Should You Treat Distributors Like Employees? Or Customers?

For suppliers, one question comes up again and again in their distributor relationships: Should you treat your distributors like employees, or should you treat them more like customers?

The answer isn't always clear. Distributors seem like employees, because they sell and deliver a supplier's products and services to the marketplace. At the same time, distributors often have extremely demanding needs, much like customers do -- and if those needs aren't met, the relationship will end, just as it can with a customer.

Gallup's supplier clients often face this conundrum, and they ask us whether treating their distributors as employees or as customers will improve distributors' performance and increase market results. My experience shows that the answer is more complex: Companies must treat distributors as if they're both employees and customers. But in the very best supplier-distributor relationships, suppliers take this even further: They treat their distributors as partners.

Gallup's research and experience with suppliers in several industries -- including the insurance, medical devices, consumer packaged goods, financial services and automotive sectors -- has shown that in the vast majority of cases, the most highly performing distributors are partners in ensuring both companies' mutual success. The research also reveals that the level of supplier-distributor partnership can be measured and optimized to yield increased performance.

Distributors and Suppliers: Building a Partnership

For suppliers, operating a business through a third party is challenging. Suppliers have less direct control over their distributors and their agents, which eliminates many of the strategies companies with direct sales forces can use to increase employee performance and reduce performance variation. However, it's possible to build great supplier-distributor partnerships. Gallup has found that the strategies that improve performance within a company are the same ones that work between partnering businesses.

Whether within a company or in a business-to-business setting, producing results starts with talent and engagement, because distributors with highly engaged and talented employees yield a significant premium -- or a significant discount when talent and engagement are low. Obtaining that premium depends on carefully managing three aspects of the supplier-distributor partnership: distributor sales talent; distributor employee engagement and customer engagement; and end-user customer engagement.

Distributor sales talent. The distributor's salespeople are essentially the supplier company's brand ambassadors, so suppliers should work with distributors to ensure that the best salespeople are hired to represent them. Providing selection tools that make it easier for distributors to hire better salespeople and sales managers offers suppliers an excellent way to build partnerships with their exclusive distributors. It can also help suppliers differentiate themselves from competitors when their distributors carry products or services from many different companies.

Distributor employee and customer engagement. Gallup research has shown that the combined impact that high levels of both customer and employee engagement has on financial metrics is exponential. Companies that successfully improve employee or customer engagement can gain a 70% boost in performance, but companies that manage both employee and customer engagement together can gain a 240% boost in performance.

Measuring employee and customer engagement can also provide an effective measure of the strength of a supplier-distributor partnership. Suppliers that analyze what drives high or low levels of employee and customer engagement can discover specific actions they can take to maximize areas of strength or fix problems.

End-user customer engagement. Suppliers that don't measure the factors that encourage customer spending can't provide distributors with concrete direction on how to maximize sales revenue and profitability. Gathering input from end users provides a wealth of information on what drives their engagement. It also gives clues as to how often problems occur and how well they are resolved, on wallet share, and on intent to repurchase.

By using a customer metric with end users, distributors can also spot changes in customer attitudes that could affect future sales. If end users consistently give low ratings on customer surveys, it's likely their distributor isn't executing on the supplier's brand promise or providing exemplary customer service. If end users consistently give high ratings, on the other hand, suppliers and distributors are more likely to see sales increases in the future. Evaluating and forecasting distributor performance is traditionally difficult, but end-user customer data makes it much more accurate.

Finally, providing distributors with customer insight that is accurate and actionable can be a powerful way for suppliers and distributors to unite for growth. When Gallup has studied B2B relationships, we've found that suppliers that are very knowledgeable about their distributor's business, that bring the distributor valuable ideas, and that help distributors reach their goals are the best performers. Helping distributors build an expanding base of high-performing customers will help suppliers and distributors alike.

Building this kind of partnership takes extra effort on the supplier's part. But the return on investment is significant, as the two case studies below show.

Best Practices From the Field: An Integrated Approach

Recently, Gallup consulted with a health technology supplier to maximize revenue per customer by building a distributor optimization program. This program integrated employee and customer engagement with selection research and consulting to help the distributor understand the drivers of high-performing customer relationships, identify and remove barriers to sales performance and hire salespeople more likely to be high performers.

Our analysis revealed that a key predictor of a distributor's revenue and profitability was the extent to which distributors considered themselves to be the supplier's partner. So we worked with the supplier to create a measurement and optimization program that focused on improving its distributors' employee engagement, customer engagement and hiring practices.

First, Gallup and the supplier wanted to assess the strength of the supplier-distributor relationship from both customer and employee perspectives. So Gallup administered its Q¹² employee engagement survey and its customer engagement survey within the supplier's distributors. When answering the employee engagement survey, we asked the distributor's employees not to assess their own leaders, managers and colleagues, but to rate the supplier company as if they were its employees.

After analyzing the employee and customer data, the distributor and supplier created an engagement strategy that treated the distributor as a true partner of the supplier. The distributor's leaders also used the data to support behavioral change, encouraging salespeople to better align their customer interactions with key drivers of customer engagement. The data also helped the distributor's leaders manage their workforce more efficiently, allowing them -- and their employees -- to spend more time working directly with end users. Ultimately, the stronger partnership was able to reverse share loss, decrease turnover and increase year-over-year sales growth.

As part of the discussions on improving the supplier-distributor partnership, the distributor stated that it wanted to learn best practices for working with customers, including the key drivers of customer engagement. In previous years, the supplier had surveyed customers and had not shared the results with the distributor. This time, the supplier partnered with the distributor to develop a customer engagement questionnaire to survey end users and shared the results.

After reviewing the data, the supplier and the distributor discussed the actions they could take to build stronger relationships with end users. As a result, the supplier and distributor actively worked together to apply the findings in their customer interactions. Not only did this improve the relationship between the supplier and the distributor, the ultimate result was an increase in market share.

Last, but not least, our analysis of the customer and employee engagement data identified problems with turnover and hiring within the distributor company. The distributor was putting significant time and effort into onboarding and training salespeople and sales managers, only to find new hires leaving to work for competitors shortly thereafter. Correcting that problem required a blend of improved hiring and workplace practices.

First, we helped the supplier and distributor deploy talent-based hiring assessments for salespeople and sales managers that are predictive of high performance and high employee engagement. Implementing an efficient and defensible recruiting process also helps leaders make better hiring decisions.

Next, we trained the supplier's regional sales managers to become workplace and customer engagement consultants to the distributors. The suppliers were able to provide high-value strategic insight to the distributors, helping both companies to forge a stronger partnership, which yielded better performance in the market.

Best Practices From the Field: One Metric, a Simplified Action Strategy

In this example, the supplier, an insurance company that sells property and casualty insurance to consumers, knew its agents strongly identified as both employees and customers and that they relied on the supplier to provide tools to manage their business. So Gallup used Q¹² employee engagement and customer engagement data to study the partnership between the agent and the supplier. Similar to the research results Gallup sees in other companies, agents with the highest employee and customer engagement scores generated four times greater revenue compared with agents with the lowest employee and customer engagement scores.

That's valuable information, and it provided the insurance company with a framework to boost agents' engagement and increase their performance. However, the insurance company's sales managers found interpreting two scores -- one for customer engagement, the other for employee engagement -- difficult. So Gallup developed a new, more easy-to-understand approach based on the survey items that drive the most impact.

As you can see in the graphic below, there is simplicity in using one score. Though simple, it provides sales managers with rich information, allowing them to generate action steps for each agent based on his or her results. This creates an environment where expectations are clear and sales managers and agents can take the appropriate steps to improve employee and customer engagement -- and sales.

Be a Partner, Not a Vendor

For suppliers, distributors represent your brand to current and potential customers. They can build up your brand promise -- or tear it down. Measuring, managing and optimizing a distributor's dual employee/customer relationship can yield positive performance impact and help differentiate a supplier in the marketplace.

Suppliers that provide tools and resources to help distributors succeed can strengthen their distributor partnerships in ways that will yield tangible results. The best place to start is by knowing your distributors' business, bringing them tools that will improve their performance, and helping them reach their goals. Measure and manage your distributors' engagement as employees and as customers of your company, and create a strategy to increase that engagement. Share your best practices with your distributors, and help your distributors hire employees with the right talents to succeed so they can improve their workforce, too.

Building this kind of partnership is good for your company, your brand and your earnings. But it's just as beneficial for your distributors. As your revenue increases, so will theirs. As one of our client's distributors said, "Help me become your partner, and together, we will succeed."