Reflections on the art of dealer development.

* THE ENTIRE subject of dealer development has been debated for many years in this business, at both the manufacturer and the dealer level. The debate will probably always go on, for nobody ever come up with a definition of the term that everyone accepts.

We all know this: The dealer is a vital link in the distribution chain from manufacturer to farmer. The alternatives to a dealer system for this industry are unpalatable and for the most part unacceptable: Either the manufacturer uses his capital to maintain outlets or the customer is on his own for parts and service.

It may sound simplistic to say it, but if this dealer link is to survive, the dealer has to make a profit. And as we know, there is nothing guaranteed in this business. The dealer has to bring together correctly the finite resources of money, people, product and service, facilities, potential and time to make his profit.

Running a dealership differs from running a giant industrial corporation only in terms of scale. Capital is invested and a satisfactory return is sought. There is competition seeking to take away market share. There are people involved whose talents need to be drawn out effectively.

But there's a special difference, too: For the dealer, the gain or loss on the assets he has employed is more important to him than it would be to most managers of large corporations. That is why the dealer needs increased expertise in the management of his business, for it usually represents most of his worldly assets. Much of this expertise has to come from the supplier's dealer development program.

A good dealer development program has to to cover everything -- planning, organizing leading and controlling. And it's the manufacturer's responsibility to bring this type of business training to its dealer organization, because few dealers have had the opportunity to study the formal approaches to successful business management. The long term

A sound dealer development program is by nature a long-range function. Training takes time and results can't be measured quickly. This fact poses a problem to some suppliers who can't -- or think they can't -- afford this kind of investment in their dealers' future. There are five basic elements involved: Intelligence, faith, courage, money and patience -- probably in that order -- and they are the requirements for any meaningful approach to a dealer development program.

In the recession this industry has been through, however, there has been a tendency to lower the priorities given to dealer development activities. This is unfortunate and ironic. It's now that many dealers have more need for solid business counseling from their suppliers than ever before.

I don't intend to suggest that the major suppliers in this industry don't have some form of a dealer development program, for they do. But how well-balanced are these programs? Are they designed more for the short-range needs of the supplier or the longer-range needs of the dealer? Will they help insure a stronger dealer organization several years from now?

There is no substitute for strong dealers in obtaining market dominance. Deere & Co., which already had the leading dealer organization in this industry, launched a long- range, comprehensive dealer development program in the 1960s. Today, Deere's position in the industry is stronger than ever, and this attention to moving the quality of its dealers ahead, along with the needs of the times, is part of the reason why.

Or consider Caterpillar, which has a reputation of being almost fanatically loyal to its dealers. In in Search of Excellence, authors Peters and Waterman quote Caterpillar's former president and chairman, William Blackie: "We have a tremendous regard for our dealers. We will not bypass or undercut them. Some of our competitors do and their dealers quit. Caterpiller dealers don't quit; die rich." Opposing forces

But how does the dealer development executive for any company grapple with the two opposing forces -- what he knows should be done and what is possible to do?

His most challenging job will be to convince his management that it's feasible, even essential, to commit resources of money and people toward dealer development. To achieve this, he will have to show them how this investment will pay off in future market share and profits.

This sort of crystal-balling will certainly qualify him as a prophet. But his request for the valuable resources of money and people is made at risk to himself, and he could end up as the proverbial "prophet without honor in his native land." There are others in every company who are charged with producing short-term results -- immediate sales -- and they are going to want as much of the company's resources as possible devoted to backing up their assigned responsibility.

The conflict is natural. How carefully balanced its resolution will be depends on the understanding and strength of will shown by top management. Finding the dealer

The location of the best possible dealer site and the recruitment of quality dealer talent are the starting points in the development process for both the dealer and the manufacturer. Some of the key questions about location that the DD manager must face are:

Does the proposed area have enough long-range (i.e., five or 10 years) sales potential for the major line to be represented? It's possible to go in for a quick, flash-in-the-pan operation, but this will soon exhaust itself, eventually to the detriment of both the farmer and the manufacturer, and there will be equipment in the territory begging for good service and parts availability for lack of a dealer.

What's the area's field population of equipment made by this manufacturer? With a good population already in place, there is the chance for early generation of sales from parts and service. If those two departments are operated properly, the new business is eased into a revenue position early. This simplifies the recruiting problem to an extent for the dealer development manager, and sales of new and used wholegoods are made a little easier, too.

With a low field population, a lot of pioneering can be expected. This costs money, but if the sales potential is sufficient and properly appraised, it will pay off.

What's the competitive situation? There are two kinds, other-line and same-line. When it's a matter of other-line, the chance is there to outsell on a basis of product features related to customer needs, as well as servicing performance.

But when same-line competition is considered, all sorts of red flags and lights should fly and flash. The dealer development man knows that if he is to give his company optimum exposure in an area by having the proper number of dealers, some in-line competition is going to arise. Otherwise, the dealers would be too far apart and sales opportunities would be missed.

The product is the same. The dealer development man is going to have to train that new dealer, and the other dealer who's in-line neighbor, to think in terms of long- range interest. It's easy to let price become the dominant factor is such cases, but such tactics usually lead to eroded margins and net profits.

For the new dealer, excellence of service and parts availability are the best means by which he can attract a clientele that will allow him to maintain a satisfactory profit on whole- goods sales. Of course, good service and parts departments take money -- that's where a great deal of the business's initial capital investment must be. And since the alternative in getting started is to dangle an unusually low price before shoppers, some courage is required -- both on the part of the new dealer and the DD man who recruited him in the first place.

And if a frank appraisal of all possibilities doesn't indicate that a satisfactory profit can be had in the first few years, then it's time for the DD man to break off negotiations and move on to more attractive possibilities.

What will be the specific location of the dealership? The DD man and the prospective dealer have to consider this one very carefully. We all know of businesses in out-of-the- way places that are successful, but there are usually observable reasons why they are, such as two or three generations of market dominance from the same spot.

Some prospective dealers reason that locating in the country, nearer the customer, will permit them to operate at lower cost. Perhaps, but lost floor traffic -- vital for parts volume -- and the higher cost of establishing and identity can offset such an advantage.

Chances of success are better when the farmer's trading center becomes the location. That's where the action is; that's where farmers head when they need something. Thus, if it's possible, the dealership is best located right in the center of machinery row. The dealer gets to convey the message that he's in business for real and he gets to stay abreast of everything that's happening in the community.

There's no way this article can stand as a complete outline of the duties of the DD man. In fact, once the signature of the desirable new dealer is on the contract, the development job has just begun, because this is when the DD man must help that dealer staff his organization with people.

And it is in working with people that real success or failure will be determined. So dealer development work is really people development work, and that is my definition of the term that I referred to early in this article.

In most organizations, I don't think the dealer development job should go to a young executive fresh from MBA school. Such persons may have an excellent grasp of the financial fundamentals of business, which are very important. But I think that a substantial amount of field experience should go with them.

It's from this kind of experience, usually as a territory sales representative, that one develops a sense of balance. Besides an understanding of the financial nuts and bolts that go with dealer development, he needs a promotional flair, by which he can attract prospective dealers to his story and by which he can help launch a new enterprise.

Such field seasoning will help him understand the limits of time and resources, which really comes down to sensing which element in his area of responsibility needs help the most and the soonest.

But most of all, he has to like people.