Saturday, January 18, 2014

KILL COMPETITION AND GROW DISTRIBUTION BUSINESS

In my previous article I discussed about how the cost components of the distribution business model helps an organization to expand and how the business is being established. Today I would like to discuss the process of killing the competition and how to create strong revenues for the Sub-broker or alternate channel. Last time I discussed about the revenue being generated from the sub-broker/distributor segment. In term of financial segment the revenue sharing happens in the ratio of 75:25 or 80:20 ratios. In my recent study I find that many sub broker /alternate channel business companies are coming to an end since margins of business have reduced and manufactures are in direct contact with them. This eliminates the middle man relationship and products are being sold at hefty prices. Mis-selling stands at its own place as continued earlier. Many of the companies have come up with direct model which replicates the sub broker or channel based business model.  Well all are in the mad race of business and numbers and not on the game of value propositions. Today the article is based on how to play the game of value and price in this business model.

Now the business of a financial sub-broker or distributor runs on the factor of acquisition of clients.  The more number of clients he has under his belt his product offerings and revenue increases at the same time. One of the key factor which needs to be kept in today’s economic world is that product diversification is the key solution to cater every segment of clients across the market. Hence product like life insurance only cannot meet all the requirements of the clients. In the market we would find many sub broker/distributors giving example of one product success stories but all those days are gone. We are no longer in the age of selling one product; we have to meet multiple requirements of every client. Moreover the complexity of the modern life has increased the demand of multiple segments which finally leads to the process of developing and meeting the requirements of those multiple segments.   

 Now product offerings have become at the doorstep by a manufacturer hence product diversification blockage is completely eliminated but the risk to the same has increased substantial over the years. Hence one sub-broker or distributor needs to be mapped in with an organization to get the clear direction about the various product offerings and now this is the common trend which have been carried on over the last 20 years in the financial market. Now those national distributors who are running the business of sub-broker/alternate channel needs to develop the business of these through more client acquisition for them. If a company provides clients for its sub brokers then just imagine the faith and the bonding that company develops with its sub broker/alternate channels. Now the company who plays this dice successfully is the leader in the market.

This process become a two way process, where one kills the competition of price bargain over selling the financial product a well build a well trusted long term relationship. Today in every business and more importantly in the financial business trust factor is the key and that needs to be nourished from the very bottom level. Now coming down to the real picture where a national distributor who is completely merged into sub-broker business need not go for direct client acquisition. That will create a rival for the own sub broker/alternate channels.  They should rather develop business for the sub broker through introducing those clients through them and increase the revenue for the sub brokers.

When a sub broker gets a client from the national distributor that distributor becomes indebted to the company since everyone knows the pains and cost of acquisition of customers. Now when one company keeps on adding clients for its various sub brokers and helps them to grow their revenue obviously price bargaining takes new direction. From 75:25 ratio of sharing can be brought down to 60:40 levels where the revenues increases for both segments. The sub broker gets clients and obviously they will get them for life time at the same time the sub broker would negotiate price compared to the values being provided. This value and price proposition increases the market penetration and profitability. This business model kills the unfair price war and miss selling concepts and kills unhealthy competition.


Now of my friends would come with an example that why not to start a direct business and make more revenues. Well the cost of penetration through sub broker model and through direct makes a huge difference. Moreover with changing Relationship Mangers substantial business is being lost by an company where as a sub broker who’s business have been supported in the above discussed business model remains with the company irrespective of the change in human manpower. In the initial days direct business models is a honey moon phase but over the years the business comes to a dead end. Well we all know that relationship in business pays and that saves in many dark times. Then why not create a business model on the same path.   The coming years would be the battle of values and within values knowledge cannot be the only one.  Since internet and smart phones have increased the knowledge power. All is needed to fight the inflation and in order to that business and revenues needs to be increased. Find ways to increase revenue this will only make the business more strong.

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