR, Daigger, Cole-Parmer and Thomas Scientific. We only considered products where the exact same product from the same brand was offered by Amazon Supply and at least four of the other companies. Included was plasticware (3 products), glassware (1 product) and equipment (6 products). Reagents were not included because Amazon Supply is weak in that area and carries mostly commoditized chemicals and buffers which are difficult to brand match across 6 companies. We admit, there is no good way of selecting products in a manner that is both random and practical, so we simply searched for popular items from common brands that we believed most large, general-purpose life science distributors would carry. It actually worked quite well.
A few notes before we get to the findings… The costs analyzed are the US costs. Prices in other countries will vary, and of course every country will have its own unique distributors. If you’re outside North America, you may very well only know 2 of the distributors we used as a comparison. We also tried to remove any influence caused by differences in pricing given to each distributor by specific manufacturers by having as little overlap in manufacturers as possible. In fact, the only manufacturer of more than one product used in our mini-study was Corning, who manufactures two of the products sampled.
We took all the prices for all 10 products, normalized the prices for each product, then took the average of the normalized prices for each distributor. This gave us one number – if our study is accurate (which it very well may not be since the sample size is quite small) this number will represent how much more or less expensive any given distributor is. A value of 1.050 would indicate the distributor is 5% more expensive than the average of these 6 distributors. Likewise, a value of 0.900 would indicate a distributor is 10% cheaper.
So, these are the averages of the normalized prices for our basket of 10 products:
- Amazon Supply: 0.896
- Fisher Scientific: 1.052
- VWR: 1.035
- Daigger: 1.077
- Cole-Parmer: 1.003
- Thomas Scientific: 0.950
Turns out that we very well may be correct – Amazon does seem to be competing on price. Their prices for these 10 products were, on average, over 10% lower than the average competitor. (For all you statistics nerds, the 2-tailed, 2-sample unequal variance t-test score on the difference in Amazon Supply’s prices was 0.033.) What was at least equally as interesting to us is that for every product – 10 out of 10 – Amazon Supply’s prices were lower than the average. In our sample population, the closest they got was a normalized price of 0.984 on an IKA orbital shaker. They also advertise free 2-day shipping on orders of $50 or more, which is just about everything, so taking that into consideration Amazon would be even more price competitive.
Something else that I found noteworthy was that there were only two companies that carried all 10 products (aside from Amazon Supply, which did by definition due to our study design) – VWR and Thomas Scientific. Fisher and Daigger each carried 9 of 10, Cole-Parmer carried 7 of 10. Again, this could very easily be an anomaly due to the limited sample size, and we didn’t bother to do any statistics, but I thought it was interesting nonetheless. If two makes a coincidence and three is a pattern, ten might even be called data, albeit not a whole lot of it.
We figured some people might be interested in the data, so we put it online here. It’s in excel format so you can play with it if you’d like. If you get motivated and add to it or do additional analysis, let us know! E-mail me at carlton.hoyt@[you know the rest].
Distributors: Not for Marketing
Carlton Hoyt
Many life science tools manufacturers, especially smaller companies, have a tendency to push a lot of marketing responsibility on to their distributors. In most such cases, the manufacturer often retains some broad marketing responsibilities which are usually focused on branding or awareness (for example, advertising in scientific journals or websites) and leaves their distributors responsible for most or all aspects of lead generation and nurturing. Allow me to take a very clear stance: this is a massive mistake – one that costs life science tools companies and their distributors incredible amounts of lost potential product demand (and, in turn, revenue).
Your distributors strong point is not marketing your products. It’s selling your products. It doesn’t matter who your distributors are – they are salesmen first and marketers second. There is a very good reason for this.
Creating and distributing individual marketing communications is relatively cheap. Developing a highly effective content-oriented marketing strategy, framing the campaign architecture, then building and deploying such a campaign is a very laborious process that can require a very significant time commitment by highly skilled marketers. A distributor, with maybe dozens or hundreds of product lines, can not realistically be expected to take on that burden. Additionally, distributors’ internal competencies often strongly favor sales to marketing, and many smaller distributors lack sufficient in-house marketing skill to perform deep analyses on products (and, perhaps, markets) that are novel to them. As distribution contracts may be tenuous and temporary, distributors are rightfully hesitant to devote such resources to marketing.
Life science tools manufacturers would be far better served by creating holistic marketing strategies that map out how to take prospective customers through lead generation to the point of sale, defining what will be performed by themselves and what will be handed off to the distributor (if any). If the distributors will be responsible for any aspects of marketing, there should be a high degree of collaboration to ensure that the marketing efforts are synergistic and build a single, coherent campaign rather than a set of discreet, loosely-related components. In other words, it is acceptable for your distributors to execute parts of your marketing campaign, and indeed they may have marketing resources which can help manufacturers generate demand beyond what the manufacturers could generate on their own, but they should not be left to design the campaigns or key marketing messages.
While salesmen are certainly capable of generating leads, marketing is a much more efficient and effective tool for this purpose. Because life science tools manufacturers often leave lead generation to their distributors, who are heavily sales-oriented and almost always have a very limited incentive to invest heavily in marketing for any single product line, a lot of potential demand is never realized and both manufacturers and distributors suffer from sub-par sales.
Trust and Risk
Carlton Hoyt
Trust is extremely important in life science business relationships (and business relationships in general). I don’t have to ask you to take my word for it, though. According to the sentiment of more than 80 life science manufacturers and distributors who took our 2011 life science distribution survey, trust is the most important factor in distribution relationships according to distributors, and the second most important factor according to manufacturers. It’s not difficult to imagine that trust would be attributed similar importance in other types of business partnerships as well. Despite this, so many companies and individuals approach business relationships with distrust.
Companies often lack an appreciation for the fact that in order to build trust you need to give trust, and giving trust involves assuming some business risk. Even some that understand this still approach partnerships with minimization of risk given top priority. Maintaining the example of distribution relationships, many manufacturers will insist that they get paid up-front for the first few orders. Likewise, many distributors worry that the manufacturers are going to take their money and run.
All of this over-sensitivity to risk needs be put aside in order for trust to be built. Companies need to understand that there are unknowns in dealing with companies that they have not dealt with before, and either take steps to mitigate the risk that do not destroy trust (for example, using neutral third parties as references) or at minimum be willing to share the risk and come to reasonable compromises in the interest of developing what are at the time very young business relationships.
Much of the lasting attitude that will permeate the relationship is built in the early formative period when the relationship is still being defined. This attitude can have a definite effect on the success of the relationship, even in the long-term. You don’t want to start in a position of negativity and then have to put in extra effort to establish a good relationship with your business partner (if a company’s culture allows for such distrust initially, they will likely not take the later actions necessary to mend the relationship anyway). Any given person is far more likely to help a friend than an acquaintance. If you start on good terms you can get an early emotional “in” and you’ll already be one step ahead in building a successful business relationship.
One last piece of advice – don’t let your lawyers get in the way.
Attorneys vs. Business
Carlton Hoyt
Last week my father, who is a real estate broker and an attorney, was telling me about a real estate deal that he was working on. The buyer and seller had initially been in relatively good agreement but the seller’s attorney continuously advised his client to take an increasingly risk-averse position, thereby making the deal more one-sided and threatening it entirely. This reminded me of another conversation that some of us on the Life Science Distributors group on LinkedIn were discussing: how many large manufacturers (and this applies to large distributors as well) often have heavily one-sided distribution agreements that minimize their risk but fail to consider their partners. It was mentioned that such agreements are often drafted by attorneys.
My father made a very astute statement: “Attorneys seem to have forgotten the realities of business in favor of minimizing risk for their clients”. While there are exceptions, and there are also certain situations in which extreme caution may be justified, the idea of the statement is too-often true. When attorneys get involved they often do not have a complete understanding of the business environment and / or the situation relevant to a particular business deal. This applies across almost all industries and markets, and life science research tools are no exception.
Whether the issue at hand is distribution agreements, licencing deals, partnerships, service agreements, or just about any other contractual and / or negotiated agreement, remember to take your lawyers advice seriously, but don’t let them overrule the basic rules of business. Almost any deal requires a little bit of give and take, and focusing too strictly on risk reduction can ultimately scuttle what would otherwise be a highly lucrative deal. When your life science company deals with its attorneys, value their advice, but don’t forget the rules of business in doing so.