Do Your Distributors Trust You Enough?
By: Emilio Macasaet III

 “You shared in your previous article about the need for strategic information and how to motivate distributors to share them to their suppliers. You have enlightened us about the nature and types of strategic information which are now very useful in our planning for next year. You also mentioned about the need to develop relational norms. However, isn't our distributor contract enough to put our distributors to task? Can we just enhance and clarify the required information in our signed agreement?” - Ron T. 

I can see a fair amount of discontent amongst suppliers who can’t seem to get their distributors to commit in the relationship by sharing information. I also see distributors who think they couldn't trust their suppliers for good reasons. This unfortunate condition has palpable impact in any relationships. Stephen Covey once said, “Trust is the glue of life. It’s the most essential ingredient in effective communication. It’s the foundational principle that holds all relationships.”

A company’s ability to compete largely depends on its ability to obtain information about its customer needs, competitors’ moves, channel members’ behavior, market intelligence, and the sharing and application of such strategic information across various functions in the organization. Yet many companies remain anemic in this important activity. Small wonder, the recycled annual sales plans and activities lacking deep insights. 

Your distributors are excellent sources of strategic information because they are in direct contact with customers and have first-hand observation on what your competitors are doing in the market. However, most distributors remain discreet largely due to lack of trust and confidence towards their suppliers. 

In my previous article on this subject, I discussed two particular types of strategic information, borrowed from Professors Va ?zquez-Casielles et al (2013), that the distributor may share with the manufacturer (i.e. external and internal strategic information). 

External strategic information includes data about customers (desired innovations, changes in sales systems, product quality improvement requirements) and competitors (price strategies, service improvements, developed innovations, potential competitors in the distributor’s commercial area) that have implications for companies’ long-term decision making. 

Internal strategic information refers to data processed and retained by distributors regarding the future planning of their activities (stock levels, assortment and price strategies, profit margins) and the future planning of customer segments (distributors’ key customers, new services provided, most valuable customers).

A dominant supplier or manufacturer may be able to influence its distributor to share strategic information through the use of power. However, this approach can be regarded as a form of coercion on the part of the distributor as information is passively shared.  Obviously, this form of influence does not develop trust and collaborative relationships. In fact, this usually leads to conflicts. Studies reveal that most distributors perceive enforcement of contracts as a form of coercion. For this reason, more progressive companies today are placing more emphasis on using relational norms to inspire trust and develop collaborative partnerships with their distributors. Trust is one of the most important relational norms and valuable business commodity. How do we measure trust?

I have recently started a survey to measure trust of distributor to its supplier using scales first presented by Ganesan, Shankar (1994) who conceptualized trust as being composed of two dimensions: benevolence and credibility. My research subject is a particularly interesting manufacturer in a sense, that they never had any manufacturer-distributor contract except an agreement on buying and selling prices. Let me share with you a few examples of questions I used which can be answered using a scale of 1(absolutely disagree) to 4 (absolutely agree) are as follows: 

  1. This supplier does not withhold important information from us.
  2. This supplier has very good knowledge about its market and competitors.
  3. This supplier does not honor its promises.
  4. This supplier does not seem to understand our real situation. 
  5. This supplier only wants our sales orders and payments.
  6. If we make a mistake, this supplier will not think twice to punish us.

Once in a while, it’s advisable that a supplier runs this type of survey and use statistical analysis to better understand distributors’ perceptions. Likewise, conduct a self-reflective test to help you gauge your own level of collaborative relationship with your distributors in the area of sharing strategic information. Using a scale of 1(very low) to 4 (very high), try this test:

  1. How satisfied are you with the amount of strategic information you obtain from your distributor partners?
  2. How satisfied are you with your sales team’s ability to interpret information and provide you with insights?
  3. How satisfied are you with the business and sales plans you get from your distributors? 
  4. How does your sales team fare in evaluating the performance and productivity results of your distributors?
  5. To what extent do your distributors trust you as their supplier?
  6. To what extent do you share strategic information to your distributor partners?

If you score below 18, I suggest you find time to seriously assess and develop a governance structure focused on building trust to institute sharing of strategic information with your distributor partners. This is a better way on top of your contract enforcement. Let me leave you with this quote from Ernest Hemingway: “The best way to learn if you can trust somebody is to trust them.”
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Emilio Macasaet III is a Partner and the Chief Distribution Strategist of Mansmith and Fielders, Inc., the only advocacy-based training and consultancy firm focused on marketing, sales, strategy and innovation. For inquiries, email or call (02) 584-5858.