Page 24 - UnderstandingJanSanRedistribution_flipbook

Marketing Value

We often ask our clients to imagine a new set of customers “on Mars,” which you can now reach with your
products. Most manufacturers would be willing to pay higher marketing and logistics costs to reach new
customers, even if it means accepting a lower-than-average operating margin. This is a useful starting
place for examining the marketing value of selling through wholesalers.

But the marketing value of redistribution is not confined to the new customer opportunity.

The ready availability of your line with short lead times and no minimums means improved ability to
respond to sales opportunities for your distributors. From rapid sample fulfillment to “fill-in” orders or
recovery from out-of-stocks, wholesalers eliminate many of the time and geography constraints that
frustrate manufacturers and distributors alike. While this marketing value is difficult to quantify, we find
that Sales and Marketing Managers often have an intuitive sense of what it is worth.

Comparing Redistribution to Direct Service

While acknowledging that “cost per pound” does not tell the story for every type of Sanitary Supply product,
it does provide a useful starting place for illustrating the Redistribution Allowance calculation. Let’s use a
hypothetical manufacturer with a simple product line and the following price bracket structure:

1,000 lb 2,500 lb 5,000 lb 10,000 lb Truckload
Price/Case $33.00 $32.00 $31.00 $30.40 $30.00
Gross Wt./Case 20 lb 20 lb 20 lb 20 lb 20 lb
Price/Gross lb. $1.65 $1.57 $1.55 $1.52 $1.50

This manufacturer produces his products in manufacturing plants, and then ships them directly to
distributor customers. A few of his customers are able to order in Truckload quantities, but the vast
majority of shipments are much smaller. Customer freight costs have been analyzed across various order
sizes, and order management cost is $100 per order.

Using this data and a Redistribution Program Worksheet on the next page, the manufacturer can begin
to understand the value of redistribution for various order sizes. The example is followed by detailed
explanations of each line.

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