Development of a distribution network for lubricants products at new markets

Updated: Jun 30, 2021

The lubricants market is constantly changing.

And that change does not only concern the underlying technologies and legislation restrictions, but additionally the way a lubricants producer is placed within a market.

In our opinion, penetrating a market and building a steadfast presence within it has one main prerequisite: having access to information and the ability to analyze that information and turn it into strategy.

How do you go about having access to that dynamic flow of information that will be the sustenance of your sales network? By being present and involved at all stages of the sale from the moment the product leaves the producer and down to the last car owner.

Is that difficult?

Is it worthwhile?

Yes and absolutely yes

By all means lets take it a step back and review what it the status quo of lubricants producers as far as building sales networks within a given market.

Standard distribution model

In a nutshell it is: sell to whoever is willing to buy, control them not as far as commercial policy is concerned and give out an end of term discount if some target sales volume is achieved.

Sellers within a market under that distribution system choose to have as many brands as possible in order to be able to quickly acquire a large market share and be able to strong arm manufacturers into providing the cheapest price against the competitors.

If those brands are not well known such as Shell, Mobil, Castrol etc., the seller has no choice (or the know how) but to demand from the producer cooperation terms that are not worthwhile for the latter to proceed with. We are not going to compliment or condemn the aforementioned strategy because it is up to each producer to decide what is best for them.

What we are going to do is give you a short account of our observations of distribution systems that work in such a fashion.

First of all, if no geographical boundaries are set to each seller, inevitably 2 sellers gunning for the same customer will engage in price wars. No profit means you are out of business.
Second, if in a given market price parities are not enforced, sooner rather than later the price differential will drive buyers to the cheapest seller, which will in turn lead to price wars.
Thirdly, any successful distribution system needs to be constantly fined tuned based on elaborate “fresh” intel from the market. No information means building a distribution strategy blindly and without being able to anticipate countermoves from the competition.

Our proposed distribution model

We went ahead to create a distribution system in Greece that at its onset was considered impossible to implement and was initially greeted with extreme skepticism from the lubricants community.

Distributors allocated in specific geographical settings, all working under the same commercial policy, using a unified software that allows for stock management, statistics analysis and planning ahead using hard facts and not speculation. Distributors working a team, co ordinating efforts and providing support to each other.

A management company acting as an umbrella to the distributors, providing expertise in sales, operations, logistics, marketing, data analysis that one single distributor is impossible to employ without jeopardizing a huge investment.

And all the above, with the producer as a partner, offering guidance and support and co planning instead of being an anonymous email that sends invoices.

Number one lesson that an operations manager receives at university and later at work is that: all systems are as good as the people that constitute them.

Therefore, the one and only challenge that we came across in the 2 years we successfully implemented this centralized distribution system was to find the right people for the job. Distributors that shared the same vision as us and Gazpromneft - Lubricants.

Greece is not the easiest market to attempt a centralized distribution system. Mentality of mistrust towards multinationals and a myriad of lubricant brands, known and unknown, make for a very rough terrain to create a system of distributors that work as one company with a joint target.

We are here to report and have the numbers to prove it that this system works. That this system has gained respect and loyal customers that require a trustworthy supplier that they regard as a partner who is willing to lend a hand to help them grow and improve. Loyal customers that will not switch to a different supplier because they simply offer a lower price.

Main advantages to the producer are:

  • Direct access to each market and the ability to decide based on an inflow of real time information regarding sales and market preferences.

  • Lack of dependence to each seller that is able to sell only by offering low prices and demand high marketing expenses.

  • Planning production and (re)evaluation of product assortment.

We welcome comments from our colleagues in sales management and operations in the lubricants sector

Stay tuned for our next article: "plans are nothing, planning is everything": Maneuvering your lubricants business through the COVID-19 and other challenges

#activ #management #lubricants

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