By Oluwole Dada
We have been reviewing the distribution strategy of companies as one of the factors that can lead to the failure of a product. Taking it further in this post is evaluating the relationship with trade partners. These partners include the distributors, wholesalers, and retailers. These partners can make or mar a company’s product. Their motivation to sell or keep your product behind the shelves is a critical factor in the success of the product.
These trade partners make daily decisions about what to stock, what to display prominently, what to recommend to the consumer, and what to let sit in a corner of the shelf because the margin is thin, the volume is low, or the supplier relationship does not warrant the effort.
These decisions are not made in a vacuum. They are made based on the trade terms the manufacturer has offered, the relationship the sales team has built with the distributor or the outlet, the merchandising support the organisation provides, and the commercial history between the two parties.
A product that enters the market with inadequate trade margins, poor distributor support, and a sales team that visits irregularly and offers nothing beyond the invoice will not be prioritised by the trade. It will be stocked when stock is available, placed where shelf space is convenient rather than where visibility is optimal, and replaced the moment a competitor offers better terms or a more attentive commercial relationship.
During the earlier years that Bigi Cola was trying to upstage Coca-Cola in Nigeria, one of the weapons they used was the trade margin. Lagos state, the commercial capital of Nigeria, has a whole lot of sales activities that go in the road traffic. One day, I asked one of the boys retailing CSD in the traffic the reason he was not having Coca-Cola products with him. He told me that he makes more from Bigi Cola than from Coca-Cola products and it will be illogical of him to leave something that helps him make more money and pick up one that helps him make less.
Unfortunately, this loss of sales may be traceable to the sales team, but the root cause is a thin trade margin for the trade partners in the value chain.
The same thing happened when Molfix, the diaper brand of Hayat Kimya dealt a big blow on Pampers, the diaper brand of P&G. The moment the distributors, wholesalers, and retailers realize they make more margin or incentives from a product, they will stock up that product and keep the other ones behind the shelf.
They go all the way to become ambassadors for the brand by persuading the customers to buy. The reason is not far-fetched. They will make more money from the product they are advocating for.
If your distributors or trade partners are losing money, they will soon leave your product for a more financially benefiting product that has similar qualities like your product. Never ever consider the quality of your product as the only thing that will make distributors and retailers stock up your product and sell it.
The partners in the value chain of your trade ecosystem are very important as well. Be sensitive to the incentive given to the distributors and the trade margin for the value chain. The trade partners will always push a product with a lower quality and more margin than a product of high quality and low margin. (It is assumed that the product with lower quality meets the minimum standard expected by consumers).
The organisations that consistently win at distribution in the Nigerian market such as Nestlé Nigeria, Unilever Nigeria, Guinness Nigeria and Tolaram share a common characteristic beyond the quality of their products and the scale of their marketing investment.
They invest systematically and sustainably in their trade relationships. Van sales teams visit outlets on a structured schedule. Regional Sales Managers visit distributors on a schedule. Trade promotion programmes are designed to reward the retailer for stocking and displaying the product.
Merchandising standards are enforced and supported with physical assets like branded chillers, display stands, and shelf strips. Credit terms are made available to make cash flow management easier for the distributor. Sales representatives know the outlet owner by name, know the outlet’s trading patterns, and bring genuine commercial value to every interaction.
Invest in the trade relationships that put your product on the right shelf, in the right location, with the right level of trade support behind it.
Oluwole Dada is the General Manager at SecureID Limited, Africa’s largest smart card manufacturing plant in Lagos, Nigeria.
