Distributor & Dealer Litigation: How To Win Cases Through Evaluation of Their Performance Presented at Foley & Lardner's The Law of Product Distribution Seminar. Milwaukee, WI. Don E. Smith, President American Consulting Group, Inc. 1329 Taughannock Boulevard Ithaca, New York 14850 Phone: 607-272-9111   Fax: 607-272-5588 Email: dsmith@marketing-consultant.com Website: www.marketing-consultant.com Listing on Experts.com

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Scenario: You would like to terminate Midwest Distribution. Ever since the son of the founder became President, Midwest has shifted its emphasis from your Standard and Premium lines (require training and selling time) to your Economy line. In addition, some of their customers are complaining, they pay late, they don't follow-up on their leads and they just lost two of their best sales personnel. You sent them a letter giving them 30-day notice of termination (per the contract).

Now you are in litigation. Unfortunately, Midwest has always exceeded their quota.

1. THE LIMITATIONS OF USING SALES QUOTAS AS THE PRIMARY MEASURE OF PERFORMANCE
1. Often the dominant measure of performance. Frequently a single value.
2. Often defined with very limited information. Can be difficult to defend.
3. Can lead to poorly defined and implemented distributor upgrade and termination programs.
2. ADDITIONAL EVALUATION OPTIONS
1. Define and use quotas for each major product line plus a total for all products. Page 3, table 1, Historic Sales.
2. Define easy-to-secure, meaningful distributor performance measures. Compare to a national average or similar distributors based on an index (distributor actual/national average and distributor/similar). Set goals. Keep it simple. Page 3, table 2, Performance Indexes.
1. Personnel: Outside sales, customer service, field service. Total # of each available for your line. Sales/employee for each.
2. Trained personnel: # of each type personnel that has received training. Sales/trained employee.
3. EDI: Are they on your system?
4. VMI: Are they participating in your program?
5. Service capability: Do they have capability for system integration, startup, repair, emergency shipments, 24-hour customer service, etc?
6. Showroom: Do they have a showroom? Which of your products are included?
7. Demos: How many field demo units do they have? # of demos/sales.
3. Market. Most difficult measure to define but information has major value. Compare to national average or similar distributors. Keep it simple. Page 3, table 4, Market and Share. Examples of how estimate market share.
1. Distributor market = (Market potential in total US) x (% of industrial buying power in distributor territory).
2. Distributor market = .65 x (% of US housing starts in distributor territory) + .35 % x (% of US existing housing in distributor territory).
3. Distributor market = $6 x (# of K-12 school teachers in distributor territory) + $9 x (# of professors in colleges in distributor territory).
3. CONCLUSIONS
1. $ sales quotas should be only one of the measures defining a distributor's performance.
2. Additional measures of performance and capability can be of major assistance. They do not add significantly to the time and complexity of the program.
3. Ideally, measures of market potential should be included. Though potentially complex and time consuming, a knowledge of market potential and share will have a major positive impact to the principal's distributor management programs.
4. Utilize information with your annual joint planning sessions with each distributor. Jointly define action plans. Follow-up. Page 4, table 5. Summary of qualitative and quantitative measures.

Don E. Smith. 35 years experience in marketing & marketing research. Clients include AT&T, Borax, ITT, Lockheed-Martin, Motorola, New York State Gas & Electric, Panama Canal & Volvo. Nationally known public speaker and business trainer. University associations include Cornell Graduate School of Management, University of Wisconsin and University of North Carolina. Mechanical Engineer from Carnegie-Mellon and MBA from University of Pittsburgh. Expert witness specialties:

1. Define economic losses. Sales, profits & market share.
2. Evaluate of marketing & sales effectiveness.
3. Market research to define markets, competitors & other critical information.
4. Disputes involving distributors, dealers, agents and independent sales representatives.

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