In today’s fast-growing economy, many companies are actually questioning the role of distributors in the business sense. If efficiency is a manufacturer’s main goal, then why don’t they just cut the middleman off the big picture? In reality, distribution is an often underestimated aspect of marketing, especially by small business. It is, however, one of the four cornerstones of the marketing mix that is taught to every business student at the university. It affects the sales volume, brand image, and of course, profit margins. In industrial markets, so called middlemen may be the key factor in the success or failure of a company. Reviewing your distribution options and how they fit into your marketing plan will help you protect your brand and maximize your sales and profits.
Probably, you have heard not only once that back in the day when life was a lot simpler than now, tradesfolk used to bring their goods to the central village market where the local villagers used to come to either buy the goods or simply trade them for their own wares. The tradesmen went home with the revenue generated. And then the cycle would repeat itself over and over again. The point is that as long as people had something of value for someone else, they could get into the market to meet their needs in one way or another.
First things first: Who is the Distributor?
One of the most common types of business opportunity ventures, a distributor or also often called the middleman, is an independent agent who has entered into an agreement toz offer, promote and sell the products of another company or person, but who is not entitled to use the manufacturer's name as part of its business name. The Distributor brings tangible benefits to both you as a manufacturer and the end users. Depending on the type of the agreement, the distributor may be limited to selling only your goods, or it may have the option to market several different product lines, brands or services from various companies and manufacturers.
Distributors play a vital role in smoothly connecting manufacturers and customers. They can expedite response times, enhance a company’s reach, and even create value-added packages that complement a company’s product offering or scope. Without distributors, both sellers and buyers would have to perform these functions themselves, adversely affecting the bottom line. The distributor also shares some functions with a wholesaler but takes a more active role than the latter.
Distributors are service providers, since they do not just sell products to customers. Moreover, they provide engineering support and aftermarket services, they help you reduce the costs, optimize processes, as well as manage inventories, all of which creates value for each side.
You are already aware of who the distributors really are, but the next question is who are the actual customers of distributors?
Most companies would describe their “customers” as the people who buy products and services from them. Distributors, however, have a different kind of customers, namely, the manufacturers they represent and to whom they must sell themselves first. A distributor sells its services by getting a manufacturer’s goods through the channel to the end user. Manufacturers pay for the services through commissions in percentage and with marketing development funds as well.
Distributors use these funds to promote the products of the manufacturer. These funds are the main financial support for the distributor’s marketing efforts. To sum up, if you are a manufacturer who is looking for a distributor to promote and sell your goods, then congratulations! You are a distributor’s customer now.
Particularly in today’s global markets, manufacturers have great difficulty in serving markets directly, therefore they rely on intermediaries either in their home country or overseas to handle distribution. From just-in-time procurement strategies to risk management, distributors can bring real value to customers. In today’s economic environment, distributors are being relied on heavily as our customers are more likely to order smaller volumes of products on a more frequent basis. Established partnerships with distributors provide for continuity and trust of supply. Allowing distributors to take over some of your marketing functions lets you focus on manufacturing the products that will meet the needs of your customers. Within the distributor relationship, the distributor can run some specific tasks that help improve the overall business performance. The aim is for you to appraise which of your functions the distributor can fulfil more effectively.
The most basic task: the principal function of the distributor is to make your products available in as many more markets as possible. Making it convenient for potential customers to purchase your products is an important marketing function. Companies that specialize and are experienced specifically in distribution have business relationships with a wide variety of different sellers and can ensure your products are present in outlets visited by your targeted consumers. Increased market coverage ensures that customers can purchase your products whenever they need them, thus increasing the chance for you to make a higher profit.
While manufacturers often arrange for general publicity via press releases or articles about their products in trade magazines, distributors can take over targeted promotion. Advertising that promotes a specific product vis-à-vis particular retailers is often handled better and more effectively by distributors. They can arrange discount coupons and in-store promotions more easily since they already have the important relationships with retailers.
In reality, distributors do not have the expertise or training to handle in-depth technical support of customers, but they can be a good first contact for customer service. Some distributors even have the additional people who are working with them as well as communication facilities to allow them to handle customer service calls more effectively than a manufacturer, while others for instance are only focused on distribution and do not have such capabilities This sounds attractive, doesn’t it? As a manufacturer, you have to decide as to whether you want to handle general customer service calls yourself, have a distributor handle them, or outsource them to third parties from a call-center. Keep in mind that your preferred customer service configuration can influence your choice of distributor.
Since the distributor is more aware of the market than the manufacturer, distribution companies are the ones who collect more market information in the course of their business. They give feedback on trends, customer satisfaction regarding particular products, as well as the competitors' positioning. This is all vital for the type of markets that change rapidly and require action and responses to market events on the manufacturing side. Because collecting and sharing data is costly, your agreement with the distributor you choose has to specify what data you need particularly. You can use market information from your distributors to improve your products, to develop new product features that your customers want, and phase out obsolete products that bring you less or no profit at all currently.
Remember, you as a manufacturer should know what the customer wants and needs so you can give it to him, therefore research is something that should not be underestimated.
If it is about large purchases, financially strong distributors happen to handle financing for the customers. Offering advantageous rates and favorable re-payment terms can attract customers easily and bring increase in sales. There are distributors who are not prepared and able to offer financing to customers themselves, they may arrange it through third-party financial companies.
Imagine you are selling any type of product to consumers, there is one big decision that you will have to make: Do you want to work with a distributor or not. Distributors are the ones that can help you get your product in the market quickly, and free up your time so you can focus and put your efforts on other aspects of the business. But, if you do decide to hire a distributor, then this raises the question of which type should you choose.
There are three main types of distributors: intensive distributors, selective distributors, and exclusive distributors. The types of distributor can also be classified as direct distributors and indirect distributors.
Usually, this type of distributors is the best if manufacturers want to sell their product really quickly and through the widest possible channel. Intensive distributors work with many vendors and are expected to sell high volumes of goods but at lower prices, therefore they earn lower margins. If it is about mass market products, this type of distributor would be an effective route. While profit margins are generally lower, manufacturers can benefit from improved cash flow.
The selective type of distribution applies when manufacturers select specialized distributors who are very experienced in distributing specifically their goods. Manufacturers can restrict the exact number of dealers that a distributor can supply to in order to reach the target market, provide a high level of service, and keep high retail pricing in order to maximize profit margins for the whole distribution channel.
Exclusive distributors are used when the manufacturer has a niche market and has a target group of customers that needs to be reached. Normally, only one exclusive distributor works for each territory. In this case, the channel control is important to keep the brand integrity, brand image and often, to reach higher pricing points.
Direct distribution means that the manufacturer sells and delivers products himself directly to the end customer/consumer, hence they are called direct distributors. This type of distribution is usually chosen by manufacturers in order to reduce the costs. However, direct distributors face several drawbacks. When choosing this way, they are limited to their own physical storage capacity dictated solely by their sales volumes. Moreover, it is very possible for them to have much less marketing exposure and significantly higher marketing costs which may in actual fact offset any saving made by not using other types of distributors.
With the indirect type of distribution, distributors use a network of wholesalers, retailers and resellers to distribute their products to end consumers. It is safe to say that this is the most common type of distributors. While the distributors are focused on generating sales, manufacturers can stay concentrated on the production. The indirect distributors have good relationships with some resellers or retailers and they are taking advantage of this when selling to them. This way they provide speedy sales as well as distributions of goods. Unlike direct distributers, indirect distributors may be more than just one per territory.
Keep in mind that the type of distribution channel you choose for your business depends on many factors, such as the type of the products, the size of the business and last but not least, of course, the volume of sales. Considering these factors, the choice is all in your hands.
Nowadays, new markets for manufactured products are those “doors” that open options for revenue expansion. Over the last decade, traditional manufacturers and their new competitors have been seeking opportunities to expand their sales geographically. In order to be valuable competitors in the new markets as well as in the previously exploited ones, companies need to focus on straightening their distribution networks.
Manufacturers have two main channels in order to get their products in the market and to reach end customers. The first channel is direct sales, which brings manufacturers many challenges for which they may or may not be prepared. The direct sales method, selling directly to customers, requires manufacturers to be real specialists. They must have a deep understanding of every aspect of the marketing and supply chain strategies that are involved in building, marketing, selling, and delivering their products to customers, retail stores, or other outlets for example.
The direct sales method is difficult and challenging; therefore, many manufacturers prefer to pay an additional amount of money and use the assets of the distribution channels to market their products. Basically, it works like that: Distributors buy directly from wholesale manufacturers, and then market those products through a network of retailers. Distributors handle the logistics and marketing requirements that manufacturers do not want to, do not have the time, or simply are not able to handle. The manufacturer-distributor relationship benefits both parties. The best-case scenario is when this is a partnership that helps both partners meet their goals. But in order to get the most out of the relationship, manufacturers and distributors need to delicately manage the relationship to make sure both parties are in alignment.
There are differences between the type of relationships that exist between manufacturers and distributors. Some of them are tactical, some strategic. The most important factor for success in a manufacturer-distributor relationship is that both parties have to be on the same page as to whether the relationship is strategic or tactical. This will set and clarify the expectations for the type of support both parties will give to this partnership. A strategic relationship requires closer collaboration from both the manufacturer and the distributor in the form of marketing, branding, and product development. In a strategic relationship, a distributor does not just push a particular product, they also provide their feedback and give opinions as specialists regarding, for example, some possible product improvements, or new products to meet the demand identified in the market of the targeted group of customers. The distributor is essentially the expert on the customer, while the manufacturer is the expert on production. Together they make the perfect team. In a strategic relationship, broader long-term goals are being met. There is an option that in this type of relationship the manufacturer will be allowed to introduce a product into new markets.
At the same time, the tactical type of relationship between the distributor and the manufacturer is way more limited. They are mainly about simply increasing sales. Manufacturers design and build the actual product, distributors handle the logistics and marketing involved in getting those products into the hands of customers. A tactical relationship is easier to replace, so both parties will likely want to look at how to make the relationship more strategic, otherwise they face the possible loss of a source of revenue.
If you are one of those manufacturers that decide to put their trust in distributors, your business can benefit from a much greater distribution channel without the need to have a physical presence in each territory. Not only will your products reach many more customers and therefore increase your sales, but you can also make serious financial savings through not requiring additional premises.