To deepen market management and control, many large and medium-sized FMCG companies set up offices nationwide. Among them, the office head (director, regional manager, sales supervisor, business representative, etc., collectively referred to as the manufacturer's representative) manages distributors in their area to control the market, which is their most important duty. However, in practice, many offices (especially those of state-owned or private enterprises) are ineffective, merely serving as customer liaisons, unable to control the market or manage customers effectively. The root cause is either not knowing what to manage or not knowing how to manage. This article, based on the practices of foreign companies with well-established customer management systems and local Chinese realities, offers the following superficial discussion, hoping to spark deeper insights.
I. What to Manage in Customer Management
"Shipping and collecting payments" are the most basic duties of sales personnel. To this day, countless salespeople in China still limit their sales concept to this, not understanding what customer management entails. In modern marketing, customer management, as I understand it, for a manufacturer's representative of a consumer goods company, should include the following:
Control customer orders and manage inventory days Some may wonder: placing orders with the manufacturer is the distributor's right; how can the manufacturer's representative do it on their behalf? Indeed, legally, placing orders is the customer's right, but what is the basis for placing orders? Who knows the sales trend of the company's products better than the manufacturer's representative? Customers distribute hundreds of products; how can they be fully aware of the inventory and sales trends of each? Companies like P&G, Johnson & Johnson, and Wahaha have the manufacturer's representative place orders based on market trends and inventory status, and then the customer stamps and signs. As for inventory days, it is included in the manufacturer's representative's management scope because product inventory relates to capital tie-up and whether products can sell healthily, which is significant. A foreign company has strict regulations for distributor inventory: report inventory weekly, with standard inventory days of 20-25 days. Over 25 days indicates excessive inventory, so the next order amount should be reduced; below 20 days indicates low inventory, so the next order amount should be increased. When evaluating customer and manufacturer's representative performance at year-end, the average inventory turnover days is an important indicator.
Manage customer product selling prices This concept is even more unbelievable to some veteran salespeople: after selling goods to customers, you still have to manage the price they sell at? Indeed, managing customer prices is the most difficult of all customer management tasks. Of course, free pricing is the customer's right, and the manufacturer can hardly interfere, but if they are long-term partners, the customer should understand why the manufacturer participates in managing customer selling prices—to maintain market price order and ensure healthy product growth. If the customer's selling price is too low, it can easily cause market cross-dumping or gray market flow; if too high, it leads to high retail pricing, affecting end-consumer demand and ultimately product sales; if prices fluctuate, it can cause market instability and damage the company's management image. In practice, companies like Johnson & Johnson generally control distributor margins to 5-10 points for department store supply prices, and 0-3 points for wholesale market supply prices (excluding discounts and rebates). Especially when the company reduces product prices, the manufacturer's representative's price management is crucial. Some general distributors may delay the price reduction or even not reduce prices, profiteering. Also, pricing new products is a science; some customers are accustomed to high profits on new products and then reduce prices based on market conditions, which is not what well-managed foreign companies want. The manufacturer's representative should control the customer's selling price at a normal level from the start.
Manage dedicated teams Generally, customer management accompanies customer support, and jointly establishing a dedicated team is a common support (e.g., P&G's joint operation department). The salaries or bonuses of dedicated team members are provided by the manufacturer. The manufacturer's representative is fully responsible for the daily management of the dedicated team, such as formulating sales plans and assessing and distributing bonuses. Essentially, by managing the dedicated team, the manufacturer's representative controls the distribution channel, thereby achieving multiple sales goals such as outlet coverage, display, POP posting, and intelligence gathering. Unfortunately, in practice, many manufacturer's representatives may be unable or unwilling to manage the dedicated team, and the salaries or bonuses provided by the manufacturer become a subsidy for the distributor's profits.
Monitor channel promotion activities and manage promotional items Conducting promotions through distributors in wholesale and retail channels is a common marketing activity for consumer goods companies. Examples include point accumulation and physical gift rewards in wholesale markets, display contests in retail stores, and bundled promotions for consumers. Without strict management and full follow-up by the manufacturer's representative, customers may not implement company policies. Intercepting or indiscriminately distributing gifts, withholding reward money—these are common tactics for some unconstrained distributors.
II. How to Manage Customers
The manufacturer and the customer are different interest entities, with no subordinate relationship objectively. How to manage customers is a headache. Management means control. Managing customers is not like managing subordinates; you cannot use the power of position to command and control customer behavior. To manage customers, the manufacturer's representative uses more of expert power, coercive power, and some reward/punishment power, through communication, negotiation, and persuasion, to achieve the goal of managing customers and the market.
Expert power Theoretically, the manufacturer's representative has no right to interfere with the customer's selling price or place orders, so why would the customer listen to the manufacturer's representative's decisions? As a manufacturer's representative, bearing the responsibility of developing and managing the market, their understanding of the market and corresponding business level should be deeper and more comprehensive than the customer's. Through continuous communication and contact, they establish a "sales expert" image in the customer's mind. Once the "sales expert" image is established, naturally, many orders and sales matters will be entrusted to the manufacturer's representative, because the customer believes the manufacturer's representative will do better than themselves. In fact, foreign companies like P&G and Johnson & Johnson emphasize the concept of "sales expert" in training sales personnel. In most cases, the manufacturer's representative influences and manages customers through "expert power."
Coercive power The right to choose distributors and control supply are two trump cards in the hands of some manufacturer's representatives. In customer management practice, if the manufacturer and distributor cannot reach an agreement on funds, prices, outlets, promotions, etc., due to expectation gaps or goal misalignment, the manufacturer's representative often threatens the customer with "adding distributors, severing customer relations, or stopping supply." At critical moments, coercive power can produce unexpectedly good results. Of course, coercive power should not be overused, as it will inevitably lead to rigid customer relations and interrupt cooperation. P&G, in principle, sets up one distributor in large cities and jointly establishes an operation department with them. The manufacturer's representative manages the operation department to fully implement the company's pricing and promotion policies. However, later in operations, they found some distributors with poor credit who could not strictly implement the manufacturer's intentions, so they had to add distributors in some cities to check the original distributor, forcing customers to follow the manufacturer's sales model. (P&G has particularly strict requirements on pricing, outlet numbers, and display.)
Reward and punishment power Fully utilizing the reward and punishment power granted by the company is one of the common control methods in customer management practice. If the customer follows company policies, the manufacturer's representative rewards them by "applying for more credit, providing more personnel, promotional support, and special rewards"; if the customer does not follow relevant policies, the manufacturer's representative can punish them by "reducing credit limits, switching to cash customers, withdrawing personnel support, confiscating deposits, and canceling year-end rewards." In summary, how to manage customers is an art. It requires the manufacturer's representative's own sales expert power, and more importantly, the various reward and punishment powers granted by the company. As for the coercive power generated by "adding distributors or severing customer relations," it is the manufacturer's representative's last resort.
III. Two Major Issues in Customer Management Practice
Management and counter-management The manufacturer's representative manages customer prices, inventory, channels, etc., which is just the manufacturer's wishful thinking. Except for strong companies like P&G and Wahaha, not many manufacturer's representatives can truly control customers. More often, due to limited ability or lack of company support, they cannot manage customers and are instead managed by customers, such as collecting payments or organizing goods for customers. In essence, the manufacturer's representative only plays a supporting role in sales, not a management and control role. Some domestic companies recognize the importance of customer management but fail to grant manufacturer's representatives corresponding reward/punishment power and trust, which is an important reason for their inability to manage customers.
Good customer relations and customer management Maintaining good customer relations while effectively managing customers is the goal pursued by manufacturer's representatives with advanced marketing concepts, but it is not easy to have both. In reality, to obtain good customer relations, the manufacturer's representative may sacrifice company interests, such as allowing customers to dump at low prices, profiteer, or embezzle gifts, which is not customer management. Similarly, strictly implementing company policies to manage customers often fails to gain customer understanding, eventually deteriorating relations. How to grasp the "degree" in between, and the "bitter, sour, spicy, sweet" involved, perhaps only the millions of manufacturer's representatives across the country know best.
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