Progressive Distributor - The end of entitlements

The end of entitlements

by Rich Vurva

Distributors who think they’re entitled to manufacturer co-op funds may be in for a rude awakening

For years, manufacturers have allocated co-op dollars to help fund distributor marketing and promotional efforts. Typically, a distributor could count on earning at least 1 percent of the previous year’s sales in co-op funds. If you sold $100,000 of Supplier A’s products last year, this year you could expect to receive $1,000 in co-op funds from that company to apply toward flyers, catalogs, open houses or similar activities. Some manufacturers offered 50/50 matching programs. If a distributor spent $1,000 to print a promotional piece, the manufacturer would pay $500.

Today, many manufacturers are starting to rethink their co-op practices. Some have abandoned formal written co-op policies in favor of more targeted market development fund (MDF) programs. The change occurred because manufacturers wanted to make sure they were spending their dollars on activities that could generate future sales, not just to reward distributors for past sales.

Distributors can still count on suppliers to support their efforts — especially if all they require is a few free T-shirts or caps for an open house — but they may have to work harder to convince a manufacturer to invest in more significant marketing campaigns.

“The person with the best plan and the best way to monitor it, measure it and deliver results will get the lion’s share of dollars from manufacturers,” says Ken Cantwell, director of marketing for CRC Industries in Warminster, Pa., a manufacturer of specialty chemicals for maintenance and repair professionals.

Distributors might convince a local rep to offer free product samples and other low-cost giveaways such as golf balls, pens and other trinkets with the supplier’s logo. But they can anticipate more enthusiastic support — and greater dollars — if they approach co-op and market development funds as an investment by the manufacturer rather than an entitlement program.

“We sometimes get calls from distributors who want us to help pay for an event after it has taken place. I don’t think that’s the right way to do business,” Cantwell says.

The key to getting manufacturer support is to understand the manufacturer’s goals, says David Gordon of Channel Marketing Group in Raleigh, N.C., a distribution industry consultant with expertise in marketing. He recently surveyed manufacturers in the electrical industry to determine their priorities in the coming months. New product introductions and training at the customer and distributor salesperson levels topped their list of concerns.

Distributors that devise strategies to introduce new products to a key customer segment will have a better likelihood of capturing the attention and support of those suppliers. If they begin tracking new product sales for specific manufacturers, they can position themselves as a new product outlet for the manufacturer in the local market.

“If you understand your manufacturer’s priorities, and develop strategies to focus on those priorities that are in your best interest, there are funds available,” he says.

Gordon says manufacturers will usually invest in efforts where they can expect a measurable return on their investment. Given the choice, most suppliers would prefer to pay for a training event aimed at a specific customer or market segment rather than simply write a check to defray the costs of an open house.

Richard Crifasi, president of Charlotte, N.C.-based Ensco Supply, an IDG company that focuses on professional contractors, says distributors can often receive funding from more than one source within the same company. For example, the local field rep is usually willing to offer free product samples or logo apparel. The regional sales manager who is interested in a conversion program aimed at getting contractors to switch power tool brands may be willing to host a hospitality event targeting high-potential prospects.

“Then you might do something even bigger like a once-a-year golf or fishing outing with your top three customers. This support may come from the corporate level,” Crifasi says. “If you’re planning a program that can help them sell more products, there’s a good chance you can get suppliers to help pay for it.”

Small companies welcome
Cantwell says some large regional distributors and national chains offer suppliers a menu of options for investing their market development funds. The best plans are often integrated marketing programs that include multiple approaches such as a mailing to the distributor’s branches, print literature focusing on specific end-users and targeted e-mail blasts.

“We may take advantage of a theme the distributor has developed, like emergency preparedness or worker safety. We’ll work with the distributor by bundling products or services tied to that theme,” Cantwell says.

While small, independent distributors usually lack the resources or knowledge to develop sophisticated marketing programs, that doesn’t mean manufacturers will ignore them.

“If we have a $10,000 distributor that we believe we can make into a $100,000 distributor, we may be willing to invest in a program to help make that happen,” he says. “We just need to see benchmarks along the way to justify paying for specific activities.”

“Small is only defined as it relates to your overall volume,” Gordon adds. “You may not generate large numbers compared to a national chain, but you may have good market share within your local marketplace.”

He suggests that small distributors should focus their efforts on their top suppliers. In some cases, they can benefit from what he calls application marketing, which includes multiple manufacturers in a single promotional activity. For instance, a promotional piece devoted to metalworking could include information from an abrasives supplier, a brush manufacturer and a cutting tool company.

Smaller distributors can also partner with non-competing distributors to plan activities. For example, a safety distributor could team up with an electrical distributor to host a training seminar on arc flash hazards. The electrical distributor could invite some of his suppliers to give presentations on minimizing the risk of arc flash dangers such as shock and electrocution, while the safety distributor could invite a personal protective equipment supplier to discuss proper safety apparel to prevent injury.

In the end, while manufacturers may be looking at co-op programs in new ways, they’re still interested in growing market share. Distributors that can demonstrate an ability to generate new business for their supplier partners can have success in convincing manufacturers to support their efforts financially.