Choosing a distributor by Nick Claxton
So, you have started your company, raised the appropriate investment, gone through the pains of manufacturing and now you have to get your product to a customer to buy.
At this stage you are unlikely to have a direct international sales team. You could go via e-commerce and hope that a bit of marketing helps navigate your prospects to your web page to buy your products, and for low tech items this might work well, however, it’s very passive.
To actively sell your product it needs to be put in front of your potential customer in a professional and knowledgeable way. It needs supplying with minimal delay and supported locally.
This is where distributors are beneficial. They can provide a very cost-effective route to market. However, exhibition conference walls are plastered with notes from hundreds of distributors offering their services. How do we choose the right ones?
As a manufacturer you need to be able to understand the distribution market and, in turn, become familiar with channels that are helpful and be able to evaluate and select a suitable distributor with the capabilities needed to address and meet your objectives.
The best ones bring a detailed working knowledge of markets and business practices, as well as contacts and relationships. You may require them to have specialised practical knowledge to be able to discuss the benefits of your product.
So, what makes for a good distributor and how do you go about selecting one?
It’s vital that the distributor has local market knowledge, a good product understanding, as well as strong marketing and sales programs to create opportunities and business. They also need to be able to provide feedback from the market in order to drive product development.
For any manufacturer, the relationship with the distributor will be about looking to maximise sales. There will always be distributors who believe their function is just to hold local stock and to wait for orders to come in. There is a need to understand the difference between an “Agent” an “on seller”and a “distributor”. The agent and on sellers rarely promote your product. In some cases, they may handle your competitor’s product too. If you are lucky, they may help with import paperwork and carry some stock, but that’s about it. A distributor should be seen as an extension of your company, waving your flag, with the same level of professionalism as you would yourself.
There are broad line distributors out there who are, superficially, an attractive proposition. But you know that your products will get lost among the myriad other products that they’ve taken on.
Investing the time to find the right distributor is key as changing distributors can be hugely disruptive to your business and it can also be very unsettling for customers, which can impact sales adversely. As such, you should look for a company that you felt was financially stable and secure and that wanted to work with you for the long haul. The distributor also needs to ensure that new product lines it takes on do not overlap with existing product ranges.
The other key element of the relationship – and one that’s easily overlooked – is the importance of getting feedback from the market and from customers to drive new product development. That can be easily lost when you’re not in direct contact with the market and customers yourselves – so it’s vital that the distributor sees that as an integral element of the relationship.”
There are a 6 key points worth following when looking for and choosing the right distributor.
1. List potential distributors that deal with products in your industry. Ask for referrals from other business owners, attend trade shows, review listings in trade publications, ask buyers about their preferred distributors or search on distributor association sites.
2. Contact the distributors to see if they are interested in your product. Prepare information about your marketing, current sales and market research that demonstrates a demand for your product. Show well thought-out plans, strong focus and realistic expectations. Make your product more appealing by showing how it is different from competitors. Ask for information and statistics from the distributor showing sales, growth, marketing, diversity of products offered and knowledge of your specific industry. Consider the company’s reach in terms of geography.
3. Physically go and meet the potential distributors. The next step is to schedule face-to-face meetings with them. Actually, go and see them, not via videoconferencing. You will pick up a phenomenal amount of information about them by actually being there. See how they are handling other suppliers. How does their logistics work? Their warehouse function, their customer service. How are products delivered from their stores to the client? What does their invoicing look like? Do their core values match yours?
They should be prepared to present to you their proposal on how they can make your product a success.
4. Be very aware of how the relationship feels. Any agreement entered into with a distributor marks the start of a long relationship. So, ask yourself the question, can I work with them in the long term? You have to look upon a distributor as a partner and an extension of your team. If you don’t have a distributor who’s happy to communicate back to you, that’s likely to be problematic. There needs to be trust and respect. A good working relationship benefits both parties because the distributor will also be getting their own revenue from your product.
5. Get the distributor to show evidence of their track record with products and companies similar to yours. While a professional, motivated and engaged distributor is advantageous, the decision to move forward with them should rest on what they can actually deliver. The only way to know this is by looking closely at their results. If your product is something very innovative, it’s important to check that the distributor has experience in launching disruptive state-of-the art products.
6. How to tell you’ve found ‘the one’? Once you’ve found a distributor that meets the outlined criteria, the next step is to put together a comprehensive agreement. The agreement should lay out the precise expectations your company and the distributor have of each other so there are no surprises along the way. Those expectations should range from sales expectations (monthly, quarterly and annually), the level of financial input the distributor will be making, and how both companies will communicate with each other.
Once the agreement has been confirmed and both parties are happy, the ideal scenario is to let the distributor get on with it and not micro manage them. But don’t forget you do need a way to track their progress and make sure they are delivering the expected results.