Manufacturers and Dealers Must Partner to Become Best in Market

One thing that I have found working with manufacturers is the less than solid and trusting relationship that they have with their channel members. Whether they are agents, brokers, or dealers, it is not uncommon to find that the relationship between the manufacturer and the channel is not an entirely positive one. On the dealer side, it’s not uncommon to hear that the manufacturer is “hard to do business with”. In some non-captive, independent channels, being “hard to do business with” has led to the growth of a competitor’s product line at the expense of the original manufacturer’s. For sure, there are exceptions to this but many manufacturers regard channel members as a necessary evil – after all, someone has to sell and service the product.

There is no doubt as to the importance of the channel, let’s call them dealers, in the creation and delivery of value. Caterpillar recognizes this and has invested heavily in its dealer network to make sure that it is the best in the industry. A Cat engineer told me that in the factory we can produce a product that keeps us in the game with the other manufacturers but it’s the dealer that wins the game for us. In other words, the dealer is an important value adding element in the value chain.

Manufacturers have to ask themselves a fundamental question – “Can they be best in market without their dealers being best in market?” In every value model that I have constructed, based on the voice of the market, the dealer and the dealers’ functions rank at the top of the CTQ (critical – to – quality) list. The dealer, and what the dealer does, have a significant impact on value as defined by the market. This means that the dealer plays an important role in making the manufacturer the market share leader and best in market. Instead of simply surviving the relationship, the manufacturer should be nurturing it. The sales process, parts availability, field service, shop service, warranty work, emergency repairs are all performed by the dealer, not the manufacturer. And to many buyers, the dealer is not separated from the manufacturer. Poor dealer service reflects not only on the dealer but the manufacturer and can have a significant impact on future business, for both the dealer and the manufacturer.

A new study reported in QualityDIGEST underscores the importance of the dealer to the manufacturer. A recently released report by J.D. Power and Associates (2009 Sales Satisfaction Index Study) reported some very interesting information.

21% of new-car buyers will walk out of a dealership because of a negative buying experience at that dealership. Where do they go? Well, they buy their car at a different dealership, of course. But what’s more important, and automakers take note, 12 percent of those who walk out of a dealership because of treatment, change brands. That’s right, they walk into a Honda dealer planning to buy a Civic, let’s say, but because of sales pressure, dicey sales gimmicks, or just plain rudeness, they leave Honda and go to the Ford dealer across the street.

Because of the impact of the dealer, manufacturers must take control of the relationship and insure that value freely flows down the channel. In fact, many dealer problems can be the result of the poor linkage between the manufacturer and the dealer. An inability to supply technical information to dealers, poor sales training, poor warranty support, too many pricing changes, an inability to insure delivery of attachments or accessories are just a few of the problems that dealers get blamed for by the buyer, but are actually the result of a manufacturer who does not understand or appreciate the value adding role of the dealer.

Manufacturers often treat dealers as customers instead of partners. They sell the dealer product, often more than the dealer wants or in assortments that the dealer does not want and then beat them over the head when they do not sell the inventory. Small wonder dealers look around for different suppliers.

The manufacture’s planning process must also include dealers. Market share is won and lost at the dealer level, not at the manufacturer’s level. Dealer strengths and weakness must be identified and addressed. Processes that link the dealer to the manufacturer must be examined. The point is, many manufacturers simply focus on the product and ignore the rest of the value equation. It is unlikely that manufactures can achieve best in market status without having a dealer network that is also best in market. Manufacturers have to keep this in mind and start cultivating a positive value driven relationship with their channel.

Six Sigma Marketing takes a holistic view of value – a view that reflects how the market defines value. Failure to understand value from the market’s perspective means that the manufacturer is likely to ignore a significant part of the value equation. Doing so greatly diminishes the chance of becoming best in market.