“We are a consumer goods manufacturing company which sells our products directly to our major customers through our own sales force. We feel it’s about time to expand our distribution through a third party distributor to increase our market share. Is it better to deal with one big distributor or with many small ones?”   - R. Lim
 
The conditions in which a product is sold changes over time and must be managed as it moves through its succession of changes in the market place.  Choosing a distribution model and distributor partner requires you to look at trends and patterns in the market to help you develop a succession of distribution strategies. Selecting either a big over a small distributor or vice versa is a matter of understanding where you are in the life cycle of market penetration. Let me give you three phases in a business (also applied to products) that I will use as a framework to help you identify the best route to achieving your goal.
 
Start-up and Growth phase where you maximize market penetration.
The key characteristics of this phase include:  low sales volume but high growth rates per annum; low customer base; and limited coverage reach.  If you are in this phase, I suggest you partner with small but many distributors from at least 25 distributors depending on the size of your business.  A P2- to 3-million monthly sales turnover is a good number for one small distributor in this type of industry. Small distributors should help you penetrate and develop territories and customers as they are usually local area experts and more nimble to accelerate market penetration. They tend to cover and serve more number of customers within their small territories and have strong customer relationships. Being small, your volume contribution to their total sales revenue may be high enough to warrant their utmost attention to pushing your products.
 
There are, however, disadvantages inherent in dealing with small distributors. Partnering and managing many distributors could require you more manpower and time. Because they are usually selling multi-product lines, there’s a challenge in product focus. In general, contentious issues include financial and organizational capabilities.
 
Transition to maturity phase to gain strong foothold in the market.
The key characteristics of this phase include:  Rapid increase in sales volume and number of customers on the verge of saturation point. At this stage, you want to take good advantage of the momentum that pedals you to gain market shares. You need to look at effective customer management of your distributor and distribution efficiency. In this phase, I suggest you deal with larger but fewer distributors. This entails consolidating smaller territories via big distributors who have the right muscles and forward-looking perspectives to propel your growth.  You may consolidate three to four small territories into one to be served by one sole distributor.  By the way, as a side note, sole distributor technically means that you have only one distributor in the assigned territory. For example, I am your sole distributor in the whole of Cavite and Laguna provinces but you directly serve national retailers like Shoemart who have branches in my areas. An exclusive distributor, on the other hand, is a distributor exclusive to the territory and nobody else can sell in that territory regardless of account type.
 
Maturity phase where you solidify market position.
The key characteristics of this phase include:  sales volume at its peaks and distribution saturation.  Economies of scale have reduced effective cost to distribute.  Your main strategy is to protect your market position via differentiation of products and services. Your distributor’s sales force must have the needed competencies to deliver value-creation selling approaches to customers. Hence, you now need a highly professional distributor partner(s).
 
When you reach this stage, you need to rationalize your distribution network for more efficiency, sustained viability and competitiveness. This is the best phase to deal with only one to very few (say, 5) big distributor partners who can focus on maintaining your distribution gains. Large distributors are usually professionally organized with well-entrenched distribution structures to effectively service your customers across the country.
 
I hope I have enlightened you however briefly in this column. In case you do not know, our company has professional consultants who can help you effectively set up your distributor network. As they say, happy selling!
 
 
Emilio “Bong” Macasaet III is Partner and Chief Distribution Strategist of Mansmith and Fielders, Inc. (www.mansmith.net), the leading marketing and sales training company in the Philippines.  For inquiries, please email info@mansmith.net, call (+63-2) 584-5858 /412-0034 or text (63) 918-81-168-88.