If you are working in the commercial organization of a medical device producer, one of your objectives is to establish and maintain a successful partnership manufacturer-distributor.
An example of a good practice is when the manufacturer and distributor regularly examine their business relationships to determine if they are providing each other with the appropriate results, incentives, and support in order to strengthen their working relationships.
What Is A Successful Manufacturer-Distributor Partnership?
A successful partnership is a win-win-win situation. The manufacturer wins, the distributor wins and the customer wins.
In the book “Strategic selling” Miller and Heinman, describe the four outcomes of every buy-sell situation:
WIN-WIN: Both seller and the Buyer “win.” Everybody achieves what is needed, but not at the expense of the other.
WIN-LOSE: The seller “wins” at the buyer’s expense. It is a short-term scenario because the buyer always finds out and the likelihood of you doing business over the long term is limited.
LOSE-WIN: The buyer wins at the expense of the seller. A typical situation of commoditized products, where the seller doesn’t get something in return when giving something up. Well, the result of this scenario is that the buyer will have limited respect for the seller or the products or services commercialized by the seller. The buyer also sees minimal value in this relationship because he or she doesn’t see your value.
LOSE-LOSE: Both the buyer and seller lose. The seller makes the sale, but neither of the participants feels satisfied with what happened to make the sale occur.
There are only two stable relationships between customers and sellers: win-win or lose-lose. You can as well consider it as a state of equilibrium and equality.
More so, it’s worth noting that relationships that start with the seller winning and the buyer losing, or vice versa, always end up becoming lose-lose relationships.
The Six Ingredients For A Successful Manufacturer-Distributor WIN-WIN Relationship In The Medical Device Business
1 Mutual And Balanced Gain
Both organizations, the manufacturer and the distributor, have to make a fair profit from the relationship. The profit must be worth more to them than the total costs related to the relationship.
In a win-win relationship, all participants are aware of the need for mutual benefit and take joint responsibility for the relationship.
Although conflicts regarding the individual gain are possible, the relationship requires a reasonable effort and the “cost” to manage it is relatively low.
To have a balanced gain, manufacturers must create appropriate incentives that encourage distributors to focus on product lines, customer segments, and business models.
Mutually agreed incentive programs should ensure that distributors complement manufacturer commercial efforts and provide supplemental services that add value to the customer.
2 Competence
Both organizations must be able to deliver what is expected from their counterpart.
For example, the manufacturer must be able to deliver the product according to plan (quantity, quality, time, etc), provide all the knowledge about the product, the competitors, and selling tactics.
The manufacturer should assist the distributor with marketing activities and supporting materials such as sheets with frequently asked questions, brochures, videos, case studies, and white papers, to enable the distributor to provide full solutions to the customer.
The distributor must be able to follow the payment schedule and must know the specific market dynamics. They must have a good relationship with the appropriate customer segments and KOLs. And must have well-developed sales capabilities in the territory with the capacity to provide the desired levels of customer outreach and relationship management.
When one of the parties lacks adequate competence to fulfill her own responsibilities, the two possible scenarios are, or a remarkable decrease of the profit generated by the relationship and everyone loses. Otherwise, one party puts an extra effort into the relationship to compensate for another party’s failings and the relationship ceases to be mutually beneficial.
Each partaker must detail which activities will do and what it will expect from the other party.
A bidirectional competency assessment before the beginning of the relationship is a key activity that requires time and energy but it is worth it.
Unfortunately, naive manufacturers, in order to increase market coverage, sign up contracts with distributors with a sales organization whose competencies aren’t adequate.
Examples of these are, inappropriate selling style, low therapeutic area knowledge, price heterogenicity of the complementary products & unaligned selling skills, and market support. Inadequate distributors, just take orders, try to sell to customers not in target, provide poor product support, sell on price, develop modest marketing activities, and can even affect product reputation.
On the other hand, careless distributors buy from manufacturers who don’t deliver the required quality, who don’t support the after-sales service adequately, or whose products don’t meet the specific market needs.
3 Integrity
Integrity is the practice of being honest and showing a consistent and uncompromising adherence to strong moral and ethical principles and values.
With mutual integrity, both parties can advance and achieve important results. In case of issues that are absolutely normal in a business relationship, the parties will work out the details and find a mutually beneficial agreement without wasting a substantial amount of money and time in protecting themselves from each other.
When starting a new business relationship with someone else, it is essential to assess the integrity of the counterpart. If some doubts arise, I suggest a deeper evaluation and if the doubts become reality, move on to another option.
Consequently, if you discover a substantial lack of integrity in an already established business relationship it is better to end it and find someone else.
4 Respect
Respect is very important in any kind of relationship. Long-term business relationships are like successful marriages. The respect in the relationship between manufacturer and distributor is based on credibility and trust.
After signing the contract, if the two organizations are interdependent and without a form of mutual respect, any single little problem can produce negotiations, arbitrations, and mediations in order to protect themselves.
Win-lose and lose-lose relationships are like affairs or one-night intercourse, but the purpose of both organizations is to have a marriage.
In today’s world, there is an easy way to quantify the level of respect in a business relationship. It is the time to receive a reply, for example, to an important email!
The party that is always slow or unresponsive to the questions and requests of the counterpart shows a low level of respect. Hence, the manufacturer and distributor should find an agreement allowing them to reach a good compromise.
5 Enthusiasm and Passion
Winning teams in every kind of sport enjoy being good at what they do, and they have fun doing it. A healthy, successful business relationship should be like a winning team full of enthusiasm, playful and lively.
The partners must work hard and invest a lot in the relationship but at the same time, they must enjoy working together toward the common objective and celebrate the success.
The manufacturer can instill energy in the relationship by helping the distributor building capability. Distributors appreciate manufacturers that help build their knowledge, capabilities, and selling skills. For instance, they may respond favorably if manufacturers provide technical and support staff to help them run specific programs such as field tests, courses, and product presentations.
Ideally, the manufacturer should provide in-person training and frontline support to the distributor’s sales reps.
6 Alternatives
In general, we are more satisfied when we can choose between at least one alternative. In a manufacturer and distributor relationship, the situation is the same; competitive alternatives are vital resources to all parties in the business relationship.
I’m convinced that the most successful, the most durable, and the most satisfactory relationships are between “consenting partners.” Both parties must have a conscious involvement, be free to choose among alternatives, and enjoy the relationship.
Final Thoughts
The most successful organizations (manufacturers and distributors) search for long-term business partnerships and they base their relationship on these 6 ingredients. They will consider what they want from a partnership, which partner is best positioned to provide it, and the agreement that can benefit both parties.
And once a manufacturer distributor partnership is established, the parties must remain fully committed and lend their full support to each other.
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