Philip Morris International (PMI) recently reported its second-quarter results. PMI attributed declining performance in the EMEA region due to unfavorable terms with its local distributor. In my previous blog post I highlighted the top three takeaways from Frontier Strategy Group’s recent survey aimed at understanding the channel management secrets of high growth companies. In this post, I’d like to take a deeper dive into how leading companies are segmenting their distributors and assigning territories.
Our analysis shows that many of the most successful companies are looking beyond geography when defining distributors’ territories. In fact, nearly 60% of high growth companies are using ‘Size of Customer’ or ‘Type of Customer’ as the key criteria for defining distributor territories. Meanwhile, only 32% of low growth companies are using these advanced criteria.
Providing customers with access to a broad product portfolio through a single distributor is also correlated with higher growth. More than 95% of high growth companies’ distributors carry multiple product lines. In contrast, about 20% of average growth companies limit their distributors to a single product line.
We found these characteristics to be true across emerging market regions and industries, with one notable exception – the healthcare industry. Geography remains the dominant criteria across high, average, and low growth healthcare companies. This is not surprising given that purchases of healthcare products in emerging markets are most often driven by government bodies overseeing procurement for a particular territory.
In my next post, we will explore the incentives, and specifically non-monetary incentives that are most likely to be used by high growth companies.