How companies entering the Asian market can break through the “last mile”—distribution and channel management.
Emerging markets are set to account for 50 percent of the world’s total consumption by 2025. If businesses want to grow, they need to find a way to break into these markets.
When it comes to moving into Asia, however, the geographic dispersion, often-ambiguous channel structure, and fragmented distributor landscape make it a complex business environment to navigate. One of the most challenging elements is managing the “last mile,” i.e. the final stage of distribution and channel management needed to get a product or service to a customer.
Cracking the code is critical. Time and again we see that companies that outperform the competition in managing channels and distribution to customers also win share of voice and spend. For example, in a market that grew by 2 percent, a cement manufacturer recorded 7 percent top-line growth overall – growth driven by the company successfully doubling down on a few disproportionately high-growth markets that were growing at 13 percent.
In our experience, there are four mantras that are remarkably consistent when it comes to building out an effective channel and distribution program in Asia:
1. Build flexible organizations systematically
Asia is far from monolithic. Each region and country has unique cultural quirks and nuances. For this reason, the channel and distribution organization should be flexible, innovative, and tailored to local conditions. An Indian pharmaceutical company, for example, developed a dual sales organization structure. The “expert salesforce” targeted doctors, while the “transactional salesforce” was focused on distributors and trade. This helped the company provide adequate face time and relevant expertise to both segments (doctors and trade), which proved to be a big differentiator from the competition in winning in the marketplace.
In a different case, a fast-moving consumer goods company extended its reach and effectiveness using nonconventional distribution alliances in India. Realizing that access to villages, a large but fragmented marketplace, comes from trusted sources “within” the community, the company partnered with female entrepreneurs in the village who worked as advocates / distributors for their products. To help them step into business, the company provided these women with training, financing, and marketing support. This project alone contributed to a significant part of the company’s annual growth for several years. An FMCG company took a slightly different approach by identifying local mothers’ groups and village elders and leaders and recruiting them to provide feedback on their products. Encouraging these influencers to be part of the process helped convert them to advocates over time who drove latent demand.
The best organizations are also systematic about evaluating partners. They institute scorecards with clear and relevant key performance indicators (KPIs), making the process of partner selection consistent, transparent, and tailored to regional/local nuances. An Indonesian oil and gas company, for example, used three criteria for its scorecard: financial capacity, network coverage, and actual performance, i.e. volumes. Sharpening its scoring helped it create a transparent system to slowly remove low-performing partners and bring in new blood to improve performance over time.
Any successful program should incorporate a willingness to be bold and creative when necessary in order to serve certain target segments and engage channel partners effectively. A diversified conglomerate in India, for example, piggybacked on rudimentary distribution of existing rurally consumed products (e.g., local grains, clothing, daily necessities) to reduce overall distribution costs by 40 percent. In another example, a quick-service delivery company in India has innovatively used the city’s suburban railway network to transport lunch boxes to customer workplaces.
2. Clarify roles and deal with channel conflict directly
As with any organization, clarity of roles and responsibilities is critical. That mantra is particularly true in developing economies, where nontraditional channel-management structures often require new roles and responsibilities. This is particularly the case in Asia, where several distribution partners are family-owned businesses with deep local ties to the community. Once the roles have been defined, it’s important to build in accountability, including both positive and negative incentives, and clearly communicate them.
For example, an Indonesian oil and gas company laid out clear role distinctions between the direct-sales team and third-party agents/distributors. While the direct-sales team focused on new customers, the partners focused on winning back customers. Any group’s infringement on the other’s customers could lead to its removal from the partnership. An agricultural seeds manufacturing company penalized dealers who sold into other dealers’ territory by reducing rebates given to defaulting distributors and making it harder for them to compete.
Defining roles and responsibilities is meaningless, of course, unless people are properly trained and equipped to do their jobs. Building a consistent set of basic partner capabilities is important to ensure high-quality service and builds a set of common standards that are much simpler to manage. Successful companies train dealers to build better business-management practices and better manage their ROI. For example, an industrial goods player helped dealers more effectively process claims, handle customer service issues, and take customers on plant visits.
Tools are necessary to both improve planning strategies and monitor productivity. One Indian automotive aftermarket player used simple smartphone applications to help map their dealer universe in terms of coverage, pricing compliance, and competitor penetration. This helped them better identify which dealers had the right coverage and potential for growth for the given product.
Effective capability building also requires a more strategic view of where best to invest resources. Over-investing in a few distributors, for example, can pay disproportionate dividends. One building-equipment manufacturer established “Premium Dealers” through selective acquisition, then developed targeted capability-building programs and provided them a broader market footprint that gave them room to grow.
3. Build long-term loyalty and commitment
To establish a loyal and sustainable network, the best-performing companies invest in fostering a genuine feeling of commitment to the parent organization among channel partners. Economic incentives will help, of course, but building loyalty and commitment is ultimately about building emotional bonds.
Points redemption and sales monitoring go a long way when rewards for channel partners are balanced across economic (attractive commercial terms), emotional (strong bonds), and ego (awards and privileges) benefits. Additionally, commitment levels soared for some companies after they monitored channel performance by focusing on both profitability and behavioral metrics. Transparency, for example, is critical to establishing both a culture of performance orientation and a sense of fairness among channel partners.
Small things matter a great deal in building commitment. For example, an India-based global fluid-management company made the effort to ensure that someone called each dealer’s family on all family birthdays in order to maintain an almost familial relationship, which resulted in a visible uptick in their distributor satisfaction scores.
Of course, if you want loyalty, you need to show loyalty. Several winning companies specifically support dealers across the selling cycle through onboarding and training, as well as ongoing sales support such as lead generation and post-sales support.
4. Stay focused on the customer
It is hard to overstate the importance of commitment to the customer when it comes to both partner selection and engagement. The best partners demonstrate that they will stick with their customers across the entire life cycle.
A global automobile manufacturer uses technology to efficiently serve consumers. Its CRM system tracks consumers across prospecting and lead generation and extends this to sales and after sales. The system allows the company to capture all prospective/new customer details and makes the information available to all those who might interact with that customer. The qualified leads are then forwarded to the respective dealers’ systems. In addition, the system highlights the value of each customer, identifies family and personal connections between customers, and thereby helps in tailoring sales efforts effectively. The tool also helps with customer satisfaction after the sales by preemptively surfacing possible customer issues through an analytic function that looks for root causes and highlights what can be done to fix them.
To ensure a tight focus on the customer, companies need to put in place meaningful metrics that are also transparent to the sales reps. An Indian autosupply-chain player, for instance, takes an interesting approach by laying down unambiguous customer service standards for its channel partners. It has crafted a list of 100 “to-dos” for selling interactions with customers, which it religiously tracks across its service centers through a mix of input metrics (e.g., activities completed, training hours done) and output metrics (e.g., turnaround time per day). Following this method, the pilot stores showed a 20 percent improvement in customer retention and a corresponding increase in sales over a six-month period.
Moving into Asian markets can seem like an intimidating prospect given the fragmented markets and developing infrastructure. But the companies that can master the specific conditions of each market in a disciplined way can turn sales opportunities into above-market growth.