Accessories

Chicago-based Consulting Firm Shows How Distribution Strategy Leads to Market Share and Revenue Growth

John Henderson, President/CEO of Frank Lynn & Associates Inc., a Chicago-based consulting firm, agrees that new products and technologies are a definite plus. However, he points out that many seemingly viable new products fail because manufacturers don’t understand the complexities of distribution channels. Henderson also points out that even without a compelling new product, companies can use channel strategies alone to find profitable sources of revenue growth.

Unfortunately, many executives from engineering or sales backgrounds don’t have experience in “channel strategy,” and it’s costing their companies a fortune.

Recently, a large industrial components manufacturer recognized this dilemma. It engaged Frank Lynn & Associates with one major objective presented in the form of a question:

How can we develop an aggressive growth strategy in a mature market to jump start revenue and market share growth?

This client was in the revenue doldrums. They faced new, low-cost competitors, no new whiz-bang products, and relied on stale management solutions that were safe but failed to deliver the needed results. In this environment, management’s revenue growth goals of 11 percent per year seemed unlikely, and maybe even unachievable.

To determine if the growth target was possible, the Frank Lynn & Associates team conducted an evaluation of the company’s product portfolio, competitive situation and its go-to-market strategy. The questions the team asked were:

> Where could the 11 percent per year growth come from? Product tweaks? Geographic expansion? New customer segments? New brands or targeting of new competitors? New channels?

> Where does the company have coverage gaps?

> What are unmet customer needs?

> Where are competitors weakest?

Based on the analysis, the Frank Lynn & Associates team determined that the company had overlooked a few incremental, specialized channels selling to niche markets. Furthermore, many resellers in the core channel cherry-picked the product line, selling competing accessories lines and avoiding slow moving SKUs. Using the framework shown on the next page, the team worked with management to find a consensus approach. The resulting “Change” strategy, if successful, would easily hit the 11 percent target.

While closing the key “Change” gaps became the strategy, the Frank Lynn & Associates team pointed out that the real trick was in the implementation, the so-called “boots on the ground” phase.

Specialized channel partners were not equally dispersed around the country. The same was true of cherry-pickers. According to Henderson, “What our client didn’t fully understand was that yes, they needed a national go-to-market strategy, but achieving their growth target could only be accomplished at the local level.”

The national strategy included a recruitment pitch and incentives for specialized resellers. It also included a redesigned channel compensation program that put more emphasis on full-line sales than sheer volume. However, the strategy lacked specific direction needed for each territory manager and failed to account for local market differences. The client’s salespeople needed to know where to find the specialized channels and cherrypickers.

This need led Henderson and the Frank Lynn & Associates team to the next step in the engagement. “We used our proprietary Territory Share Assessment (TSA) tool to build a bridge between the national strategy and the client’s local market characteristics,” Henderson says.

The TSA tool is designed to help companies get detailed data for revenue, market share, and market coverage by channel type and by customer segment. The TSA involves:

> Interviews with key resellers (your own and competitors’) in selected local markets

> Interviews with a sample of target end-user customers in the same local markets

> Identification of new (specialized) resellers to fill gaps, or existing resellers to target with new programs (e.g., anti-cherrypicking programs)

> The development of local market models to predict conditions in other geographic regions (for example, the ratio of a certain type of customer to a certain type of reseller)

One of the key “aha” experiences for management occurred when they discovered that many of predicted gaps existed in some of the largest markets and among the largest distributors. On its face, this was bad news. However, when you’re trying to grow 11 percent in a mature market, the bigger the gap, the bigger the opportunity for growth.

Faced with the actual data, management found the conviction to green-light a complete reallocation of marketing and distribution resources.

Staffing and budget were applied in some sales channels and geographic markets that previously had received little attention. At the same time, some regions that were previously considered over-funded got even more funding if the data supported the case. Sales territories, compensation and goals were adjusted to focus on the specialization and cherrypicking behavior. Similar programs were instituted at the channel level.

The local market data created a strong internal focus. Programs were carefully coordinated throughout the product, market and sales organizations–teams that had previously worked on their own agendas.

What were the results?

In the client’s first major geographic target market, the market research and analysis identified two new sales channel partners that should be pursued. “We worked with management to successfully establish a new relationship with these distributors, and the client realized immediate sales and market share growth that would not have occurred otherwise,” says Henderson.

Management forecast incremental revenues in the first local market of $750,000 in the first year. However, they hit that target in nine months from the date Frank Lynn & Associates first delivered its “Change” recommendations.

The team led the client through the local market process in two separate territories. During that time, they formalized the process steps, defined the internal and external information requirements and trained key client personnel to lead the implementation program in all remaining important territories.

Henderson concludes that the key to success is first designing the big-picture, national go-to-market strategy and then designing a program that can translate the strategy into local market tactics–where the actual growth occurs.

Who is Frank Lynn & Associates?

Frank Lynn & Associates is the leading consulting firm in field of channel or go-to-market strategy according to clients who simply refer to the company as “The Channels People.” The company is based in Chicago, but operates internationally with offices and affiliates in London, Sao Paulo, Brazil, and Beijing. The firm focuses on helping manufacturers achieve sustainable, profitable growth through a wide variety of channel and end-user programs.

With proprietary tools like its TSA approach, and over 30 years of focused sales channel experience, the firm brings a data and market-driven emphasis to decisions that many companies typically make on the fly.

What are the next steps?

One of the things that many clients appreciate about Frank Lynn & Associates, beyond its marketing “technology,” is its willingness to try before you buy. The company offers a limited number of free, half-day consulting sessions to potential clients who are willing to come to Chicago. According to Henderson, “You buy from people you trust, from people that seem like they speak your language. The half-day session not only helps us understand the client’s problem and explain our approach, but allows both of us the see if the right chemistry exists.”

About the Author

John Henderson, President and CEO of Frank Lynn & Associates has more than 26 years of extensive consulting experience in diverse industries. He developed the firm’s channel economics practice and is a noted author, speaker and management trainer.

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