Most companies employ more than one model to reach consumers in developing markets. For example, a phone manufacturer reaches consumers in developing markets through three channels. On key retail accounts, the company handles sales and after-sales services in-house but outsources logistics, inventory, and credit and collection to distributors. To reach operator-owned shops, the company works more directly with the operators themselves. Finally, to reach traditional trade, the company works through a network of regional distributors that it actively manages.
Once a company has selected a channel strategy, it needs to focus on execution, execution, and execution. In fact, execution of a model is more critical than the selection of the model. Companies must influence hundreds of thousands of retailers and points of sale indirectly through dozens, not hundreds, of their own staff. Most companies have tremendous opportunities to gain mastery over execution. While successful execution depends on doing a long list of things right, there are a few key factors that matter the most—especially for companies working through large distributors using the models of selective outsourcing and integrated distribution.
Choose the right partners. Companies need to thoroughly vet channel partners. Can they take on the full range of sales and distribution tasks? What is their geographic coverage? Are they passive or active distributors? Are they financially stable? How strong are their underlying capabilities? Since most of them are relatively inexperienced, are they willing to learn and change? Are they willing to become an extension of the organization?
Establish the right structure and distribution setup. Companies have to carefully consider how to organize distribution. There are many interrelated issues: the boundaries between and size of territories; the number of account managers per distributor; rules on exclusivity; the split between direct distribution and indirect distribution; and the projected profitability of distribution partners. All of these issues require careful thought and should be reevaluated over time. Despite having an active presence in a developing market for more than 50 years, a large consumer-goods company, for example, recently collapsed its decentralized distribution model into a few large national distributors.
Build internal capabilities for active channel management. Many companies are unaccustomed to taking on the active and disciplined management of channel partners. They will need to change the culture and mindset of their sales force, instill a greater sense of accountability, and create a set of KPIs that encourage stronger collaboration with channel partners.
The partners also need to be evaluated against performance-based KPIs and targets. KPIs should include both leading and lagging indicators. If partners are performing strongly on leading indicators, such as direct retail-store visits, coverage, and product knowledge and market intelligence, then performance on lagging indicators, such as sales growth, will follow.
In addition, creating “sense and response” capabilities by building dynamic and granular market intelligence and acting on these insights can be a powerful lever for companies to lift performance at the microlevel.
It is important that executives with the right level of authority and responsibility are interacting with their peers at the channel partners. “Layer matching” helps create greater accountability and execution. For example, an area sales manager should be dealing directly with the operational manager and sales supervisors of the distributor on a daily basis, while a regional sales manager might only meet with the distributor’s owners and key executives to develop business plans.
Enable the channel partners to perform. Channel partners in these markets are changing and growing as rapidly as the markets themselves. Their sales forces are typically young and inexperienced, while attrition levels are high. Working with these partners requires more intervention than in developed markets but is worth the effort.
Companies need to train staff at their distributors and provide assistance in day-to-day management and monitoring. They also might help pay for inventory management systems that will ultimately help to increase their own sales and profits.
Anyone who has visited a developing country can imagine the challenges of channel management in these places. What is routine in the West can quickly become frustratingly complex. Creating a winning channel requires not just getting the channel strategy right but also achieving mastery over execution. Achieving this mastery requires a reset of channel capabilities that need to be built and delivered on the ground. Companies that place a premium on both will be rewarded with superior performance.