Organizations have two main options when it comes to selling a product.
1. Sell straight to the customer through a sales force.
2. Go through a third-party organization.
These third-party sellers traditionally come from indirect channels like value-added resellers, affiliate marketers, or independent retailers.
Distribution selling has become another common way to get the product to end-users, but unfortunately, there are not nearly as many resources out there for this type of sales strategy. That’s why we’ve put together this quick reference guide that will help you understand the distributed sales model and teach you how to optimize this strategy in your organization.
What is a Distributed Sales Model?
You might picture freight vehicles and delivery people when you hear the word distribution, but that’s not always the case. The distributed sales model is used anytime an organization partners with a distributing company to act as a middleman between themselves and the end customer.
The distribution company purchases the product from the organization at a discounted rate and then sells it to the customer at full value, profiting off of the difference. The primary organization benefits from the removal of a sales force. The distribution company benefits from the lack of product manufacturing.
What are the three different types of distribution strategies?
Organizations may want to think through what kind of distributed sales fit best with their overall business model. Three primary strategies exist:
- Intensive Distribution – Intensive distribution happens when lots of distribution or retail outlets get involved. This strategy has more to do with flooding the market share than it does partnering with specific distributors.
- Selective Distribution – Selective distribution is slightly more picky than intensive. Organizations carefully choose just a few distribution channels to partner with.
- Exclusive Distribution – The final distribution option is exclusive distribution. This usually comes from a distributor paying a high price for exclusivity, and it may not always last. Remember in 2007 when the iPhone came out, but you had to have AT&T? They had an exclusive distribution deal with Apple for a limited time, and that definitely didn’t come cheap.
Advantages to the Distribution Model
Organizations choose to utilize the distributed sales model for a variety of reasons. Most have to do with specific advantages surrounding the distributor you partner with. The more connected and experienced they are, the better return your organization will get from the partnership.
Reduced Challenges with a Sales Force
Managing a sales team and handling customers can take a toll on any organization. Distribution selling enables an organization to pass the ball, so they can focus their attention solely on making great products. While some sales are still required, targeting and selling to distributors puts an end to the ongoing work of winning over new customers.
Increased Focus on Building and Improving Products
Organizations don’t need to be all things to all people. Some companies, like Apple for instance, choose to create things, manage retail stores, and utilize e-commerce, but not all companies choose to do so. Google doesn’t have massive “Google Stores” all over the country to sell their Chromebooks or phones. Instead, they take advantage of retail distributors so they can focus on improving their products.
Ability to Target New Markets
Many organizations struggle to get into new markets because of the challenge to build trust with customers and foster relationships. Certain distribution companies, however, may have already built those relationships and earned that trust. By partnering with those distributors, the product-building organization gets to inherit those customer relationships without going through the work of building them themselves.
Having the skills to create a great product does not necessarily mean you have the skills to sell it to customers. Think about a complicated piece of technology. The engineers behind it may not know how to sell the product to someone who doesn’t understand the complexities and technical aspects, but a distributor might. They probably couldn’t build the thing, but they sure can make it desirable to the customer base. Think about Amazon or Wal-mart in this way. They hardly produce products, but they do get other organizations’ products in front of people. And they’re dang good at it.
Disadvantages to the Distribution Model
Although the distribution model has some great perks, there are reasons for organizations to remain skeptical. Most organizations see disadvantages in the areas of control, lead distribution, and visibility. While solutions do exist to these challenges, organizations considering distributed sales should know about potential issues they may face.
Potentially Lower Profits
The worst case scenario of a distribution model is that you lose out on profits. Since distributors make money from the margin between the sale price and the discounted price they receive from the partnering organization, the partnering organization necessarily loses out on that little bit in between. The choice to utilize distribution channels ultimately comes down to whether or not the organization can accept that loss in the end.
Lack of Control
The distributor’s sales team is not your sales team. You won’t get to control their workflow or set the expectations like you would for in-house sales representatives. This can get very frustrating, especially for high-performing organizations that want to monitor the sales process.
Some distributors will work with you to align CRMs or have their reps log into your organization’s portals, but this rarely has success. It’s hard enough getting your own teams to login to software or adhere to complex data entry requirements. It’s worse when that team doesn’t even technically work for you.
Challenges with Lead Distribution
Modern sales thrive off of getting the right information to the right people at the right time, making lead distribution a critical part of the process. You just can’t expect to land a sale these days if you don’t get your reps to leads as soon as possible.
This has typically been a real challenge in the distributed sales model unless the organization and the distributor work out a highly intricate process. Someone from the organization may look for sales opportunities to send to the distributor, but without any automation in place, the entire process relies on direct and manual communication. If the rep forgets to check her email, the whole sale may get blown just like that.
No Visibility into Channel Partner Activity
Like the other two disadvantages, this one primarily has to do with a lack of technology. Without a connected CRM or similar technology, the main organization has no visibility into their channel partner’s activity. You cannot see what deals are being worked, what leads have been followed up on, or what leads have waited to speak with a rep for hours (or days).
The lack of visibility also complicates attribution and reporting. How can you prove a lead originated without a trustworthy source of data? How do you know which marketing strategies attracted the buyer and which didn’t? If you can’t answer these questions, you’ll have a much harder time optimizing best practices and may spend money, time, and effort on failing tactics.
These disadvantages do pose serious problems for organizations looking to utilize or optimize their distributed sales model, but solutions do exist. You can use distribution to increase revenue if you have the right tools.
How to Automate Lead Distribution and Improve Lead to Revenue in a Distributed Sales Model
Lead Assign is positioned as the go-to software for organizations looking to optimize their distributed sales model. Organizations from across the country have used our solution to improve their lead management and distribution no matter their sales model. Calculate how much more Revenue Opportunity you can generate from your marketing leads by implementing lead management.
Our real-time lead management solution offers simple integration with multiple CRMs so you can get the visibility and data you need without adding any more software. Eliminate the waiting period for your leads by texting or emailing their info to the right partner within minutes of their engagement. The platform’s AI-based lead scoring and routing automatically distributes leads to the most qualified channel partners for the deal. See your potential success with the Power of Automation.
If you want to hear more about how Lead Assign can help you improve your distributed sales model, we’d love to talk with you. Schedule a demo with one of our specialists to get started.