If you are a manufacturer and you need to get your products to market, you’ll probably want to use secondary channels, that is, wholesaler-distributors, manufacturer representatives, retailers, and value-added distributors.
Secondary channels extend a manufacturer’s reach. These channel partners may sell into markets where a manufacturer lacks a presence; serve customers that are too small to warrant a manufacturer’s direct attention; or store inventory near the point of consumption. Channel partners may also identify potential market opportunities; become specialists in a vendor’s product; or introduce new products into the market. They are the “face” that customers associate with your product. Although secondary channels perform many of the same functions, they have distinct characteristics targeted at their customer base.
Manufacturer representatives: These can serve both large and small customers, but they are most effective in targeting new or emerging customers. Reps can take the time to educate new users on products or work with designers who integrate products into a final assembly. A good rep will sell complementary, not competing, product lines. Reps introduce new products into the market and assist customers in transitioning from an older product to a newer model. Most do not carry inventory.
Distributors: These are the “warehousers” of an industry. They procure products in high volumes, store the products, arrange delivery, and manage many supply chain functions. Manufacturer representatives frequently work with distributors. If a rep successfully books a sale, a distributor will deliver the number of products the customer needs. Often a sales commission will be split between the representative and the distributor. Distributors primarily target purchasing agents who order products in high volume. However, some also have outside sales reps who call on designers, recommend or sell complementary products, or provide value-added services such as assembling product components into a kit.
Retailers: These are the grocery stores, convenience stores, automotive after-market shops, and department stores that target consumers. Retailers have the broadest reach in the resale channel but typically carry a number of competitive products or brands. The products are on the sales floor and in stock. Retailers work with brand owners on sales promotions, rebates, and other marketing programs that target consumers.
Value-added resellers: Also known as contractors, these assort and package products according to customer needs. They typically call on and sell to small businesses. This channel often performs some kind of presales service for customers. In the electronics industry, for example, a value-added reseller takes disparate computer components, such as a hard drive, a monitor, a motherboard, etc., and assembles them into a system and downloads the software necessary for the product’s performance.
All secondary channels revolve around certain core issues:
- Bulk breaking: This allows customers to buy what they want in a desired quantity. Even if products are manufactured in bulk, this allows customers to hold less inventory and purchase the quantities they will use.
- Convenience: This allows customers to find and obtain products quickly and with low search costs.
- Waiting time or delivery time: This is the time between ordering and receiving a product. The longer the waiting time, the more a customer must be able to plan consumption in advance.
- Breadth of assortment: This is the ability to provide sufficient product variety to customers.
Industry associations are a good way to find a distributor, a representative, a reseller, or a retailer. The National Association of Wholesaler-Distributors; the United Association Manufacturers’ Representatives; and the Association of Channel Resellers are good places to start.
The following should be considered before entering into a channel partnership:
- Competition: How unique is the product that’s being sold? Is it something customers can get anywhere, or does it stand out among its peers?
- Support: Is the product simple or complex? Complex products will need a higher level of support throughout the sales channel.
- Saturation: Is the product available anywhere and everywhere? It is possible to overdistribute a product and erode its value to all parties?
- Add-ons/accessories: Are there opportunities to build a sale around this product? A classic example is computers. Buyers need a printer, software, and other accessories to even make use of the product.
- Life cycle: Does a new version of this product come out every few months, or is it a once-in-a-lifetime buy? Life cycle has a significant impact on how inventory is managed in the sales channel.
An effective channel strategy benefits all parties in the supply chain: manufacturers, distributors, and customers. In some cases, manufacturers will use a hybrid strategy combining two or more secondary channels. Wholesalers, for example, may handle supply chain management for manufacturers’ representatives and retail stores. Manufacturers may rely on value-added resellers for installation services but directly support their own products. All secondary channels require some degree of support from manufacturers. The most common is product training.