Here’s a real-life story that should make any manufacturer ask, “Are Manufacturer’s Reps or Distributors Killing My Business?” The story starts with a manufacturer of patented aerospace-related products. The company had a 25-year history, and they were the designated source on certain Lockheed Martin platforms. Some products were sold directly, and others were sold only through distributors.
My firm was tasked with selling the company for the retiring owners. The project was super fun to work on. In the first week of listing, we vetted over 150 buyers. Six weeks later, we had 12 offers for our client to choose from. The due diligence process was smooth, and the deal was closed in record time.
Post-Closing Call with The Buyer:
As is my practice, I always schedule a post-closing call with both sides to check in on the transition process. During my call with the buyer, I learned some shocking information about how the distributor was dealing with my client’s patented products. I share this information as a warning and to help manufacturers.
The buyer of this business owns several other aerospace-related companies with plants around the country. As soon as the company closed, they did something brilliant. They used some “secret shopper” tactics to understand what the distributor was selling the patented products for, as opposed to what they were buying them for. They discovered that the products were being marked up four to five times.
What Was the Manufacturer Receiving In Service From the Distributor:
So what’s wrong with that? Everyone needs to make a profit, right? I’m a fan of capitalism and have no issue with people making a profit. But here’s the thing: The distributor didn’t even have my client on their line card. They were doing nothing to promote the patented products or increase distribution. The only people they were selling to were people who already knew about the product because it was designated on certain prints.
This distributor was slowly killing the business through price increases while not providing any promotional services at all. They were enriching themselves at the manufacturer’s expense.
What to Look For in Manufacturer’s Reps or Distributors:
- Marketing and Advertising Support to facilitate an increase in product sales.
- Education in the marketplace on the possible uses of the products.
- Provide and entrance to new customers and markets through their relationships
- Promotion of your products on their website and in their marketing material.
- Perform a market analysis to quantify the size of the product’s possible market size and appropriate sector targets.
If you’re not getting the above, you might be in a situation where the manufacturer’s rep or distributor is slowly killing your business.
Manufacturers are often afraid to increase prices, especially when approaching retirement. Sometimes, it’s not fear but a true desire to care for their customers and deal fairly. In this story, not only was the manufacturer being harmed, but their end-use customer was as well.
My client’s acquirer is of a size where they can likely go direct with the end users and lose the middleman. If they decide to remain with a distributor, I’m sure the relationship won’t be so one-sided. What is clear is that they will fulfill my client’s wish to expand and dramatically grow the business. My team will enjoy watching this happen and will be cheering them on!