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Wednesday, June 8, 2011

Loyalty & Commitment ... What are They?

I recently posted this on TED Magazine's LinkedIn site and, it seems, it's gotten buried, so I thought we'd re-start the discussion here.

We're working on a project with a manufacturer and during our discussions the topic of "loyalty" and "commitment" came up in the context of distributor programs / rebates.  Essentially, in determining "support" to provide rebate, how to define a "loyal / committed distributor and how to reward them.

In conversations with some distributors, some felt manufacturers should consider loyalty / commitment as something other than sales volume, or sole line relationship, to the manufacturer, but they couldn't define what the "something other" should be (and be something easy to measure and that wasn't too subjective (and hence left to a salesperson to decide!)

In speaking with distributors, they want a manufacturer to be "loyal" to them and to reward them for their "commitment". Manufacturers want the same thing. But most often both parties are doing business with competitors (distributors representing multiple lines, manufacturers selling to multiple distributors in a marketplace covering a comparable customer base - since many manufacturers have barely selective or saturation distribution policies.) Both want to increase their sales and profits.

So, what should be the definition of loyalty? Commitment? Are they the same? How to define, and measure? Or just tie to sales and share the profits (rebate!)?

3 comments:

  1. Loyalty for many manufacturers means absolutely nothing unless they have the upper hand and sales numbers to back it up. Some would place business with my competitor in a heart beat.
    From my experience there is not a common method of grading a distributor's performance and they are certainly not going to share their evaluation method with their perceived or real competitors.

    Yet we distributors try and back manufacturers into the corner with a 'scorecard' which when I look at it, means very little. It must have been something that was thought up by an Association that really is more interested in 'black mailing manufacturers' into placing ads in their magazine and web site under the guise of them being relevant. And by the way, if I can't express my working relationship to the manufacturer(s) directly, then I am not doing a very good job for my company....all I want is co-operation with some type of mutual respect.

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  2. Loyalty is evaluated over time.
    Most companies are focused on the here and now and not committing to policies that build the long term relationship. (This goes both ways.)
    During economic times where personnel and representation is changing often, it seems as though policies change when the person changes and there is not consistency with the company policy.
    Competition is usually driven by the bottom line $$$. Everyone looses site of the total cost of doing business
    I believe that Loyalty should be measured and rewarded based on goals that will enhance both companies bottom line. If a distributor stocks a breadth of a line and has their staff trained, their should be rewards compared to a distributor that only buys a small number of SKU. The distributor that takes a large job but does not promote the manufacturer for the breath of the line is only taking advantage of the companies good name that has been built up by others that stock and promote the manufacturer. Loyalty should be measured by how a distributor sells products and not on how much they sell. The size of the rebate check should be loyalty x dollars sold.

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  3. It's unfortunate but it seems that loyalty or commitment between manufacturers and distributors is defined more by market position than by whatever intrinsic values either party possesses.

    There are of course exceptions to the rule, but particularly in a soft market it's an easier tactic to follow the money and take the path of least resistance; manufacturers spend more time (and resources) with distributors that are generating the most sales for their line. Distributors in kind, expect commitment and loyalty for the manufacturers they're generating revenue for.

    This topic can generate a lot of finger pointing; the manufacturers who first broke the "sacred trust" by selling to the DIY chains and thereby opening the flood gates for more to follow. And lest we not mention the distributors who in an effort to pad their sales margins, willfully support grey market suppliers and multiple, redundant, lower cost manufacturers.

    As a veteran of this industry for nearly 40 years, I've witnessed this redefining of "loyalty" over the years. Today it's a vicious cycle where profits and survival for both parties are taking center stage over the personal relationships and trust that was the cornerstone of how this industry was built.

    I am optimistic that this is only a circular condition. In time and through the efforts and passion of forward thinking industry leaders we can once again return to genuine commitment and loyalty - and actually realize its financial benefits.

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