Page 28 - UnderstandingJanSanRedistribution_flipbook

Line 7 – Re-D Benefit/(Risk)
This is the “Revenue Less Cost” figure for service through a wholesaler, minus the same figure for direct
service by the manufacturer. This number makes explicit the value of redistribution vs. direct service for
various order sizes.

Line 8 - Marketing Value
Once the revenue impact and cost avoidance opportunities have been quantified, we turn to Marketing
Value. Having your products available through wholesalers will probably provide access to hundreds of new
customers. In many cases, these customers cannot be sold directly because they cannot meet your order
minimums, or perhaps don’t meet your credit requirements. In other cases, they are not typical Jan-San
distributors, and may not be known by your Sales Managers or even your local rep agencies.

Often, the final number assigned to Marketing Value is a “plug figure,” calculated to bridge any difference
between the manufacturer’s program offer, and the wholesaler’s program request, when negotiations
reach the final stages. As with most marketing costs, the manufacturer’s comfort level with the value
equation is more a matter of intuition than calculation.

The Marketing Value of redistribution may be reflected in the “per pound” redistribution allowance, or
offered as a percent of sales, much as a distributor allowance program would be offered. In either case, it
is wise to account for it separately from the cost avoidance portion of the allowance, so that the true costs
and benefits of redistribution may be accurately reflected in the P&L.

Line 9 – Net Benefit
Line 9 sums the redistribution Benefit/(Risk) line with the Marketing Value line, to reflect both the hard
P&L impact as well as the softer benefits of redistribution.

Other Considerations
Finally, once cost avoidance, revenue impact, and Marketing Value are analyzed and understood, we must
look at other considerations to fine-tune the wholesaler program. One “fact of life” is that wholesalers will
generally insist that you pay full agency rep commissions on volume purchased from a wholesaler. This
requirement eliminates a potential source of funding for wholesaler programs. On the other hand, many
customers of wholesalers lack the size and/or buying group affiliation to demand “fully loaded” trade
programs, so there can be an offset to the cost of the redistribution program. Use of a wholesaler may also
shorten your order-to-cash cycle, yielding an increase in working capital which can be easily calculated by
the Finance department.

Taking all of these other considerations into account helps to prevent second-guessing after the program
has been established.

Of course, your final redistribution program allowance will be negotiated with the wholesaler, who is
performing his own financial analysis for your product line. The return on your investment in conducting
the above analysis is:
■ a solid basis for understanding the economics of redistribution for your Finance, Supply Chain,
Marketing, and Sales people
■ a rational foundation for your program offer to the wholesaler
■ a benchmark against which you can measure actual program results
■ a “stake in the sand” on which to base future cost analysis and program negotiations

Having established a redistribution allowance program which makes economic sense, the manufacturer
can now turn to questions about which customers to serve through redistribution, and which products to
make available through redistribution. These topics are covered in the upcoming chapters.

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