There are a number of factors to consider before selling to ensure success.
Competition
All businesses face competition, and success is often based on how well you respond to it. You should be aware of your competitors and always strive to develop a competitive advantage over them.
To gain a competitive advantage, you could:
- raise or lower your prices
- improve your product or service - improving or modernising features or the manufacturing process
- use creative channels of distribution - such as channels of distribution not normally associated with your product or service
- exploit supplier relationships
See understand your competitors.
Market share
Market share is the percentage of all sales within a market that is held by one brand/product or company and can be measured in several ways, such as:
- sales revenue
- sales volume
Market share is directly linked with profitability and many companies aim to increase their sales relative to their competitors.
You can measure your company's performance relative to a competitor by the proportion of the market that your company is able to capture - Market Share = company sales divided by total market sales.
You can increase market share by:
- providing more value for potential customers - eg improving product quality
- price cutting - to increase sales revenue, though this tactic may not succeed if competitors are willing and able to meet any price cuts
- adding new channels of distribution or increasing the intensity of established distribution channels
- promotion - increasing advertising expenditure, though competitors may respond accordingly
See increase your market share.
Customer base
The consumers that buy your business' goods or services define your customer base. Consider the things you should know about them, including why they might buy from you. See assess your customer base.
Niches
A niche is a small but profitable section of a market that is often suitable for a specific range of goods or services that meet a particular need. You can create a niche market by identifying customer needs or wants that are not being addressed by competitors and by offering products to those customers
Marketing strategy
Your company will need a well-developed marketing strategy that will act as your marketing roadmap and forms an essential part of your overall business plan. See create your marketing strategy.
Brand message
Before you begin to sell a product or service, you should ask one question of your company - what does your brand stand for?
For your brand to stand out in the marketplace it should make an emotional connection with potential customers.
You should aim to sell an experience rather than a product, for example a financial service providing peace of mind.
Read more about branding for your business.
Wholesale value
Some products are sold via wholesalers. Wholesalers buy goods from producers at a reduced price. After adding on their profit margin, they then supply the goods to retailers who sell to the public.
Most businesses will be able to sell to wholesalers, as they can provide a good way to reach many retailers at once. However, you should look closely at the profit margin you need to make in order to remain profitable. This is important to ensure you don't sell your products too cheaply to the wholesaler who will always want the lowest possible price from their suppliers.
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- What Goes Wrong and Why
- Managing the Life Cycle of the International Distributor
- Which of the following is the best example of selling for the purpose of resale?
- In which of the following situations will a straight commission compensation plan be most appropriate?
- Which of the following data types is most commonly used as a GIS input?
- Which characteristics apply to a company's sales force?
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An established corporation looking for new international markets makes a foray into an emerging market, carefully limiting its exposure by appointing an independent local distributor. At first, sales take off, revenues grow pleasingly, and the entry is praised as a smart move. But after a while, stagnation sets in and sales plateau. Alarmed, the multinational’s managers try to discover what happened. They soon settle on what they perceive to be the main obstacle to sustained growth: the local distributor that got the company off to a flying start has run out of ideas and is now underperforming.
This pattern is repeated again and again as multinationals expand into new markets in developing countries. Over time, a corporation’s executives decide that the distribution organization isn’t run as they would like. They rush in and make major changes, in some cases buying the local distributor or, more often, reacquiring the distribution rights and starting their own subsidiary. In either case, it’s messy. A transition from indirect to direct sales is usually costly and disruptive. It can also create new problems that come to the surface only in the long term: executives may discover a few years later that they’ve gone too far in correcting a number of situations like this, saddling the multinational with a dense and inefficient network of national distributors.
The frustrations are summed up by the CEO of a major U.S. specialty chemical company: “In the end, we always do a better job with our own subsidiaries: sales improve, and we have greater control over the business. But we still need local distributors for entry, and we are still searching for strategies to get us through the transitions without battles over control and performance.”
I examined this pattern of imbalance and correction in a two-year field study of eight corporations in the consumer, industrial, and service sectors. These companies had entered almost 250 new country-markets, and I looked at their international distribution strategies in these markets. The research showed that avoiding the pattern of underperformance and correction meant accepting that, in most cases, the problem wasn’t as simple as the distributor’s being poorly run. I learned that a corporation could avoid this scenario by overseeing marketing strategy from the start. Below, I’ll look at what goes wrong with most distribution arrangements in developing countries and then present seven guidelines to head off potential problems. In the long run, multinationals come to see that it makes sense to continue working with independent local distributors who handle sales and a distribution system, even after the international companies have taken control of marketing strategy and major global accounts.
What Goes Wrong and Why
Most multinationals stumble onto a stepwise strategy for penetrating markets in emerging countries through a series of unplanned actions to reinvigorate sales. As the pattern recurs with entries into subsequent markets, this approach, dubbed the “beachhead strategy,” becomes official policy in many organizations.
On the surface, the strategy makes a certain amount of sense. Multinationals start from scratch in sales and distribution when they enter new markets. Since markets are nationally regulated and dominated by networks of local intermediaries, corporations need to partner with local distributors to benefit from their unique expertise and knowledge of their own markets. The multinationals know that on their own, they cannot master local business practices, meet regulatory requirements, hire and manage local personnel, or gain introductions to potential customers.
At the same time, the multinationals want to minimize risk. They do this by hiring local distributors and investing very little in the undertaking. Thus, the companies cede control of strategic marketing decisions to the local partners, much more control than they would cede in home markets.
Nevertheless, as the CEO of the chemical company points out, up to now many multinationals have eventually wanted to control their own operations through directly owned subsidiaries; they’re seeking the economies of scale and control obtainable across a global network of marketing operations. For many multinationals, it’s a foregone conclusion that local distributors have merely been vehicles for market entry, temporary partners incapable of sustaining growth in the long term. (For a discussion of distributors’ long-term prospects, see the sidebar “Is There a Future for Local Distributors?”)
For distributors in emerging markets seeking to sell multinationals’ products, my research findings are alarming. In the eyes of many corporations, the independent distributor is an endangered species. Virtually all executives of multinationals I interviewed bemoaned the lack of strategic marketing by distributor organizations, and many predicted that the gradual globalization of competition would lead to the disappearance of many such distributors.
The track record of distributors in new markets seems to support this bleak view: in the great majority of cases, multinationals bought or fired their distributors at some point during the partnerships or created their own direct-sales subsidiaries. In only 5% of the 250 cases I studied, multinationals switched to new distributors.
A few distributors have managed to continue as representatives of multinationals over the long run (in some cases, for more than ten years). Most, it’s true, were located in countries not considered strategic by the multinationals—a characteristic over which the distributors had no control. But the surviving distributors shared two other characteristics.
- They carried product lines that complemented, rather than competed with, the multinationals’ products.
- They acted as if they were business partners with the multinationals. They shared market information with the corporations; they initiated projects with distributors in neighboring countries; and they suggested initiatives in their own or nearby markets. These managers risked investing in areas such as training, information systems, and advertising and promotion in order to grow the multinationals’ businesses.
Multinationals clearly prefer to control their international marketing operations, so such characteristics can’t guarantee a long-term role for even the most effective national distributor. But, at the very least, a distributor whose leaders participate actively in strategic marketing will be valuable to the multinational and will be able to command a high price if the corporation seeks to buy back its sales and distribution business.
More generally speaking, though, the future of independent distributors will be influenced by the growing regionalization of marketing management. Many companies are developing international marketing organizations structured around product groups or market sectors, and regional management of marketing strategy flows naturally out of that reorganization. This happens for two reasons. First, networks of directly owned national distributors are inefficient; they duplicate managerial resources at the country level and lead to missed opportunities in areas such as information systems and promotional expenditures. Second, regionalization gives multinationals greater strategic control.
For now, the effect that regionalization of marketing control has on national distributors is unclear. But it seems probable that some national distributors will become part of a mixed distribution system, in which the multinational corporation will manage major customers directly, while other, independent, distributors will focus on discrete segments of national markets or smaller accounts. The emergence of global accounts, served directly by multinationals, highlights an economic truth of which many multinationals lose sight in their battles for control: independent local distributors often provide the best means of serving local small and medium accounts.
However, most managers don’t admit this. Instead, they find fault with the ways local distributors run their businesses. If you ask managers of multinationals what typically goes wrong, you’ll hear one of three things—and sometimes you’ll hear all of them.
“The distributor didn’t know how to grow the market.” In many cases, distributors achieve initial sales growth by “picking the low-hanging fruit”—making easy sales of the multinationals’ proven, core products to the distributors’ existing customers. When the business challenge shifts to introducing additional products or penetrating market segments in which the distributors aren’t established, corporations say distributors don’t have the necessary skills.
“The distributors didn’t invest in business growth.” At the start, corporations often grant distributors national exclusivity in order to encourage investment. In addition, corporations and local distributors sometimes negotiate contracts stipulating minimum levels of marketing investment by the distributors. Nevertheless, multinational managers still don’t think distributors invest enough.
“The distributor just wasn’t ambitious enough.” In some cases, managers of multinationals attribute the sales plateau to a lack of drive by distribution organizations, which in emerging markets tend to be privately owned. To paraphrase many managers, “The typical distributor is looking not for market domination but for a stable, midsize business that will make it wealthy but is not too big for it to control personally.”
Predictably, the local partners often have their own ideas about why the relationships don’t succeed over the long haul: “They didn’t give us enough support for growing the business.” “They expected the impossible.” “Their company politics were too complicated.” And so on.
The mutual finger-pointing overlooks a point that seems obvious as the same themes repeatedly emerge: neither party—the multinational nor the distributor—invests sufficiently in strategic marketing or in aggressive business development in these less-developed markets. It may be smart for corporations to minimize risk when entering the markets, but a subsequent lack of investment and managerial attention can seriously hamper performance.
Neither the multinational nor the distributor invests sufficiently in strategic marketing or in aggressive business development in these less-developed markets.
Multinationals don’t set out to neglect these markets, of course. What’s needed always changes during and after market entry, but companies don’t adjust their commitments accordingly. As a business grows in an international market, marketing strategy evolves, and each sequential phase requires management resources specific to the task, different skills, and financial investment. Requirements at the outset are very different from those three to five years later. The multinational’s product line and the distributor’s business probably fit best at the point of market entry. As time passes, the fit deteriorates. The distributor may be less able to deliver growth as the business moves away from its core customer base.
Nevertheless, I think there are ways in which local distributors can continue to contribute after market entry; the economic reasons for the existence of distributors do not disappear after subsidiaries are established. The key to solving the problems of international distribution in developing countries is to recognize that the phases are predictable and that multinationals can plan for them from the start in a way that is less disruptive and costly than the doomed beachhead strategy. (See the exhibit “Managing the Multinational—Distributor Partnership.”)
The key to solving the problems of international distribution in developing countries is to recognize that the phases are predictable and that multinationals can plan for them.
Managing The Multinational—Distributor Partnership We follow two hypothetical multinational corporations (MNCs) as they enter new markets in developing countries. The markets and countries are comparable, but MNC1 follows a beachhead strategy, reacting to problems as they come up. This strategy culminates in a serious disruption of business. In contrast, MNC2 retains control of marketing strategy from the outset and anticipates changes.
Managing the Life Cycle of the International Distributor
The multinationals I studied made trade-offs among three worthy objectives: wanting to control their business expansion at a strategic level; partnering with local distributors, at least for the first years, to benefit from the locals’ expertise; and minimizing costs and risks in these new ventures.
These are all good objectives, but finding the correct balance among them at any particular time is tricky. In the beginning of market entry, partnerships with local distributors make good sense: distributors know the distinctive characteristics of their markets, and most customers prefer to do business with local partners. Changes during later phases of market entry, including a possible switch to directly controlled distribution, are usually corrective moves to redress imbalances that emerged during the initial phases, and many of these changes lead to new imbalances. The following guidelines can help executives of multinationals anticipate and correct potential problems.
1. Select distributors. Don’t let them select you. A foray into a new international market should be the result of a strategic decision based on an objective market assessment. But that’s not how it usually happens. At almost every company I studied, initial moves into new countries occurred in reaction to proposals from potential distributors.
“They would approach us at trade fairs or come directly to our office, and if they seemed convincing, we would be inclined to go ahead because the marginal cost was low and the distributor was bearing most of the risk,” says an executive from Loctite, the Connecticut-based specialty adhesives company acquired by German chemical giant Henkel in 1997.
In fact, the most eager potential distributors may be precisely the wrong people to partner with. As one executive from a leisure and sporting goods firm says, “In many cases, we end up with the distributors that also serve our two major competitors, because they’re in the strongest positions, by far, with the retailers. Those distributors certainly have the market contacts, but they also want to control the category and keep us three multinationals in balance.” Incumbent distributors with strong positions in the status quo are more likely to deliver a sales plateau, given their desire to maintain the market structure.
Loctite now focuses first on identifying the country, then finding a distributor. “Being market-led rather than distributor-led often results in our selecting a better distributor because of a more systematic and thorough assessment of potential partners,” the Loctite executive says. Even the distributor search is market-led: Loctite contacts the largest potential customers and asks them to name their preferred suppliers.
2. Look for distributors capable of developing markets, rather than those with a few obvious customer contacts. The choice of distributors and the terms of the relationships should serve the multinational’s long-term goals. “The most obvious distributor is not necessarily the best partner for the long term,” says a Loctite executive. Like most companies expanding internationally, Loctite used to look for partners with the best “market fit,” meaning those already serving major customer prospects with similar product lines. But, says the executive, “The closeness of the market fit can be a liability as well as an asset, because the distributors represent the market’s status quo, and we are selling a replacement technology and attempting to change the market.”
The answer lies in the choice of partners. “We increasingly look for what we have come to call ’company fit’—a partner with a culture and a strategy we feel comfortable with, in terms of the investment they’ll make, the training they’ll give their people, and the support they’ll ask from us,” says the Loctite executive. “In many cases, this leads us to partners who have no experience of our market. The first couple of times, this felt risky, but our success with some of these partnerships has made us bolder in choosing distributors.”
In effect, this means bypassing the obvious choice—a distributor who has the right customers and can therefore generate quick sales—in favor of a partner with a greater willingness to invest and an acceptance of an open relationship that draws on the multinational’s experience in marketing its own products.
3. Treat the local distributors as long-term partners, not temporary market-entry vehicles. Structure the relationships so that distributors become marketing partners willing to invest in long-term market development. One traditional way of doing this is to grant national exclusivity to a distributor, although such an agreement can become unproductive if conflicts of interest arise once entry is established. A more effective solution is to create an agreement with strong incentives for appropriate goals, such as customer acquisition or new product sales. After all, the local distributor is the de facto marketing arm of the multinational in its country.
Unfortunately, many companies actively signal to distributors that their intentions are only for the short term, drawing up contracts that allow them to buy back distribution rights after a few years. Such a strategy does avert one problem—it prevents a distributor from claiming that the multinational partner reneged on an earlier promise—but it creates other problems. Even with such a contract, a distributor might simply decide not to sell back the rights and might well be backed up in the local courts. In many countries, regulations favor local businesses over foreign vendors, so the multinational could face a protracted struggle over distribution rights. Additionally, under a short-term agreement, a local distributor doesn’t have much incentive to undertake long-term business development. The Asia-Pacific manager of a consumer goods company reported that several national distributors, acting in the belief that sales revenues were the key to the reacquisition price, had cut prices, boosting overall revenues but undermining the company’s market positioning strategies.
4. Support market entry by committing money, managers, and proven marketing ideas. To retain strategic control, multinationals must commit adequate corporate resources. This is especially true during market entry, when corporations are least certain about their prospects in new countries.
Traditionally, multinationals have demonstrated commitment by sending in technical and sales personnel or offering training to distributor employees. Such support is good, of course, but more experienced corporations now go further and do things earlier. In markets regarded as strategically important, they’ve started to take minority equity stakes in autonomous distribution companies. Although this increases exposure without achieving control, it opens the door to cooperative marketing based on shared information, thus increasing the advantage and effectiveness of both the multinational and the local partner.
Sometimes multinationals invest in distributors in ways that don’t lead to co-ownership but that demonstrate solid commitments to the relationships. A global leader in hydraulics components, for example, now manufactures products according to the local technical standards in a new market and bears some of the associated investment costs. Formerly, the company would have sold products with incompatible specifications or paid extra to manufacture specialty items.
For many corporations, such commitments in uncharted markets with independently owned distributors represent unacceptable risks. But most multinationals already have effective controls for managing independent distributors in home markets, and these might also be successful with international distributors. Additionally, experienced multinationals have discovered that early commitment of resources leads to better relationships with local distributors, thus enhancing business performance. One European telecom company, for example, invested heavily in a service organization; the company wanted to shift the distributor’s focus away from selling equipment (a relatively easy task) and toward selling service (a more difficult one). The result has been higher sales revenues and a more productive partnership with local distributors.
I find it curious that multinationals are reluctant to commit resources at early stages. Once they’ve tested the market, multinationals almost invariably increase their commitments. My research uncovered only rare instances of corporations withdrawing from countries they’d entered. So making a commitment early isn’t really a new strategy.
5. From the start, maintain control over marketing strategy. An independent distributor should be allowed to adapt a multinational’s strategy to local conditions. But multinationals should convene and lead planning sessions and exercise authority about which products to sell, how to position them, and budgeting. If corporations provide solid leadership for marketing, they will be in a position to exploit the full potential of a global marketing network.
Multinationals committed to maintaining early control over marketing strategy find that it’s important to have employees on-site. Some send a few employees to work full-time at the local distributor’s offices. Others establish country or regional managers who can keep a close watch on both distributor performance and customer needs.
“We used to give far too much autonomy to distributors, thinking that they knew their markets,” says one manager. “But our value proposition is a tough one to execute, and time and again we saw distributors cut prices to compensate for failing to target the right customers or to sufficiently train salespeople.”
6. Make sure distributors provide you with detailed market and financial performance data. A multinational’s ability to exploit its competitive advantages in an emerging market depends heavily on the quality of information it obtains from the market. In many countries, the distribution organizations are the only sources of such information. A contract with a distributor must therefore require detailed market and financial performance data.
Not having these data can lead to serious problems. A global leader in hydraulic components, for example, did not know that its Hong Kong distributor was achieving almost half its sales revenues within mainland China, nor that the products were being sold for about half of their Hong Kong price. When the multinational acquired the Hong Kong business and established a subsidiary, it also found itself saddled with a demand for drastic price reductions in Hong Kong, an active parallel importing problem, and discontented customers in China complaining about the lack of service support.
The reaction to a request for market and financial data reveals a lot about a distributor. Most distributors, of course, regard data like customer identification and price levels as key sources of power in their relationships with suppliers. Several multinational executives said that the willingness of potential distributors to provide such information was a prime indicator of whether successful relationships could be achieved.
7. Build links among national distributors at the earliest opportunity. Although a multinational’s primary focus after entering a new country is establishing a customer base there, the company should create links among its national distributors as soon as possible. The links may take the form of a regional corporate office or an independent network such as a distributor council. The transfer of ideas within local markets can improve performance and result in greater consistency in the execution of international strategies.
One executive of a sportswear company explained that although distributor councils originated for defensive reasons—to minimize the risks of diversion or parallel importing—other benefits have accrued: “Once the distributors started talking, they also started planning. We soon had regional initiatives for new products, with successful design based on the local market, and the scale required to make them profitable. There was also a noticeable decrease in the variation between products manufactured by our national licensees.”
Multinationals need to do a better job of selecting and working with local distributors. In particular, they must understand that distributors are implementers of marketing strategy, rather than marketing departments in the country-market. The result will be better working relationships, fewer plateaus and crises, and more consistent growth in market share and sales revenues. Once corporations understand that they can control their international operations through better relationship structures rather than simply through ownership, they might also find longer-term roles for local distributors within a regionalized approach to global strategy.
A version of this article appeared in the November–December 2000 issue of Harvard Business Review.
Which of the following is the best example of selling for the purpose of resale?
Which of the following is the best example of selling for the purpose of resale: Goodyear selling tires to Tire America. A salesperson whose main job is to deliver a product to retailers or household consumers – Pepsi Cola, fuel oil, milk, for example – ordinarily is classified as a: Consultative salesperson.
In which of the following situations will a straight commission compensation plan be most appropriate?
Straight commission compensation is most appropriate for companies that require its sales force to engage in missionary selling.
Which of the following data types is most commonly used as a GIS input?
Vector data is the most common type of GIS data. Most data loaded into a GIS software program tends to be in vector data. Vector data represents geographic data symbolized as points, lines, or polygons. Raster data represents geographic data as a matrix of cells that each contains an attribute value.
Which characteristics apply to a company's sales force?
An effective sales force is sharply dressed, polite and courteous, considerate of a client's time and honest and forthright in all dealings. To hire sales representatives not exemplifying these attributes is to do your product and company a complete disservice.