MH: Most suppliers find the lack of control they have over their sell-through channels extremely frustrating.  Are there legal things that suppliers can do but aren't doing?

CP: I am glad you said legal!  The first thing that suppliers have to accept is that there is a natural tension in any supplier-reseller relationship.  The supplier wants ownership of the brand and of the experience that the end-user enjoys.  The reseller feels he has had paid for it and that the product is now his.  But, yes, I think there are many things that suppliers can do and aren't doing to exert more control.

MH: Such as what?

CP: Firstly, most suppliers never define precisely what sort of experience their different types of customers actually want to have. If you do this, you can select the right channels for each type of customer.  You can then set the exact requirements for partners, so that when they sell your product it meets the desired customer experience.

MH:  All well and good, but how do you ensure that your partners deliver the experience?

CP: At one level, you can write it into the contract. You can stipulate how many trained technicians each partner must have.  Workstation vendor SGI goes even further, effectively forbidding partners to make a sale without adding services in some form or other.

"You want to develop a reputation as an enforcer."

MH: Well, most companies have contracts, don't they?

CP: Often they do.  But very few suppliers enforce such contracts systematically. In practice, when partner A loses two of his three technicians, they don't stop him reselling the product. And, of course, partner A now has a lower cost base to compete with those who still meet the standard.

MH: So you have to be tough?

CP: Yes. You want to develop a reputation as an enforcer.  This is something that a few companies in every industry have, and it pays dividends - look at Sony, Swatch or Levi. You also need to accept that enforcement costs money and, in the short-term, may even lose sales.

MH: But how do you stop four or five intermediaries throwing their resources into competing on price for a few large contracts?

CP:  Firstly, you can paint your roadmap for the partners. You can show them the markets you want them to go after and you can encourage them to do so with good account management and the judicious use of marketing development funds. But, frankly, there is not a lot you can do if people want to commit commercial suicide.

One way to stop discounting is to put in place channel health programmes with black box rebates.  This is a rebate, the value of which the partner can't calculate in advance.  The theory is that if the partner can't forecast it, then he can't discount down to that level.  So a rebate might be based on position in an international league table or some other measure.

MH: Does that work?

CP: Yes, for a while, although the biggest and most knowledgeable resellers generally work out the mechanics after a while, and then you have to move to some other measure.

MH: Sometimes everything just gets very emotional doesn't it? 

CP: Yes. You get to a situation where the distributors are convinced they are losing money on every transaction they make and refuse to sell the product.

MH: What steps do you take then?

CP: Well there is a normally a huge cloud of emotion and misinformation floating around and cries of "over distribution." At that point, it is often useful to call in a third party to find out precisely what is going on.  Beware the intermediaries' favourite song: "Please protect me, oh my supplier, from this nasty, nasty market!"  But often you find that suppliers are partly to blame.

"Beware the intermediaries' favourite song: "Please protect me, oh my supplier, from this nasty, nasty market!"

MH: How so?

CP: There is no point in complaining about low prices if you are trying to stuff your distributors with product at the end of every quarter. Unless you are consistent you can't expect consistent behaviour from your channel partners.

MH: What of illegal methods?

CP: What?  Like not delivering to people who annoy you?  Or refusing them marketing development funds?  Or partners' orders getting "lost"?  Suppliers do that all the time. Such measures look cheap, until the EU fines you.  Then they prove to be very expensive.  And, even if you are never caught, you are hardly promoting good relations between you and the other party.  These techniques are hardly going to enhance the experience enjoyed by the final customer and that, ultimately, is what counts, isn't it?  

MH:  So don't do them?

CP: Hmm. I would say legally reward those who behave well and do what you want, rather than go after those you don't like in an aggressive and illegal way.

Finally, the supplier always has the alternative of going to another model, such as selling direct to certain large accounts or making partners into agents rewarded with a fee rather than commission. But that is another story entirely.