There is no doubt about the sad state of the economy. Virtually every economist out there concedes the manufacturing sector is in a severe recession. While the Fed tries to engineer a recovery as quickly as possible, most manufacturers are looking for ways to manage costs, including channel-related costs and begin to drive new sales growth.
Frank Lynn & Associates works with many clients to evaluate channel costs, identify efficiencies, and restructure pricing systems. From this work we have developed several suggestions for channel marketers in this tough economic environment.
Before sharing our cost-cutting secrets, however, I would like to impart one piece of channel marketing philosophy I learned over 15 years ago: a bad economy reveals the true quality of a manufacturer's channel program. So, cut costs, but don't erase years of partnership-building in the process.
Here are six tips for smart cost-cutting:
Rationalize Channel "Tiers". Historical accident rather than a rational analysis often determines who buys from whom. Manufacturers frequently sell direct to customers whose volume or strategic importance no longer justifies direct sales. Moving these customers through indirect channels will be more profitable and a strong sign of channel commitment.
Similarly manufacturers should not sell to resellers that fall below a certain volume or strategic threshold. A manufacturer faces several options. Axe poor performers and "transfer" their volume to better resellers. Or, consider using wholesalers, master distributors or third-party logistics firms to cover smaller resellers.1
Increase Reseller Training. Customer service costs fall dramatically as resellers build a better understanding of a supplier's product, technology and organization. Consider sharing training costs with complementary suppliers.
Limit Special Deals. Many manufacturers feel they need to meet competitive pressures through "meet comp" pricing or other special deals. However, in some cases these "special" deals become every day deals. A new pricing structure can eliminate a significant amount of administrative burden for the manufacturer and the channel.
Eliminate Per Order Discounts. Discounts that vary with the size of individual purchases create many order-processing errors. They lead to invoice deductions when back-ordered products are improperly discounted. They result in dead inventory because the "load-em-up" philosophy screws up forecasting.
Open the Self-Service Window. Manufacturers should push their resellers to the web. Reseller "self-service" via a manufacturer's web site is much less expensive than multi-level telephone tag. Even if the site is not ready to book orders, manufacturers need to motivate resellers to check product information, verify pricing, get order status, request brochures, etc. online.
Establish "Sunset" Laws for Channel Programs. Many channel programs outlive their usefulness. A Spiff program to gain mind-share that is no longer at issue? A reseller database that few people use any more? Manufacturers should revisit all channel programs and cancel or pare back programs that have outlived their original rationale. We use a four-box matrix that sorts programs into ante's, raises, bells & whistles, and scrap heap categories.
1. An article on third-party logistics (3PL) firms will appear in our next Client Communique issue