Where are your dealers?

Optimizing the Dealer Network

January |2009
Where are your dealers? | Optimizing the Dealer Network

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

Forte Consultancy Group’s Four-Step Approach

1 2 3 4

Defining the Potential Conducting the Optimizing the Dealer Planning the
Analysis Variables Potential Analysis Network Transition

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.

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).

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.

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 ast 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.

Questions Answered by Potential Analysis Effort

1 How many dealers, by type, in each region?

2 How much revenue can each dealer in each region anticipate?

Which of the existing dealers will play what role in the redesigned
3 dealer network?

4 How will the transition to the new dealer network take place?
About Forte Consultancy Group

Forte Consultancy Group delivers fact-based solutions, balancing short and long term
impact as well as benefits for stakeholders. Forte Consultancy Group provides a variety
of service offerings for numerous sectors, approached in three general phases -
intelligence, design, and implementation.

For more information, please contact

info@forteconsultancy.com

Forte Consultancy Group | Istanbul Office

www.forteconsultancy.com