An executive summary for managers and executive readers can be found at the end of this issue

Partnering with distributors to stimulate sales: a case study

John A. Weber
Associate Professor of Marketing, College of Business Administration, University of Notre Dame, Indianapolis, USA Keywords Business-to-business marketing, Distribution, Partnering, Channel relations Abstract Business to business marketers tend to view distribution as the weakest link in the marketing chain. Furthermore, strategies to improve distribution tend to be underemphasized in the typical business marketing plan. These factors underline the need for more creative thinking about alternative ways to improve distributor performance. Building closer relationships with distributors can be one effective vehicle for accomplishing this and at the same time enhancing a company's overall competitiveness. Using a case study, this paper reviews how one highly successful paper company has partnered with its distributors (paper merchants) in order to enhance sales performance.

Global marketplace

To be an effective competitor in today's global marketplace requires that a company cooperate with a broad network of players including, among others, goods suppliers, service providers, competitors (in strategic alliances), and distributors (Webster, 1992). The success of such cooperative relationships depends to a considerable degree upon commitment and trust among the parties involved (Morgan and Hunt, 1994). Building such relationships with distributors can be a particularly effective vehicle for enhancing a company's competitiveness (Anderson and Narus, 1990). Distribution: the weakest link in the marketing chain Using a methodology called Path Marketing Analysis (Pathmod), a recent study of over 200 business to business marketers examined the relative importance of alternative potential weaknesses in companies' marketing offerings (Weber, 1998a, 1998b). Through treating marketing mix elements in a hierarchical fashion, Pathmod helps a company to identify key drivers of market share change and to design strategies that will enable the firm to meet its future market share objectives. The overall results of the study suggest that business marketers perceive distribution to be the weakest link in the marketing chain (results summarized in Figure 1). That same study suggests that strategies to improve distribution tend to be under-emphasized in the typical business to business marketing plan.

Creative thinking

These findings underline the need for more creative thinking in the search for alternative ways to improve the performance of distributors. As suggested above, one way to do this is to build closer relationships with distributors. Using a case study, this paper reviews how one highly successful paper company addressed this challenge by partnering with its paper merchants in order to improve merchant sales performance. Background Measurement of distribution performance has long been recognized as a critical component for structuring and managing marketing channels (Ross, 1985)[1]. The underlying operational hypothesis of this paper is that
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Figure 1. Importance of current weakness for 200 product markets studied

improvement in distribution performance (in this case, of distributors' sales) is more likely if companies team with their distributors in measuring distributor performance. Various objective and subjective criteria have been offered separately or in combination to assess the performance of channel partners (Churchill et al., 1990; Cocanaugher and Ivancevich, 1978; Weber, 1998c). For example (as summarized in Kumar et al., 1992), in some studies, performance is operationalized as a unidimensional concept (e.g. Gaski and Nevin, 1985; Heide and John, 1988). In others, performance is viewed as having multiple dimensions and each dimension is investigated individually (e.g. Frazier, 1983; Noordewier et al., 1990). In still others, the multiple dimensions are combined to construct either an unweighted or weighted composite scale or index of performance (e.g. Frazier et al., 1989). Typology An alternative typology is offered by Eichel and Bender (1984) who group distribution performance evaluation approaches into comparative approaches (e.g. comparison with average or comparison with best), outcome oriented approaches (e.g. objective output measures such as sales or sales improvement, sales against potential, market share or market share improvement, profit contribution, quota achievement; or more subjective output measures such as service to customers, customer retention and loyalty, or managers' composite performance rating of assorted outputs), and input oriented approaches (e.g. objective input measures such as total sales calls, territory potential, years of experience, extent of training; or more subjective input measures such as technical knowledge, presentation skills, personality, human relation skills, etc.). Application of an outcome oriented/quota approach to team with distributors: a case example The setting ABC, a well-known paper company, found itself using relatively antiquated paper machines to produce nearly all of its reprographic and commercial printing paper. As a result, the company was having difficulty meeting competitive price points for its commodity paper products serving both the reprographic and commercial printing markets. In order to resolve this dilemma, ABC committed to building a new paper facility with two new ``state-of-the-art'' paper machines. The new machines would increase the company's production capacity by over 30 percent. The plan was to divert production of many commodity products to the new machines in order to capitalize upon the company's new cost leadership position in price sensitive commodity markets. At the same time, a large portion of the production capacity in the company's older facilities would be diverted from commodity products to higher value added products, for less price sensitive markets.
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Strategy

Resulting dilemma This twin strategy would increase ABC's capacity for most of its reprographic and commercial printing products at a time when market growth for the paper industry as a whole was projected to be quite flat. Thus, the company recognized that it would require an aggressive new plan to stimulate sales. In order to accomplish this, ABC developed a plan to partner with its 109 paper merchants. In return for their cooperation, participating merchants would not only be allowed to continue as ABC merchants, but would also participate in a number of merchant-targeted cost saving and revenue stimulating innovations being introduced by ABC. Five steps were involved in implementing the program: (1) Introducing new incentives for joining the ABC merchant partnering program; (2) Exploring market requirements and market potentials of merchants; (3) Agreeing upon sales targets for each merchant; (4) Assessing the current performance of each merchant; and (5) Monitoring merchant performance.

Annual merchant meeting

1. Introducing new incentives for joining the ABC merchant partnering program ABC kicked off the program at its annual merchant meeting an event at which ABC had typically pre-announced new products and introduced any new pricing, distribution, and promotion programs. At this particular meeting, however, ABC also announced sweeping new incentives for merchants in order to stimulate them to partner with ABC in an effort to achieve aggressive new sales growth goals. Significant ABC incentives were necessary because, while ABC had always had a highly sought after brand, the typical merchant carried two or three competing brands as well. Among the programs and policy changes introduced by ABC and enthusiastically received by the majority of merchants were the following:
.

Announcement of increased ABC production capacity introducing the two new large paper machines. These machines would incorporate the latest technology, increase ABC's capacity for making commodity products more efficiently (becoming the industry cost leader) and, at the same time, divert capacity on less efficient existing machines to higher value added products and less price sensitive markets. Warehousing innovations with some geographic realignment and modest expansion of ABC's warehousing network to improve responsiveness to merchant demands. Giving partnering merchants direct online access to ABC's full network of warehouses so that merchants could quickly check product availabilities, order product, and project delivery times, thus better serving the merchants' own customers. This same online access would enable merchants to reduce inventory carrying costs through providing faster response and delivery time. Facilitating and automating order and re-order processes through providing ABC with real time access to both sales and inventory of each key ABC product in the each merchant's stock (at the partnering merchant's discretion). Expanding an already existing direct ship program to merchants' customers.
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2. Exploring market requirements and market potentials of merchants After laying the groundwork for the partnering program at the annual meeting, ABC subsequently held a series of meetings with its larger individual merchants and with a council of smaller merchants. The purpose of such meetings was to receive merchant input regarding merchantperceived weaknesses in ABC's product line offerings, pricing points and policies, distribution and warehousing strategies, and promotional efforts. The ultimate goal of such meetings was to obtain merchants' views and recommendations on how ABC might help merchants to better serve their customers (i.e. market requirements of merchants' customers such as large and small corporations, printers, copy shops, design agencies, etc.) and at the same time enhance merchant sales and profits. Mutual agreement The operational goal of such meetings was to develop and seek mutual agreement (between ABC and the merchants) upon quantitative estimates for industry sales (in tons) for each of four (4) general product lines (two major reprographic paper categories and two major commercial printing categories, which together accounted for well over 90 per cent of ABC sales) for each of 65 different geographically defined markets (Columns 1-3 of Table I). Through further discussion and negotiation, ABC and its merchants also agreed upon the exact nature and impact of specific weaknesses (``gaps'') in ABC's product offerings in each of the four product categories (Column 4 of Table I). Both industry sales (market potential) and the product gaps were estimated and expressed in the form of ``Market Profiles,'' using a technique called Path Marketing Analysis (Weber, 1998a, 1998b, Weber and Dholakia, 1998)[2]. Subtracting the product gaps from the industry sales (market potential) yields the ``Served Market'' (Column 5 of Table I). This overall Served Market for each market was subsequently divided equally among the number of ABC merchants in each market, yielding a Served Market for each merchant (Columns 6 and 7 of Table I). 3. Agreeing upon sales targets for each merchant Next, based upon the estimates of industry sales and upon the analysis of market requirements in the form of Product Gaps in Step #2, ABC and its merchants negotiated sales targets for each of ABC's 65 markets and 109 merchants. Merchant input on competitive intensity in each market was critical for these negotiations. In the end, ABC and its merchants agreed upon one of three different ABC share goals for each major geographic market (10 percent, 15 percent, or 25 percent, depending upon ABC's historical position and the level of competitive intensity in each market)[3]. For markets in which ABC was represented by a single merchant (e.g. merchant #9 in City D), the relevant share goal (10 percent, 15 percent, or 25 percent) for the individual market became share goal for that merchant (Columns 8 and 9 of Table I). When multiplied times the Served Market (in tons) for each merchant (Column 7, from Step #1), this mutually agreed upon share goal generated a sales volume goal (in tons) for that market and merchant (Columns 10 and 11). For markets in which ABC was represented by more than one merchant (e.g. merchants #1-4 in City A), the relevant share goal for the individual market was multiplied times the Served Market (in tons) for that market. The result became the overall sales volume goal for ABC in that market (Column 10). This tonnage goal was subsequently divided equally among the various ABC merchants serving that particular area. This yielded a specific sales target for each merchant (Column 11). In this manner, each merchant agreed to a specific sales target for the relevant ABC product.
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Industry sales

158
6 # of ABC merchs Intensity of competition 2439 4 6097 6097 6097 6097 14512 14512 8 9 10 11 12 ABC SLS by each merchant 610 610 610 610 2902 1235 3994 1361 1770 4479 1689 13631 1451 1451 618 618 3994 681 681 1770 2239 2239 1689 2726 2726 2726 2726 2726 1 766 209 376 409 158 1325 984 60 520 2806 616 715 1815 1513 1705 1714 1595 1809 1014 2569 2062 13 Each merchants dist. gap-tons 401 234 201 452 126 467 558 98 1188 65 34 45 726 534 25 1131 917 1712 157 664 14 Dist. gap for each merchant (%) 65.7 38.3 32.9 74.1 8.7 32.2 90.3 15.8 29.7 9.5 5.0 2.5 32.4 23.9 1.5 41.5 33.6 62.8 5.8 24.4 (continued) 4 5 Product line Served market = gaps (PLG) potential minus (%) plgaps 24390 7 Potential (-PLG) per ABC merchant ABC market ABC sales goal ABC sales goal share goal (%) by market by merchant 29025 12352 39935 13613 17703 44789 16895 90874 5 1 2 1 2 1 2 2 6176 6176 39935 39935 6807 6807 17703 17703 22395 22395 16895 16895 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 5107 18175 18175 18175 18175 18175 5107 I I I I I I I I I I I I I I I I I I I I I I I N N N N N N N 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 15 15 15 15 15 15 15

Merch#

City

Repro market potential

1 2 3 4

31269

5 6

37211

7 8

15836

51199

10 11

17453

12

22696

13 14

57422

15

21660

16 17 18 19 20

A A A A A B B B C C C D D E E E F F G G G H H I I I I I I J

116505

6548

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Table I. Setting merchant goals and evaluating merchant performance: distribution gap for one (of four) product/market for each merchant etc., for all 100+ paper merchants in all 65 markets for four different major product categories

1 # of ABC merchs Intensity of competition 1 1 1 2 3 5651 5651 5651 5625 5625

10

11

12 ABC SLS by each merchant 1061 1190 1773 1688 2543 766 1061 1190 1773 844 844 848 848 848 1667 2933 833 833 2933 635 1012 217 1740 232 720 920 316 876 237 615 1714

13 Each merchants dist. gap-tons 131 49 973 33 612 124 72 532 28 596 218 1219

14 Dist. gap for each merchant (%) 17.1 4.6 81.8 1.9 72.5 14.7 8.5 62.7 3.4 71.6 26.2 41.6

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4 5 Product line Served market = gaps (PLG) potential minus (%) plgaps 7075 7935 11823 11251 16952 7 Potential (-PLG) per ABC merchant ABC market ABC sales goal ABC sales goal share goal (%) by market by merchant 5107 7075 7075 7935 7935 11823 11823 11112 19553 1 2 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 5556 5556 19553 19553 N N N N N N N N N N N N N N N N N N N 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15

Merch#

City

Repro market potential

21

22

9071

23

10173

24

15158

25 26

14424

27 28 29

21733

30 31

14246

32

J K K L L M M N N N O O O O P P P Q Q

25068

Table I.

159

4. Assessing the current performance of each merchant Each paper merchant's current sales of the relevant ABC product were tallied and compared against the benchmark established in Step #3, yielding a tonnage gap for each merchant (Column 13)[4]. For each merchant this tonnage was converted into a ``distribution gap'' ratio representing the merchant's sales performance shortfall against each of its negotiated, mutually agreed upon sales goals (Column 14). For ABC, the distribution gaps for the four different product lines for all 109 merchants together represented lost ABC sales of 62,000 + 26,000 + 78,000 + 11,000 tons = 177,000 tons[5] of paper. Thus, if each ABC merchant could achieve its mutually agreed upon sales goals, ABC could:
. .

increase its sales by nearly 40 percent; and raise its market share for the four markets combined from its current share of 10.8 percent (433/4,000) to slightly over its target share of 15 percent (610/4,000 tons).

Key to success

5. Ongoing monitoring of merchant performance ABC recognized from the start that the key to success would be to maintain active contact with its merchants in order to monitor each merchant's progress toward meeting its sales goals. To accomplish this, the company instituted regular meetings with large merchants and with a merchant council representing smaller merchants. In addition to providing periodic motivation for the merchants, these meetings also enabled ABC to stay apprized of merchants' views and recommendations on how ABC might continue enhancing its policies or strategies for merchants. The overtly stated purpose of these meetings was to help merchants to better serve their customers while at the same time continuing to enhance sales and profits. In conjunction with these meetings, ABC also instituted a reward program to officially recognize goal accomplishments of individual merchants and to reward such achievements with appropriate financial incentives. Results of the partnering program The new partnering program with merchants was a resounding success for ABC. The vast majority of ABC merchants participated actively in the program and, stimulated by regular monitoring by ABC, moved aggressively toward the mutually agreed upon sales growth goals. Overall market share for the four product lines combined approached the target (15 percent) within three years.

Distribution

Lessons learned The study cited earlier (Weber, 1998a, 1998b) showed that distribution is perceived by business marketers to be the weakest link in the marketing chain. The same study indicated that strategies to improve distribution tend to be under-emphasized in the typical marketing plan. A logical starting point for trying to improve distribution performance is to develop starting benchmarks that measure the distribution effectiveness. As shown in the example above, developing such a program and related benchmarks in cooperation with a company's major distributors can provide several advantages. First, such a program can provide a vehicle for building a better line of communication with distributors. This can help a company monitor distributor views regarding market dynamics. It can also serve as a vehicle for garnering distributor recommendations regarding how the supplier can better respond to market and distributor needs. Second, through

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teaming with distributors, setting market share goals can become a cooperative endeavor. Distributors can become true partners of the company in its effort to improve its sales and market position. Data estimates Conclusions To apply the approach described in this paper, only three data estimates are required. These include estimates of market potentials (industry sales), product gaps, and the level of competitive intensity for each separate geographic market. Once these data are generated and agreed upon, their manipulation in the framework (Table I) is fairly straightforward. The main challenge for the supplier is to get individual distributors to help develop and to subsequently buy into specific numbers numbers that ultimately convert into specific sales goals for each distributor. This can best be accomplished by fostering a cooperative spirit between the supplier and its distributors. Partnering with distributors is a two way street (Morgan and Hunt, 1994). The success story above started with the company itself designing an attractive set of incentives for would-be distributor-partners. In this case distributors could easily visualize how the incentives offered by the supplier would constitute a compelling competitive advantage for that supplier.
Notes 1. In this paper, ``Performance'' and ``effectiveness'' are used interchangeably (Cameron and Whetten, 1983; Kumar et al., 1992) and are differentiated from efficiency (Boles et al., 1995; Drucker, 1974; Duhan, 1975). 2. Path marketing analysis (PMA or PATHMOD) is an aggregate market response model designed to help firms in business to business markets benchmark the performance of different strategic components of their marketing programs (Weber and Dholakia, 1998; Weber, 1998a, 1998b). 3. In Table I, ``I'' implies intense competition with a 10 percent share goal; ``N'' implies normal competition with a 15 percent goal; and ``F'' implies that ABC is a favored brand with a 25 percent goal. 4. Note, as shown in Table I (Columns 13 and 14), a few merchants had no tonnage gap for the product being analyzed i.e. some merchants were already meeting their goals for this product line and, in fact, had ``over-goal sales.'' 5. This tonnage excluded over-goal ABC sales of individual merchants. When ABC brand sales for individual merchants were tallied for all four product lines combined and then compared against the combined four product line ABC sales for each merchant, over-goal sales occurred for fewer than 20 of the 100 plus merchants. References Anderson, J.C. and Narus, J.A. (1990), ``A model of distributor firm and manufacturer firm working partnerships'', Journal of Marketing, Vol. 54, January, pp. 42-58. Boles, J.S., Donthu, N. and Lohtia, R. (1995), ``Salesperson evaluation using relative performance efficiency: the application of data envelopment analysis'', Journal of Personal Selling & Sales Management, Vol. XV No. 3, pp. 31-49. Cameron, K.S. and Whetten, D.A. (1983), ``Organizational effectiveness: one model or several?'', in Cameron, K.S. and Whetten, D.A. (Eds), Organizational Effectiveness: A Comparison of Multiple Models, Academic Press, Inc., New York, NY. Churchill, G.A. Jr, Ford, N.M. and Walker, O.C. Jr (1990), Salesforce Management, 3rd ed., Irwin, Homewood, IL. Cocanaugher, A.B. and Ivancevich, J.M. (1978), ``BARS performance rating for salesforce personnel'', Journal of Marketing, Vol. 42, July, pp. 87-95. Drucker, P.F. (1974), Management: Tasks, Responsibilities, and Practices, Harper & Row, New York, NY. Duhan, D.F. (1975), ``A taxonomy of marketing poductivity measures'', in Lusch, R.F. et al. (Eds), Proceedings of American Marketing Association, pp. 229-32.
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Incentives

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