Spring has sprung time for distribution channel pruning
It’s spring, the sun has returned and it’s time to do a little pruning. We prune our garden so the light can reach other parts of the plant and enable growth. We prune because our garden grows back bigger and better by removing the weak, damaged or diseased parts of plants. For many of the same reasons it makes sense to prune a distribution channel.
Many companies don’t prune their distribution channel they let their partners “self-select.” They rationalize this thinking under-performing partners will give up, a stronger partner will push them out, or the cost of replacing a channel partner is too high. In most cases, none of these rationalizations hold water.
Why don’t under-performing channel partners quit?
Why don’t under-performing partners simply give-up? In many ways they do, but not in a way meaningful to the brand. Channel partners who give up don’t go to the brand and hand in their channel partner badge. They simply stop trying, and become opportunistic.
Brands don’t replace many under-performing partners because they generate revenue. The rationalization here is if they fired the channel partner that revenue would go away. What they don’t realize is the channel partner is making little or no effort to generate that revenue. They are simply being opportunistic and taking orders that show up.
Like a dead or damaged branch these distribution channel partners absorb the light. The light in this case is the deal, the attention of the brand, and the shadow they cast on the territory.
Whether you recognize it or not, every partner in your distribution channel takes up a certain amount of resources. It might be a CO-OP advertising allocation or part of a channel account manager, but they generally aren’t free. If you applied these resources to another part of the distribution channel you’d likely get a greater return.
Why a stronger partner won’t push an under-performing partner out (the flaw in survival of the fittest)?
It easy for a brand to rationalize a stronger partner will push out a weaker one. It’s simply the law of the jungle; survival of the fittest.
Stronger partners don’t push weaker partners out of territories for several reasons. First and most obvious, is when territories are exclusive. In this case, the stronger partner can’t push the weaker partner out.
Even when territories aren’t exclusive, stronger partner will avoid brand and channel conflict. They don’t want to risk their business pursuing a territory some other channel partner is failing in, especially if there is a risk it will hurt their standing with the brand.
Taking on an established partner on their home turf is expensive, and the best-case scenario is you’ll split the sales. This is another reason why stronger partners rationalize it simply isn’t worth it.
Brands that believe under-performing partners will simply take care of themselves have their heads in the sand. In most cases if the brand doesn’t act first, stronger channel partners will accept the status quo and not push out the under-performing partner.
Firing a channel partner isn’t cost effective
We covered the revenue equation earlier in this article, so now let’s look at the cost. Brands rationalize it costs too much to replace an under-performing partner. There are two parts of this cost: recruiting and channel enablement.
Brands often mislead themselves into thinking recruiting a new partner is difficult. This happens when they try to recruit a new partner into a territory occupied by an existing under-performing partner.
Unless the brand is willing to share confidential information (which they should never do), there is no way for a new partner to know how the existing partner is performing. For all they know, the existing partner is getting everything available out of the territory and the brand simply has unrealistic expectations.
Having an existing partner in a territory skews the view of what it costs to recruit a new one. When a territory is open it is much easier to recruit a new channel partner. The new partner can evaluate the territory on its merits without having to guess at what an existing partner is taking out of it. They may even seek out the brand if the territory isn’t occupied.
Another cost factor is the cost of ramping up a new channel partner. This is the real cost, but it is often skewed by the existing under-performing partner. Let’s face it, there is a cost to maintain the existing channel partner. You have the cost of a part or all of a channel account manager, the cost of market development funds and other channel incentive programs, and other management costs that has to be factored into the equation. Those costs should be deducted from the cost of enabling a new channel partner, which will make channel enablement look much more affordable.
Time to start distribution channel pruning
If you want a strong and vibrant channel network you’re going to need to do some pruning. Just like a garden, you need to remove the weak and let the light in. If you do, you’ll find your distribution channel growing back stronger than ever and your brand will be the beneficiary.
Learn more about channel incentive management, co-op advertising, and channel insights.