distributors | BioBM

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."

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."

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

Selling to Pharma / Biotech

Carlton Hoyt 6:21 pm , January 31, 2011

A lot of small life science companies, including those manufacturing products or offering services but especially small distributors, are unsatisfied by their penetration of the pharma / biotech markets. While academic labs are often quite open and accessible, access to labs in industry is extremely restricted. Because of this, it is very important to have an engagement strategy and make good use of your “ins” if you plan on increasing your sales to the pharmaceutical and biotechnology research markets. The best plan for your company will differ based on your company’s positioning, but I’ll quickly go over a few general strategies including some which are useful for all companies.

Indirect Selling

If you manufacture a research tool and do not have an outside sales force, you will likely be selling to industry via a distributor, at least in part. The easiest way to obtain better market penetration in pharma / biotech is to work with a distributor who has strong sales in those sectors (of course, the same guidelines should apply for selecting any distributor). Trying to sell directly to pharma in this circumstance would effectively be akin to reinventing the wheel. Don’t know what distributors have good penetration in those segments? Ask them. If they are interested in distributing your product, they’ll want to make themselves look good and will likely offer a reasonable metric from which you can gauge their pharma / biotech market penetration.

Direct Selling

If you are selling to pharma / biotech companies directly, you likely either offer a high-value, high-complexity product or service or you are a distribution company. The precise strategies for the two would be different, but on the more generalized level appropriate for this discussion they appear quite similar. In either situation, perhaps the best way to get an “in” is to hire a sales representative with contacts to researchers, lab managers, or purchasing managers in industry. In this manner, you can utilize (and perhaps internalize) the rolodex of your new reps who have more extensive industry contacts.

Universal Considerations

Regardless of your company’s positioning, your sales to industry can benefit from good CRM practices and fully leveraging high-quality lead generation techniques. Draw potential customers in pharma and biotech to your product through advertisements, search engine optimization, and / or face-to-face at conferences and capture their information through requests for more information about your products, demonstration requests, special offers, etc. Once you have the information, you have your “in”. When industry prospects are converted to customers, manage these high-value relationships to allow you to maintain your access to their research facilities.

Many pharma and biotech companies purchase through procurement agencies such as VWR or Fisher. Be sure to maintain a good relationship with these companies. While they have been known to ask for something in exchange for nothing, they also try to steer the purchasing decisions of scientists to products which offer profits for Fisher and value for the customer. It’s not always possible, but getting your products a preferred status within their purchasing departments can be a significant boon to sales.

Pharma and biotech companies are notoriously difficult for salespeople to gain access to and marketing and selling to their scientists can be difficult. If you would like to improve your access to these markets, be sure to execute a plan which allows you to both create and capitalize on opportunities to get an “in” within biotechnology and pharmaceutical companies.

"Would you like to increase sales to the pharma and / or biotech researchers? Are you looking to develop a well-defined and executable strategy to do so? Contact BioBM and discuss your situation and we can help you develop an actionable plan in order to improve your sales to industry scientists."

Blog / Distribution / Marketing Strategy 6:21 pm , January 31, 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."

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