The dealer network is the most important channel for many companies operating in the retail sector. Unfortunately, examples of poorly managed dealer networks are abound, particularly on the issue of geographic distribution of dealers.
Companies that do not optimize their dealer networks geographically based on potential income are losing out on a lot more than just revenues.
One of the most difficult tasks a company faces around its sales channel is around selecting the location of its dealers. A poorly distributed network of dealers causes numerous problems for the parent company – the inability to maximize / capture all potential revenue, to satisfy customer needs (beyond sales), and to keep the peace between dealers fighting over the same customer, among others.
Getting the Numbers Right
Too many dealers in a given region results in most of those dealers not being able to generate enough revenues to sustain themselves. This situation hurts not just the dealers but the overall dealer network as well. Instead of competing with the competition, these dealers end up competing with each other, bringing significant harm to the dealer network. Too many dealers also means the parent company is wasting resources – be it through operational support in terms of cash or in terms of management support through auditing / mystery shopping / site visits – reflecting also in the fact that the dealer network becomes harder and harder to manage the larger the network is.
On the flip side, too few dealers likely means that potential income is being forsaken, allowing competitors instead to capture this revenue. Such a situation also results in dealers in under-represented regions to grow strong, generating revenues others simply can’t, eventually allowing them to have bargaining power against the parent company.
Differentiating the Dealers
Dealers must be customized to match the needs of customers in their given location – one size definitely does not fit all when it comes to dealers.
From what products and services are sold to how the dealer is physically laid out – each dealer and its overall offering, look, feel, etc., must be identified, and, according to the situation, opened or revised in such a manner.
Opening New Dealers
Too often companies rely on a region’s past performance or the composition of its residents to determine where next to open a dealer, failing to use the single most important criteria – potential income – as the litmus test. This in turn generates little additional value for the company and at the same time burdens them with unnecessary costs. To overcome this issue, companies should estimate the potential income from the basket of products and services they intend to sell, conducting this analysis at the lowest level possible (down to a town or neighborhood level if possible). This can be done by utilizing a combination of data sources, including but not limited to socio-economic attributes, demographic analysis, income levels, population trends, and product / service uptake ratios and adoption curves. Such work will provide significant benefits over the short and long-term for the company that undertakes such an approach to optimizing its dealer network.
HOW TO OPTIMIZE A DEALER NETWORK - 4-STEP APPROACH
Step 1 – Defining the Potential Analysis Variables
Before conducting the potential analysis, strategic factors that may influence rollout or revision plans must be considered and weighed. Such factors could include the introduction of a new product in the coming months, or, the prioritization of a specific geography for prestige purposes. Once such decisions are made, data sets that will serve as the inputs for the potential analysis must be compiled – i.e. past sales figures of dealers, socio-economic data, populations trends, sales projections for new products to be introduced into the pipeline, etc.
Step 2 – Conducting the Potential Analysis
The next step is to conduct the potential analysis – this consists of estimating the potential revenues from the pool of products & services down to the lowest geographic level possible (the ideal being down to a street level in a given neighborhood). New products and services that may cannibalize the sale of existing products & services must be considered and built into the model. As part of the analysis, modeling needs to be conducted for all regions and locations, not just for those places where dealers exist today (so as to see and possibly capitalize on underserved areas).
Step 3 – Optimizing the Dealer Network
Building constraints into the model is critical at this point. These constraints could include, for example, the minimum amount of revenues a dealer must make in order to survive in a given region or location, the costs to support a dealer, total maximum number of dealers if any, etc. Without such constraints, the model could recommend an unlimited number of dealers be opened so as to maximize revenues. With these constraints in place, the model will generate the optimum number of dealers, by type and location, in order to maximize revenues based on the given set of products & services and inputs used in building the model.
Step 4 – Planning the Transition
Based on the results, the role of existing dealers in the new network needs to be determined. A variety of factors can be used to make these decisions – dealer location and proximity to ideal points, past performance, sales-orientation, management abilities, etc Input about these dealers from regional management is strongly recommended at this point. As a final step, a transition road map should be designed, detailing and assigning all the roles and responsibilities around making the change happen. As part of this planning, the impact of the changes on the customer, the dealer, and management should be considered, keeping available resources in mind and setting realistic targets.
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