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Marketing local products:
Short and long distribution channels

[ Summary ]

Section II
Collectively marketing local
products via long distribution channels

 

Chapter 3
Start-up

 


 


3.3 Creating a sales department

 

As in the case of product quality discussed above, it is necessary to identify the quality criteria for the commercial system and, consequently, to define what customers expect from the organisation (and hence its reliability).

These criteria are based on three principal factors:

  • the consistent quality of the product;
  • the availability of the product at the right time and in the desired quantities;
  • the appropriateness of the price/quality ratio.

Consistent (standard) quality means that the product has to retain its specific characteristics over time. Very often the term standard is considered to be the very antithesis of typical. This is a grave error of interpretation, since, for the customer, a product that is not consistent represents an unfulfilled promise on the part of the producer.

Product availability and strict compliance with orders are decisive in establishing the system’s credibility. There is a tendency to think that these two elements follow naturally, but in fact they are almost always the greatest weakness of new business development initiatives. All too often there is a tendency to focus exclusively on taking measures to actually enter new marketing channels whilst neglecting the very measures needed to remain there.

Accordingly, it is essential to evaluate the quantities involved. In fact the “units of measurement” for local markets differ fundamentally from those for long distribution channels and the biggest risk is being too “greedy”. This means not only making sure that sufficient quantities are available to comply with orders, but also carefully considering the consequences, for example, of forming a relationship with new customers that are likely to absorb more than half of the annual production. This usually leads to a loss of market share in existing niches, deterioration in payment terms, loss of contractual power, etc.

One basic premise emerges from all our case studies: no single customer or commercial channel should be allowed to become dominant.

The approach adopted by the marketing service of the Seine-et-Marne producers (France) is instructive in this respect. As soon any of its members supplies mass retailers with more than one third of his production, the marketing service starts looking for new members to make up the shortfall.

Apart from maintaining a balance between the size of orders and supply capability, an efficient sales department must carry out two essential functions: organising internal relations and logistics.

It is essential for the customer to be able to contact his supplier easily, for business information (orders, changes, complaints, etc.) to circulate rapidly between the producers concerned and for a quick response to be given to the persons concerned. It is difficult to do all of this without the support of a sales office.

Logistics are always a problem, but some of the specific characteristics of small rural production units compound the problem. These include the geographical location of businesses, a poor road network, the small quantities available, the diversity of the products that may be included in a local shopping basket and, consequently, diverse requirements in terms of delivery frequency and transport conditions (health requirements, cold chain, etc.), the meagre resources available and the lack of local services.

It is therefore important to take a realistic approach to logistical problems and, in many cases, if it is impossible or economically non-viable to set up an efficient collective service, it may be necessary to delegate organisational tasks to each producer from the outset. According to this last scenario, the collective organisation, thanks to its network of contacts and the sources of information available to it, can be instrumental in helping its members in a number of different ways:

  • dealing with logistical problems during negotiations with customers (minimum quantities, delivery methods and lead times, etc.);

  • assistance during negotiations with dispatching departments;

  • rating service providers;

  • information and assistance with organising bulking operations, for example.

The appropriateness of the price/quality ratio should not be seen as an abstract notion. On the contrary, it is very specific. One of the first questions a potential customer asks himself when negotiating a deal is usually: “Is the price right?” He answers this by comparing the price asked with that for rival products. However, when negotiations take place with an organisation representing the producer, a buyer will immediately wonder whether the producer might be inclined to offer better terms directly. Of course, this kind of “short-circuiting” is very likely to put the initiative in jeopardy. It is a very common risk that must be taken into account when drawing up the contract. Although the organisation must work closely with producers when defining commercial strategies and pricing policies, it should not be too costly (in other words, it must be effective).

In short, professionalism is by far the most important form of investment when setting up a marketing department. What is more, streamlined and well-managed structures can achieve some interesting results, as illustrated in the following table comparing, for each case study, the human resources assigned to the sales department in relation to revenues.

 

Organisation Persons working in the sales agency Revenues managed (EUR)
Saveurs des Pyrenées 1 director
1 mass retail network manager
1 secretary
1,800,000
Seine-et-Marne EIG 1 head of department
0.7 secretary
1,600,000
Valle del Jerte 1 manager
1 personal assistant
1,625,000
Bia Na Ri 1 manager
0.5 secretary
1,160,000
Agronatura 0.5 manager
0.5 secretary
1,330,000

 

These results simply indicate an order of magnitude and are not directly comparable because the department’s operating conditions in the various businesses (types of commercial activities, reference markets, etc.) differ so markedly.

The service set up by Saveurs des Pyrenées operates in several different marketing channels that are difficult for individual businesses to access on their own. This service is responsible for nurturing business ties with established customers, carrying out research to identify new outlets, planning and organising promotional activities, etc. The association manages its sales agency activities with a team of three people, who are joined from time to time by young trainees. This team is comprised of:

  • a sales director responsible for relations with the members, for exports and for traditional distribution;
  • a salesperson in charge of sales to French mass retailers;
  • a commercial secretary who runs the office.

 

The sales department must nurture relations with member businesses


Although during the planning of an initiative we have emphasised the importance of analysing conditions at the outset and of having an in-depth knowledge of the initial production framework, during the start-up and management phase the quality and intensity of internal relations between the sales department and member businesses are decisive.

As mentioned earlier, participation in this type of initiative prompts changes in attitude and at the beginning this requires an effort from businesses, which will need to learn to speak the same language. Because of the nature of the issues addressed, these relations are delicate, in terms of both the general management and relations with the managers of each business (e.g. quality managers or marketing managers). The quality of these relations is one of the major advantages of this type of initiative. At the same time, the sales department must act as an antenna monitoring the market that captures and transmits valuable information to the businesses involved. It then supports the economic member structures in fully interpreting these messages with a view to reviewing their strategies. This is an important factor in the competitiveness of the collective organisation.

A classic example of the new collective strategy is defining a unitary pricing policy that meets the requirements of all the players involved:

The system developed by Saveurs des Pyrenées provides an interesting illustration. Its pricing policy provides for a basic price, called “T100”, which is established jointly with each business in line with costs and market prices. Discounts may be applied depending on the type of business relationship and variable costs. In the French traditional distribution channel, for example, the T100 is the price offered to retailers. If products are sold to wholesalers, a discount of between 8% and 15% is applied (it is normally in the order of 8% to 10% for fresh products).

 

Enterprise alone Sales department Together
Autonomy in deciding prices Clear points of reference for conducting negotiations Overall consistency of prices charged for different types of product and for the same products via different marketing channels

 


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European
Commission

Agriculture
Directorate-General