Tag : distribution

Serving the Underserved

Carlton Hoyt 7:27 pm , October 11, 2011

Look for under-served markets to boost revenues from your product lines. As in most markets, players in the life science tools industry are always looking to get a squeeze a little more revenue out of their product lines. While price increases may erode demand and ultimately prove ineffective in helping the company’s bottom line, there are markets that are often under-served or overlooked by small life science companies. Efforts to expand into these markets often allow opportunities to grow revenues without much additional effort, and so long as your products would be a fit for the needs of the markets it could prove quite lucrative.

Small life science research tools companies often focus on their largest potential markets: pharma / biotech and academia. This focused approach leaves out a large swathe of potential customers as there are many other ancillary markets for life science tools. Forensic labs, food testing labs, environmental labs, and medical labs (at least for unregulated products / procedures) are all markets that may require little effort to expand into and are effectively less crowded due to many companies overlooking them.

Taking advantage of these often under-served markets may be as simple as creating new marketing communications directed at these markets and advertising through avenues that are higher-visibility within those markets. Product positioning can also be a major help. For example, developing protocols that are specific to the needs of those markets may differentiate your product from others who focus on more “mainstream” life science applications. You may be able to find distributors who specialize in certain markets and leverage their unique reach. Any of these things can be relatively low-cost, low-effort ways to expand your potential market size, and there are certainly other efficient ways to do so as well.

Chances are, there may be potential markets for your life science products that your company is not currently exploiting. Through marketing, distribution, and other means, you can take advantage of under-served markets and get more revenues out of your product lines.

"Need to do a lot with a little? BioBM’s consultants are experts at stretching your dollars and turning small life science marketing budgets into high-ROI demand-generating powerhouses. Contact BioBM and we’ll help you raise revenues and margins so you can fund the creation of tomorrow’s breakthrough laboratory products."

Replacing Distributors

Carlton Hoyt 11:31 am , July 18, 2011

In this edition of our blog mini-series on life science distribution, we’ll be discussing the use of contractual terms to help motivate distributors. Previous posts were on improving the performance of existing distributors, distributor selection, and using contractual terms to improve distributor performance.

Replacing distributors is often a difficult task. Similar to firing an employee, it’s something we often don’t want to do, but circumstances arise when the business case is clear – the distributor must be replaced. On the other hand, things can go the other way as well and you may find the relationship being terminated by the distributor. While replacing a life science distributor can be a difficult process, there are certainly many things you can do, both before and during the process, to make it easier on both you and your business.

The time to start planning for the potential need to replace a distributor is before an agreement is ever made. Before contracts are signed, or even before you begin to approach distributors, you should develop a contingency plan. Know in advance that the relationship may not work out and that you’ll may be in the position of needing to replace the distributor some day. When determining what life science distributor(s) you want to partner with in any particular region, identify your top 3 or 4 choices, not just your #1. Know who they are and maybe even who to contact in your second and third choices so you can make contact and initiate negotiations quickly if need be. If you have a distribution contract, make sure that the terms won’t prevent you from effectively transitioning between distributors, either. If you’re providing a distributor with exclusivity, it’s a good idea to have the exclusivity automatically revoked if they fall well below target sales and / or if they remain below target sales for an extended period of time. Non-exclusive distribution agreements are the best thing for life science suppliers when replacing a distributor, as you can transition while your original distributor is still in place.

If the time comes when you feel like you may have to replace a distributor, critically analyze the situation. If the issue is sales-related, make sure that replacement really is the best option. Are there other ways to motivate the distributor to increase sales? Is the drop in sales temporary, due to a factor beyond the distributor’s control, and / or due to a reason that may be unknown to you? A good distributor-supplier relationship should be open and honest, so talk to your distributor to get a better idea of what the problem may be. Lastly, identify the other life science distributors who would potentially replace the one in question. Assess their capabilities and be sure that they have sufficient reach, are a good fit, and would likely pay sufficient attention to your product lines. Even through a distributor is under-performing, if there are no other distributors who would be a good fit or can match the capabilities of your current distributor, it is wholly possible that replacing the distributor may actually result in lower sales.

If the situation cannot be reasonably rectified and there are better options available, then it is indeed time to make the transition to a new life science distributor. If the distributor had exclusivity which is now revoked and you will be engaging a new distributor while the old distributor is still under a non-exclusive agreement, be straightforward with them. It will be far better if you tell them that they’re going to have competition than if they find out themselves. If you don’t have the benefit of being able to sustain a non-exclusive distributor relationship, try to engage another distributor far in advance. This will give the new distributor time to prepare to market, sell, and support your product lines so they will be better able to hit the ground running, so to speak. This can be done by signing a distribution agreement that takes effect at the same time the existing distributor’s contract expires.

We all enter supplier-distributor relationships hoping they work out, but unfortunately that can’t always be the case. With sufficient planning, however, you can minimize the disruption to your business caused by a transition to a new life science distributor.

"Do you want to implement distribution strategies that will protect your sales channels from future disruption? Are you looking to replace a distributor and want help identifying and approaching new partners? BioBM Consulting’s bioscience distribution and distribution management experts will help you productively meet today’s needs and tomorrow’s challenges. Contact us today to confidentially discuss your situation and how BioBM can help you build and maintain a strong life science distribution network."

Blog / Distribution 11:31 am , July 18, 2011

Distributors & Contract Terms

Carlton Hoyt 10:32 am , July 8, 2011

The right contractual terms can really help motivate your life science distributors. In this edition of our blog mini-series on life science distribution, we’ll be discussing the use of contractual terms to help motivate distributors. Previous posts were on improving the performance of existing distributors and distributor selection.

Distributor relationships start from the moment you first make contact with them, and the things you do in the process of signing a life science distributor are almost as important as the things you do after they are signed. A well designed distribution agreement alone doesn’t ensure that the relationship will be successful, but a poorly designed contract can single-handedly ensure the distributor-supplier partnership fails. The terms of your agreement can go a long way in motivating your distributors to perform and greatly help your sales in the process.

The first thing you need to do is understand why a distributor wants to sell your products. By understanding what their motivation is you’ll be able to create ways to motivate them further. Is your product a great fit for the distributor’s current line? Do they think the product would be an easy sell to their existing customers? Is your product a new and promising technology that they appreciate and are excited about? Perhaps they lost the distribution rights to a similar product and want to fill the gap in their product offering? On the other hand, maybe their motivations aren’t as ingenuous. Do they just want to scoop up as many products under exclusive agreements as they can, or simply have a huge catalog of products? Do they have a customer or two that have expressed interest and simply want to sign as fast as possible to get a discount so they can make a quick profit? Even if you have actively sought out a potential distribution partner, don’t be afraid to ask why they would potentially be interested in selling your products. The answer is important.

By definition, everyone is in business to make a profit. Before discussing other contractual terms which may motivate a life science distribution company, we need to consider what financial terms would motivate the distributor while being appropriate and fair to all parties, potentially including your other distributors. Think about what both of your financial goals are and how you can motivate the distributor to reach them. For example, tiered discounts based on performance can be a great motivator. For example, basing discount in the following period off sales figures in a previous period, or increasing the discount as sales targets are hit within a period. A similar discount system can be based on the order volume, although I’m personally not as big of a fan of this system since while it encourages the distributors to keep inventory, I don’t believe it to be as good a motivator in achieving higher sales overall. There are many other methods of offering financial incentives for performance as well. Despite which financial incentives you choose, they need to be explicit and achievable in order to effectively motivate the distributor.

Financial incentives are certainly not the only type of contractual considerations you can use to help motivate your life science distributors. Perhaps the best example of a non-financial motivator is exclusivity. Knowing that they are the only distribution company in their territory that will be able to offer your products is a great boon to the company. They will often put far more effort into marketing and sales if they know that they won’t have competition. However, giving away such benefits freely is often too kind, not to mention shortsighted. Exclusivity tied to performance is an excellent motivator. Marketing assistance can likewise be added to a contract and tied to performance. Guaranteed technical support, or even just the assertion of responsibility for tier 2 and / or tier 3 support, can make your products more attractive for distributors to sell. Again, figuring out exactly what is important to your distributors will be instrumental in determining what the best terms may be. Don’t lay all your cards on the table, so to speak, but don’t hesitate to ask questions and inquire as to what a distributor values in the supplier-distributor relationship.

The right contractual terms can go a long way in helping to motivate a life science distributor. Know their motivations, understand what is important to them in the relationship, and use that to craft appropriate terms that effectively motivate the distributor, financial and otherwise. By using the right terms, you’ll be moving towards a mutually beneficial relationship with your new distributor. Even if you already have a mature and / or complete distribution network, it’s never too late to renegotiate the terms to better incite performance.

"Is your company looking for better ways to motivate your life science distributors? Do you want to grow your distribution network, or just get improved results from your current distributors? If so, then BioBM Consulting’s life sciences business development and distribution management services are the answer to your needs. Contact us today to confidentially discuss your needs and how BioBM can help you reap the benefits of improved distribution."

Blog / Distribution 10:32 am , July 8, 2011

Distributor Selection

Carlton Hoyt 5:30 pm , June 23, 2011

Maximizing distributor performance allows bioscience companies to efficiently grow revenues. As promised in our post two weeks ago on improving distributor performance, we wanted to provide some information on life science distributor selection. After all, part of getting the best performance from your distributors is selecting the right ones in the first place.

Geographic Fit

The first and most obvious thing that gets considered when selecting a distributor is geographic fit and territory coverage. Just because a distributor serves a whole country or region doesn’t mean that they have good coverage of the territory. For example, some distributors perform inside sales to the entire territory but only have outside reps for some of the territory. Many times there is a trade-off between coverage and specialization and / or coverage and focus. The companies with more complete coverage, more reps, a greater reach, and a more powerful brand are often the largest companies which almost always have very large and broad product offerings. A company like VWR has hundreds of reps globally, but are those reps really going to be thinking about selling your product line, or will it just get lost in a sea of life science equipment and consumables? Also, remember that distributor territories don’t have to be synonymous with “countries” – you can have more than one distributor in a country and still maintain exclusivity, you just need to subdivide the country into smaller territories. Companies approaching large countries like China or the United States seem to forget this and instead get caught up in an often non-ideal situation of having one company be the sole representation for a large country.

Product Fit

So you know your territory, but do you know who has the capability to sell your product within that territory? For more technical products, you may need a distributor who has the experience and educational credentials to effectively sell such equipment – especially if you don’t have an office in roughly the same time zone to provide on-demand sales support. Will your equipment require demonstrations or installations? Better choose a distributor with a solid outside sales force, or at least one who is willing to travel to get the job done. You’re also likely to be faced with a choice of working with distributors who sell competing products and therefore are familiar with your market and applications and may have a reputation for selling products like yours, or working with a distributor with no competing products and therefore only has your products to offer as a solution. There is no simple answer for this – it needs to be determined on a case-by-case basis.

Other Considerations

Are certain products generating most of their revenues? If so, which ones? They may offer a wider variety of products than they actually sell. If they have a few key products that generate most of their revenues, they may be hesitant to divert effort into selling other products. Be sure that your product line doesn’t become a “me too” in their offering.
Does this distributor really want to sell your products? This may be the most important question, and the answer can be based on many factors including all those which we have already discussed. Even if a distributor seems like a great fit, if they’re not motivated to sell your products, they are likely to perform well below expectations. If a distributor is willing to take on your line but isn’t motivated to sell your products, should you work with them anyway? The easy answer is “no”, but this ignores one key question: could you make them motivated? There are tactics, including contractual terms and distributor management techniques, to do so.
Would there be a significant imbalance of power in the relationship? I always hesitate to recommend a much larger and more powerful distributor to my clients unless they are very motivated to sell their line and show it in the terms of the distribution agreement or they have a close contact in a relevant position at the larger company. If there is an imbalance, chances are that they’ll feel free asking you to give and give, but won’t feel obliged to return any favors.
Do you even need to work through a distributor? Could a partnership with another manufacturer, probably one selling complimentary products, serve you even better?

Regardless of the topic at hand or the region in question, there are good distributors and bad distributors. Some distributors will embellish their capabilities and you have to do your homework to make sure that they have the capabilities they state and that they’ll fulfill their promises. Don’t hesitate to ask to speak to a potential distributor contacts at other suppliers, or even reach out to other suppliers on your own in order to get feedback on their performance and / or validate their claims.

If you life science company sells through distributors, the performance of those distributors will be a large part of the success or failure of your company. By identifying and forming relationships with distributors who have the necessary capabilities and are committed to a mutually beneficial relationship, you’ll be well on your way to growing your international sales.

"Are your distributors performing the the level that they should be? Do you have holes in your distribution network and need them filled to grow your sales? You don’t have to pull your hair out over the details of distributor selection. BioBM Consulting offers life science companies like yours business development services which identify and connect you with distributors who are most likely to help lead your company to international success. BioBM also provides distributor management solutions which will help maintain great relationships with your best distributors and grow the performance of the others by implementing best practices. Don’t let a mediocre distribution network stunt your company’s growth. Contact BioBM Consulting and let us help your company thrive globally through optimized distribution."

Blog / Distribution 5:30 pm , June 23, 2011

Expansion of Services

biobm 12:45 pm , June 22, 2011

BioBM Consulting has announced the latest expansion of its life science business and marketing services with new distribution management and online reputation monitoring services.

Distribution management services are available as a consulting or outsourced solution and are aimed to improve global life science distributor performance by improving communication, distributor motivation, training, and support through implementation of best practices in distribution management. Online reputation monitoring services allowing a company to efficiently and inexpensively guard its reputation through alerts and tracking of online sentiment via active monitoring by BioBM’s Internet Services division.

Principal Consultant Carlton Hoyt gave the following statement to commemorate the additional services:

Statement from Principal Consultant Carlton Hoyt

The new distribution management and online reputation monitoring leverage BioBM’s existing skills and capabilities to further expand our service offerings to clients. By taking advantage of existing competencies, these valuable services will be able to executed efficiently and as such we will be able to offer them at relatively low costs to both new and existing clients.

BioBM Consulting maintains a strong focus on providing a broad portfolio of business and marketing services, delivered at low costs, to create unmatched value for our clients. Our distribution management and online reputation monitoring services strengthen that focus, and we remain committed to developing new service and consulting offerings that create high value opportunities for life science products manufacturers.

Both services are currently offered. To learn more about our distribution management services, please view our business services page. To learn more about our online reputation monitoring services, please view our internet services page.

News 12:45 pm , June 22, 2011

Improving Distributor Performance

Carlton Hoyt 6:12 pm , June 7, 2011

Any bioscience company that sells through distributors is familiar with the problem: some distributors just don’t pull their weight. I spoke with a global laboratory equipment company recently that has about 100 distributors globally, excellent territory coverage, and no direct sales so all of their sales come through distributors. They told me that the 80/20 rule is in full effect with their distributors – 80% of their sales from 20% of their distributors. Even more extreme, over 50% of sales came from their top 4 distributors! They put in a great deal of effort trying to convert poorly performing distributors into well-performing distributors, but they were doing so in a very cost and time intensive manner and with moderate success at best. Admittedly, this is an extreme example, but Imagine how much a company like that would stand to gain from improving the performance of even some of their distributors.

If you sell through life science distributors, you are probably in a similar situation. You most likely have good distributors and not so good distributors (and probably some downright bad distributors), and wonder what you can do to improve distributor performance. We hear that same question over and over, and I thought I would share a few tips on how to get more from your distributors and grow global sales while improving your distributor relationships and building trusted long-term partnerships.

One of the most common factors in poor manufacturer-distributor relationships is poor communication. Note that poor communication can be both a cause and a symptom of poor distributor performance. Many companies set up distributor newsletters or make calls to them to ask open-ended or performance-based questions, and while these efforts are better than nothing, they rarely address core problems and often lead to one-directional communication. To improve your distributor relationship, and thereby improve your distributors performance, your communications should provide value to your distributors. One way to do so is to build a social-like platform for discussion and dissemination of materials and information. Customizable, easily built solutions from companies like Ning, SocialGo, or Groupsite provide inexpensive solutions that will not only get you communicating more with your distributors, but will also get your distributors talking amongst each other. Just remember when implementing any solution for communication – if your solution is not easy to use, distributors won’t use it. Chances are they’re not going to go out of their way to communicate with you.

Another common factor for poor life science distributor performance is motivation. In order for your distributors to sell your products, they have to want to sell your products. Are you properly rewarding distributors? Are you providing sufficient training and support? Are demo-intensive products eroding distributor ROI? Perhaps they have another product line which is their “bread and butter” and they are hesitant to place focus elsewhere? Lack of motivation to sell could be caused by many reasons, and each will have a different solution. Talk to your distributors one-to-one, build a relationship based on trust, then make use of that trust to get straightforward answers from them as to why they’re not selling. Sometimes the problem isn’t the distributor at all but other factors pertinent to a local or regional market that may appear to be problems with a distributor. Regardless, trusted distributors with whom you have build a good relationship will give you straight and honest answers.

There is also the chance that a distributor you have selected is not right for your company and / or product lines. If your product doesn’t fit their expertise, if the sales techniques required don’t fit their sales methods, if they offer too many competing products, etc., there may just be an irreconcilable difference. Sometimes there just isn’t anything you can do, and you need to be able to recognize that and move on.

Regardless of the reason, if a life science distributor has poor performance and isn’t improving (or you have reason to believe they won’t), you need to replace them. In future posts, we’ll discuss distributor selection, contractual terms that can be used to help motivate distributors up-front, and ways to replace distributors that will minimize disruption to your business.

"Are you looking to improve your distributors’ performance? Do you have any problems with under-performing distributors? Do you want more efficient and effective ways of communicating with your distributors? Whatever your distributor-related needs may be, BioBM can help. Our on-staff life science business consultants are experts in distributor management, distributor selection, business development, and all aspects of bioscience product distribution. Contact us by phone or fill the form below for a free consultation and we’ll show you how we can help drive revenues through improved distributor performance."

Blog / Distribution 6:12 pm , June 7, 2011

Private Labeling / OEM

Carlton Hoyt 4:24 pm , January 11, 2011

Private labeling presents a lucrative opportunity for many life science businesses. It can rapidly and dramatically increase market access and also transfer marketing, sales, support, and other costs outside your company. On the other hand, it can incur redesign costs and introduce inefficiencies that weigh on your profitability, hurt distributor relationships, dilute your brand, and have other potential negative consequences. The question of whether to allow private labeling, and under what conditions, is a complex question with many factors to consider. I will go over some common issues and considerations so you can be more prepared to answer the question: To private label or not to private label?

Perhaps due to my having a strong background in issues pertaining to distribution, the first issue that I often address is how a potential private-label partner would fit into the current distribution network. An obvious ideal situation is one where the private-label partner would serve in area where you are looking to increase distribution anyway – perhaps one in a region where your distributors are not meeting targets or where you have no distribution in the first place. Forging a private label agreement with a company that would serve areas in which you have solid distribution can damage valuable distributor relationships.

Another issue to consider is branding. Whose brand is stronger, yours or your private-label partner’s? If your brand is stronger, the private-label partner will be less likely to compete with products carrying your brand (which is good for distributors and would mitigate conflicts mentioned above) and there is less risk. If your partner’s brand is stronger, they may be able to sell more product, but they may also become in a position of power once the agreement is in place if most life science researchers know your product only through your partner’s brand. This can give them a huge amount of leverage. Another ideal situation to look for and attempt to leverage is if your brands are strong in different geographic regions or different market segments.

Lastly, and probably most importantly, be sure you can trust your private-label partner. A successful partner will be building a business around one of your products but the customer loyalty will be theirs. Ensure that you trust them enough to not develop an analogous product themselves, jump ship and begin private-labeling a competitor’s product, or even steal your technology! Selecting a partner with whom you have a good relationship, or one who is highly reputable, is extremely important.

Many factors play into the decision of whether or not to allow private labeling of your products. The reasons for doing so or not doing so are different for every company (and indeed are different for every OEM company / private label company combination) and every situation. Keep in mind what is important to your company, realize where the value lies for your partner, and carefully weigh the pros and cons. Always keep in mind that even if your company and another are not ideally suited to work as OEM / private label partners, contract terms can often be used to alter the dynamics of the relationship and provide a mutually beneficial environment for all stakeholders involved.

"Want help weighing the pros and cons of private labeling in your company’s particular situation? Our life science business consultants are here to help you find your company’s best route to long-term profits, regardless of the complexity and challenges of your market segment. Talk to us to discuss the issues that are most important to you."

Blog / Distribution 4:24 pm , January 11, 2011

Can Distribution be Optimized?

Carlton Hoyt 9:53 am , December 27, 2010

A key to the success of many small bioscience products companies is the creation and maintenance of an effective global network of distributors (or dealers / resellers). Ensuring that you get the most out of your distribution network, however, is not a simple task. There is no formula to follow. It must take into consideration the changing competitive landscape, both among distributors and among competing products. It involves active relationship management. It needs to take into account marketing strategies and product positioning. It requires diligent contract negotiation to establish mutually favorable terms and provide a framework for a win-win outcome. It requires planning, preparation, and needs to be frequently revisited to ensure that goals are being met and proper analysis when they are not to determine the causes. Establishing and maintaining a distribution network can indeed be a daunting task, but the rewards are great when done properly. In this post, I’ll go over the most common issue that comes up when determining distribution strategy – coverage. Is it better to have one distributor in any given territory or as many as possible, such that life science researchers can get your products just about anywhere? This question alone has a highly multi-faceted answer.

Exclusivity vs. Availability

There is an opposing force of sorts when it comes to distribution. You want your distributors to put forth a good marketing and sales effort. At the same time, you want your product to be readily available to end users. This is a conflicting position, as maximizing the availability of your product means maximizing the number of sales channels that offer your product. On the other hand, if everyone offers your product, distributors will be hesitant to market your product since their marketing dollars are not guaranteed to have a return if customers can purchase your product anywhere. Balancing these two needs requires strategic planning, however the nature of the product can guide your decision-making somewhat.

Generally, more coverage is good for a product that may be somewhat universal, has a market leadership position or strong brand recognition, has an extremely short sales cycle, and does not require much effort to sell. If customers are more often than not going to be seeking out your product, you want to make it very easily available to them. Let us take a quick look at a company and product line that has such a strategy – Scientific Industries and their Vortex Genies. The Vortex Genies are a very popular line of vortexers, and the line is highly recognized among life science researchers. Distributors know that their products are going to sell reasonably well, and many distributors are willing to compete for a share of the large volume of sales. As is common with a simple and low-cost product, they know that the product will take little or no sales effort – they simply need to let the lab managers or other purchasers know that they carry the line. Scientific Industries is therefore better served by having a lot of overlap in their distribution network.

Now let’s look at a company and product that is in a much different position – Zellwerk and the Z RP tissue culture bioreactor. The Z RP bioreactor is a highly technologically complex and very expensive product that serves a niche market. It presumably takes a considerable amount of effort to sell and probably has a very long sales cycle. With this kind of a product, it is important that distributors know that their efforts in sales and marketing will be rewarded. No distributor will want to put forth the marketing expenditures, hours upon hours of customer interaction, and other necessary time and costs if they know that the customer can just turn around and buy the product from someone else who offered to undercut them on price. The way to reassure your distributors that they will indeed be rewarded for their efforts is with exclusivity in their territory (note that exclusivity need not necessarily be contractual, however this will not be discussed here since it’s a bit off-topic). Zellwerk should be working with one or few select organizations in any given territory, and these organizations should have a strong competency in tissue culture.

OEM / Private-Label

Products that are sold under OEM or private-label agreements are another potential challenge. These agreements can be very lucrative, however they can also take away control of the distribution of the product from both the manufacturer and the private labeler, as they will likely each have their own distribution networks for the product. While in many instances an OEM or private-label agreement is lucrative enough to be worth it regardless of the distribution issues it creates, the benefit should ideally be assured via favorable contract terms and frank discussion between both companies.

Direct Sales & Other Considerations

Another important issue when thinking about distribution is whether your company offers direct sales. Direct sales are a great high-margin revenue source, and a company can often achieve greater sales and a greater market share in it’s home market when marketing and inside sales are performed in-house. This, however, creates another conflict since distributors will not want to have competition from the manufacturer. Dealing with this issue can be complex, and solutions are not necessarily simple, but it is an issue that can be dealt with to mutual benefit.

There are a host of other, less common issues that can effect distribution coverage strategy that undoubtedly arise due to each company’s unique situation. Recognizing and dealing with these issues is key to maximizing global sales and achieving beneficial, long-term distributor relationships.

"Does your small life science company want to improve it’s distribution network? Are you experiencing problems with under-performing distributors or manufacturer’s representatives? Do you want to hone your distribution strategy to ensure the establishment and maintenance of a lucrative network of resellers? BioBM has deep expertise in business development and both domestic and international distribution. Talk to us to see how we can help you meet your distribution and global sales goals."

Disclaimer

As of the time of posting, BioBM Consulting has no relationship with any company mentioned in this post.

Blog / Distribution 9:53 am , December 27, 2010

Distribution & Opportunity Cost

Carlton Hoyt 12:17 pm , November 30, 2010

Everything has an opportunity cost. For those not familiar with the concept of opportunity cost, it basically means the cost of not making a given decision (see a more detailed explanation on Investopedia). While a simple concept, the frequency with which it is ignored is often a huge inhibitor on small companies. Small companies, which may lack professional, well-rounded business personnel, often fail to see the costs of inaction. Allow me to lead with an example of one area which is frequently plagued by opportunity cost: distribution.

I was working with a small company who developed products for life science researchers and sold through international distributors where the company had established relationships with distributors, but sold directly to countries where local distribution was not present. This setup created many inefficiencies. Additionally, the company did not actively or effectively market to an international audience, which caused very low sales volume in countries without a distributor present. Distribution was lacking in 6 of the largest 10 economies, and there were entire continents with no distributor present. This was largely due to their approach to the establishment of a distribution network. The company had been waiting for distributors to approach them – a slow and inefficient approach with a high opportunity cost – rather than actively seek out distributors. This policy had the additional side effect of removing any screening process for distributors since the company was effectively not actively choosing who it was working with and the quality of the marketing effort by some of the distributors was very poor, leading to sub-par sales. In other words, their opportunity cost for not creating a well developed distribution network was high – there were a lot of sales that they could have been getting had their distribution network been more complete, however they were not doing so. I had estimated this opportunity cost at about 100% of the company’s then-current revenues – a huge sum for any company.

Taking advantage of international distribution opportunities is a relatively low-cost way of achieving sales. International distributors will often create or translate marketing materials, perform outside and inside sales, and perform other valuable functions, and the process of selecting and signing a distribution partner may take as little as a few hours of work for a well-connected and experienced professional. When considering the massive increase in market access and resulting increase in sales, the few hours or even a few dozen hours of work to find and secure a distribution partner seems a very small cost. It is not quite that simple, however. There are many considerations to selecting a distribution partner and the approach must be carefully considered.

Considerations in Selecting Distribution Partners

The first thing to do when expanding your distribution network is prioritize. Ask yourself: Where is my company experiencing the largest opportunity costs? What countries or regions present the largest revenue opportunities? While just going down the list of countries by GDP can be used as a reasonable general guideline for where the most opportunity lies, it’s a far from perfect method. Some countries, such as Switzerland and Singapore, have far larger life science markets than would be indicated by looking at their GDP relative to to other countries. Others, such as Russia, have relatively small life science markets. There are other more specialized considerations as well. Brazil, for example, has a huge agricultural research market but relatively small pharma research market, so products that are useful in agricultural research may find a large market here while other products may not.

Secondly, make sure you find a distribution partner who’s capabilities and expertise meets your needs. Start off by ensuring that the potential distributor’s focus matches your product offering. For example, if you have a primarily imaging-focused offering, you will likely be best with a distributor that has a strong portfolio of imaging products (unless it presents too much competition within the portfolio) since the company will have a strong competency in this area. If you sell equipment, you’ll be better off with a distributor that sells equipment, etc. Also, be sensitive to how the potential distributors sell products. What is their balance between inside and outside sales and does this balance fit with how your products are best sold? You’ll also likely have to choose between large distributors with many reps, a sizable marketing department, and very complete coverage, or small distributors who will have a smaller product portfolio and therefore will likely be able to give more attention to your products. Many factors weigh into this decision, such as the nature of the products, the competitive landscape, branding, the culture of the distributor, the distributor’s product portfolio, and many others too numerous to discuss in depth.

[td_titled_box title=”Food for Thought”]Do you have business partners or friends in other companies who do not compete with your company but serve a similar market? They may be able to offer great recommendations for distributors and even introduce you to the right person. Don’t be afraid to ask![/td_titled_box]

Of course this is just a brief overview and there are many other considerations not discussed here. Feel free to call or e-mail us if you would like to discuss other issues or potential concerns.

How to approach a distribution partner

Before you even consider approaching a distribution partner, perfect your pitch. You need to be able to convey some introductory information about your company, some info on your product portfolio, why your products are of high value to researchers (and differentiated from competing products), and a least a teaser of what the distributor stands to benefit by working with you. All of this needs to be conveyed with enough brevity that the person on the other end will actually read it / listen to it and also be compelling enough to lead them through the pitch and not lose interest in your company or products. That’s not always easy to do. Also, always remember to point back to your website or other easily accessible information about your company and products, and keep in mind your target audience and be sensitive to cultural considerations in the wording and feel of your message.

Next is your approach. Once you select the company you want to work with you can often find the name and contact info of an appropriate individual to contact online. If you end up with a non-personal e-mail address (an “info@…” or “sales@…”, etc.) don’t have high expectations of receiving a reply, especially when dealing with larger companies. I generally recommend e-mailing or physical mailing your pitch so the target has time to read and process the information contained in your pitch and look at your products. If you don’t hear back in a reasonable amount of time, then it is more appropriate to call so long as there is no language barrier. Remember that Google Translate can be a great tool when dealing with just about anyone internationally and in most cases works very well, even if it requires occasional tweaking of your message to translate properly and restricts you to written communication.

Think about and act on the issues raised above and you’ll be on the right track to growing your distribution network, improving your market access, and increasing revenues and profits. Don’t forget that your distribution networks don’t just require establishment, but require some degree of maintenance as well. Relationship management is very important and you may even want to occasionally replace an underperforming distributor. Not having a complete and effective distribution network, however, imposes a large opportunity cost and can inhibit the growth of any small life science company. A little business development can go a long way…

We’ll be posting more about this and related topics in time, so be sure to subscribe to our blog, check back occasionally, and / or follow us on twitter!

"Want to improve your distribution network? Wish you could get better results out of your current distribution network? BioBM has highly skilled staff experienced in domestic and international business development and relationship management. We can efficiently expand your distribution network, help improve your existing network, or consult with and / or train your company on the most effective ways to build and manage a top-quality, high-performance network of distributors. Contact us to discuss how we can help you fill your unmet needs."

Blog / Distribution 12:17 pm , November 30, 2010

Leveraging a Weak Dollar

Carlton Hoyt 3:27 pm , October 25, 2010

[one_half]Small or start-up businesses are rarely sitting on stockpiles of cash reserves. Quite the opposite, cash is usually a bit tight, so if you are running a small life science company you probably want to take every opportunity you can to improve your cash position. What you may not have thought of is leveraging the weak US dollar to generate short-term revenues and grow your cash-on-hand.

The US Dollar Index, which tracks the dollar’s value against a basket of nine other currencies, is down over 11 points from its 52-week high of 88.71 in June. Put simply, that means that if your goods are priced in US dollars, they will be a lot cheaper to customers and distributors in other countries who use currencies that have comparatively appreciated. For example, the dollar is down about 15% vs. from it’s highs against the euro and the Japanese yen, and is down about 10% from the highs against the Brazilian Real and the British pound. Your dollar-denominated products are now 15% cheaper to customers in the Eurozone than they were just four months ago! That’s a substantial discount, and one that you can flaunt to your customers and distributors in these areas and others whose currencies have similarly appreciated against the dollar.

How do you take advantage of this? Simple! Send marketing messages specifically targeting customers in a particular region and bring up the favorable exchange rate. Call your distributors and encourage them to buy now since restocking on your products is now cheaper. Don’t drag your feet, either, since the dollar may begin to re-appreciate in the near future. If you are in need of short-term revenues or an improved cash position, highlight your newly cheap products to your international customers and distributors now![/one_half]

"Have any questions on topics of exchange rates and dollar value or how to leverage the value of the dollar? Not sure what markets are most appropriate to target because of a weak dollar? Unsure how to appropriately frame a marketing message for your customers discussing it or talk to your distributors about it? Lacking the international distribution network to properly leverage such an opportunity? These are all things that BioBM’s skilled team of business and marketing experts can help with. Contact us for a consultation on how we can help you drive international sales, and assist in any other aspects of your business as well."

Blog / Demand Generation / Distribution / Marketing Strategy 3:27 pm , October 25, 2010

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