Distributors – Good, Bad and Indifferent

Distributors – Good, Bad and Indifferent

Many Companies operate through distributors and stockists. There can be many reasons why a Company chooses this route to market.

Some Suppliers do not have the ability to serve the wide and varied market place, and it makes sense for third parties (Distributors) to offer their products. In others it is used as a strategy to secure business in overseas markets, or places/market sectors that are remote from the Supplier.

So, how do Distributors come about?

Many have been past friends, or friends of friends! Others have come as a result of an Exhibition meeting, answering an advert, or some simple research. A few have been placed by seeking Commercial Attaché services provided by the Government.

What is a Distributor? Ideally, it is a company operating in a sector that is key to the Suppliers target market (or one of the key markets). They will have a vested interest in selling proactively (i.e. not a passive sale), keep stock, and will not sell any competitive products. In many instances, they will sell complimentary products. Their territory will be defined geographically and/or by market sector. The Supplier will have little control over the distributor, but with good management, can exert quite a lot of influence over them.

And for a Supplier considering whether Distributors are for them, what are the pitfalls, and what are the alternatives?

The main pitfall is that the Distributor is a separate legal entity, and will always be the deciding factor over the success or failure of the sales potential.

Alternatives can be a stockist, an agent, a joint venture, an acquisition, a subsidiary, a franchise or a license agreement. Each will need proper legal preparations and up front due diligence. And cross border arrangements will need consideration of the legalities in both the Suppliers country, as well as the target country.

A stockist is a fairly static and passive partner. They may also stock competitive products alongside yours, and have no real vested interest in making yours successful.

An agent will work on your behalf, and take a cut of profits. However, the supplier will have little control over how he/she operates, and cannot dictate the priorities or strategy.

A joint venture is where two ‘complimentary’ businesses join force, add capital and time to a ‘new entity’ with its own identity and direction. Here the supplier will have an element of strategic influence, normally commensurate with the share holding of the entity. Drawbacks here are that this can be costly, and good management will be needed to avoid the partnership becoming hostile as the business grows.

An acquisition is where the supplier has bought an existing business in order to further their own aim. This can be a quick route to establishing a ‘subsidiary’ company, and the supplier will now have full control. Drawback is that this is likely to be the most costly scenario, but can be highly lucrative.

A franchise can be applicable, particularly where the business model, or delivery model can be easily replicated across many areas and demographic divides. The drawback is that many of these fail due to the lack of commercial nous of the franchisor, franchisee, or both.

A licensing agreement can be lucrative, where the manufacturing rights can be granted to a partner company against an original fee and an ongoing royalty against sales. Drawback is that you may lose the close control over quality, unless the partner applies diligence to their processes equal or better than you apply in your own activity.

Master Distributor Business Opportunity

Master Distributor Business Opportunity

Due to a product range growth and customer sales demands, one industry have developed this so-called Master Distributor Business Opportunity in order to meet these sales demands as well as the newly growth markets that were unable to service.

Furthermore, this industry has developed a large exclusive commercial product range that is ideal for use in many industries and available only through an exclusive network of distributors.

What is a Master Distributor Business Opportunity?

A master distributor business is a master distribution business opportunity that has a license to distribute into a specialized industry in a given region. It is responsible for business development and servicing all customers’ needs and potential customers in a geographical region.

The master distributor business is broken down into several different kinds of distributorships were you can choose depending on your expertise or suitable with your lifestyle.

o Specialist Distributor

Selling a full range of solely products, a specialist distributor would spend most time responding to sales leads and providing demonstrations. Most likely working from a home office and on the road a Specialist Distributor will have the freedom to approach various industry or companies in their designated region. (E.g. Healthcare, Aged Care, Hospitality, Education, Retail, Cafes, SME)

o Industrial Market Distributor

An Industrial Distributor would be selling the high-end industrial machines to factories, large facilities, engineering plants, shopping centres, and warehouses etc. An Industrial Distributor could be an individual consultant or an existing industrial supply shop.

o Hospitality Market Distributor

Selling smaller cleaning machines to all commercial kitchens including cafes, restaurants, and take away shops. This could be individuals with industry knowledge or catering equipment supply companies.

By investing in this Master Distributor Business Opportunity, you will receive:

o Your very own business management opportunity
o Association with a known brand & proven products
o Leads & ready developed marketing material
o Low capital investment with no ongoing fees
o A large potential customer base

Starting your very own master distributor business can be done from as little as $20-40k including new equipment, product training, an introductory local marketing campaign and a supply of marketing material.

How to Manage Distributors

How to Manage Distributors

A Supplier will never have control over its Distributor, and it should not try to do so. However with thoughtful and planned management, the Supplier can influence significantly the thinking and strategy of the Distributor.

A shared vision is important, but often the root cause of misunderstanding if the vision is interpreted differently by each party.

So how do we go about singing from the same sheet?

First, the companies must have a similar ethic to developing business. For example they must both dedicate effort to external sales, they must both spend money on marketing, they both must have a culture of entrepreneurial flair. Hopefully much of this has been ‘ironed out’ in the due diligence process, and it cannot be stressed too much how important the prior research and due diligence is. The ‘chemistry’ must be right! Clearly a ‘can do’ Supplier wants to work with a ‘can do’ Distributor, therefore the culture within the Distributor business will either make or break the relationship.

Second, the Supplier must be able to ‘sew seeds’ in the Distributors mind, that enables the Distributor to develop ideas in line with the Suppliers thinking. Therefore the Suppliers ideas become the Distributors ideas. That way (hopefully) all buy into the sales plan. The sales ‘plan’ must be written with inputs from both parties, with agreed actions. It must be realistic, with some ambition built in, no different from any sales plan. Both the Distributor and the Supplier must commit to the actions agreed. The Supplier must maintain a level of responsibility, commitment and support to ensure this works for all, as it is in the interest of both parties. Fairly obvious, but all actions must be apportioned to an individual, and given a time for completion or action. The plan must be dynamic, easily updated, and reviewed by both parties regularly.

The Supplier must take the responsibility to train the Distributors team in its products, and must not forget the latest product development updates. Market and Product bulletins will be a key part of the relationship. Make sure that this is communicated in a way that all Distributors can benefit from.

Now all of this is all very good, but what about the new Sales Director, that has inherited Distributors from the Boss or his predecessor. And to make matters worse, several of them are not really performing. How do we deal with this?

First, check the contractual arrangements for the Distributor in question, their terms of engagement (if these exist), and also understand any terms of severance (should this be necessary). Talk to your Boss, check that any drastic action you may have in the back of your mind is not going to drop you into the ‘muck’, as you are just about to axe his all time buddy!

Second, it is imperative that a meeting takes place with both Manufacturer and ‘Poor Performing Distributor’ around the table. At that meeting both sides must state their aspirations for the business. Invariably the Suppliers aspirations will be more ambitious than those of the Distributor. The skill now is to bridge the gap between what the two parties aspire to. What does the Supplier need to do to help the Distributor perform better, and by when? What does the Distributor need to do to make more sales, again by when? What do both parties need to do to resolve the issues? Again, planting seeds is important, so that the Distributor develops ideas along the lines of the Suppliers thinking. A specific action plan needs to be put together to meet the immediate objectives, with a longer term ongoing plan to sustain the higher levels of business, once growth has been achieved.

Formalising a reporting structure is a key strategy. Careful consideration regarding a format is important. Too complex and the Distributor will procrastinate, or even worse, ignore. It needs to be easy for the Distributor to deal with. It needs to be in a format that allows the Supplier to benchmark each Distributor.

The frequency of reporting is also a consideration. For high volume fast moving products, perhaps a Monthly report is needed. With longer sales process items (eg Capital Equipment) a quarterly report may suffice.

Expect some resistance to formalised reporting. The Distributor may need to be coerced, even incentivised. Explain that reporting from all Distributors will allow a better flow of success stories and cross referrals, hence greater business opportunity. And for those who stubbornly refuse to report, and are not performing well, now is a chance (contract allowing) to sever business relationships.

There will always be an element of ‘Us and Them’. And of course the Supplier must respect the fact that the Distributor has other priorities too, as they are likely to represent other suppliers. However, getting the Distributors together once every 12-18 months for a conference, training and intelligence sharing event is likely to pay dividends for the Supplier. It will engender a sense of worth and belonging for the Distributor.

“All this is all very well, but my Company has 25 Distributors, they are based anywhere from New Zealand to Alaska, Singapore to Brazil. How can I reasonably be expected to do all this?” A very reasonable question. First, a network of this size will need more than one person to manage it. Second, it is important that you take the time (albeit sometimes infrequently) to visit all Distributors. For those far away, it can be prudent to engage the services of a specialist Sales consultancy local to the Distributor, who can monitor the Distributor with 6 or 12 weekly progress meetings, and instill good sales practice at the same time. An independent Sales consultant will understand the Suppliers objectives, the local culture and trading conditions, and provide an unbiased assessment of the progress and challenges.