A number of CEOs hesitate to go direct even though their distributor relationships have outlived their value. However, there is absolutely no reason to avoid bypassing your distributor no matter what you may have been told.
Some CEOs have told me how their Japanese staff warn them of dire consequences, such as losing customers or being blackballed in Japan. While theoretically a concern, I have never actually seen this happen in practice. Rather, it is more often the opposite. For example, Barilla Japan CEO, Antony Strianese, turned the company into a powerhouse after firing its long-time distributor.
Many of my clients have not only begun selling directly to end-buyers with success, but have even ended their distributor relationships entirely. Across industries in Japan, distributors add diminishing value in transactions if they ever added value at all. Buyers and sellers alike recognize this.
If you believe your distributor relationship has long-since exceeded its use-by date, you too should consider going direct. This is why:
- No one can sell your product better than you and your people. Distributor sales staff rarely have the technical knowledge of your product like you do, and tend to gravitate toward order-taking rather than proactive selling.
- Undercharging is your greatest cost, not the distributor’s margin. A distributor is rarely able to gauge how much buyers value your product, and tend to promote sales through lower price as opposed to charging appropriately by communicating value.
- There is no better market intelligence than speaking directly with your buyers frequently. You cannot rely on third-party reports, nor the hearsay of what customers have said to your distributor’s staff. They have they own agenda in what they communicate to you. Talking directly with your buyers frequently gives you the most detailed and rapid market intelligence that no money can buy, which you can use to make better strategic decisions for your business.
- Compelling value trumps all, no matter what doomsayers tell you. If you have a compelling product with distinct technology for which there are few or no substitutes, no buyer in Japan will care when you cut your distributor. Value to their business trumps all.
- End-buyers discern. Intermediaries commoditize. End buyers are attracted to unique value that provides an edge to their business. Intermediaries tend to treat all products in a category as commodities whether they recognize the value of yours or not.
- Buyers care about their business. Intermediaries care about their margins. Buyers care about how your product materially helps their primary business and impacts their bottom line. Intermediaries care only about sales quantity and their cut.
- Tradition is never sufficient justification for continuing anything. Whether your industry has a traditional distribution system or not, who cares? Value trumps all, and if that means bucking tradition, you can do so with success. Fast Retailing, Barilla Japan, Amazon, and Rakuten all did.
- Going direct forces business acumen. Intermediaries elicit accommodation. How do you want to develop the capabilities of your sales staff? When you sell directly to buyers, salespeople are forced to ask questions to understand the customers business and identify ways they can offer value. That’s how they sharpen business acumen. With distributors, sales staff are pushed on price, delivery time and stock availability, and do what they can to accommodate. Many salespeople are adept at accommodation, but is that really ideal for your business?
- Your product is your priority, but only a distributor’s option. Most distributors represent many businesses, but even if your distributor sells only your product, your business is not the only one they can consider representing. Your business simply does not have the same priority to them as to you.
- Among rivals, it is the one with the buyer relationship who wins. It is impossible to gauge value to your customer via a gatekeeper, and you should never rely on someone else to do your marketing for you. You have no control over how they represent you to buyers or if they even represent you at all. The most important question buyers ask are ones to which intermediaries can rarely adequately respond. The seller with the direct relationship with a buyer always has the upper hand whether your offer is competitive or not.