Distributors and Resellers – Choosing the Best Fit!
As a product supplier, you may be a manufacturer or a wholesaler, but if you don’t have the skills to get your products in front of end-users, you are going to need intermediaries. Engaging third parties to sell your products can improve your visibility in the market place, drive additional sales and increase turnover.
Whether you are looking to expand into international markets, or keeping things local, focusing on the needs of the end-user will guide your decision as to whether engaging a distributor or a reseller, or both, is the best strategy for your business.
A distribution channel is a series of distributors and resellers all moving product along the path to the end user.
The role of a distributor generally involves the storage and purchasing of product from the manufacturer or supplier. Product is then on-sold to other wholesalers or resellers. Usually, the distributor’s scope is narrower than that of a reseller, as they will specialise in a particular industry or market.
Sometimes described as a wholesaler, a distributor is similar to that of an agent who creates a relationship between the manufacturer and resellers (sometimes known as a retailer) in the distribution channel.
The relationship between the manufacturer and the distributor is often one of exclusivity, meaning no other organisation is authorised to market or sell the product within a certain territory or industry. Consequently retailers and or resellers can only source the product from the distributor.
Unlike resellers, Distributors will often need to reach and maintain certain sales or order targets in order to retain their distributor status.
Distributors can also provide additional after-sales services such as warranty servicing and repairs, as well as marketing or branding services.
Depending upon the arrangements the distributor has with its retail network it may or may not sell directly to the end user.
Similar to distributors, resellers may purchase from the manufacturer directly or through a distributor at ‘wholesale’ prices and on sell to the consumer at a higher ‘retail price’.
Resellers find buyers for your product, either at a wholesale level or to the end-user or consumer. Resellers create value by leveraging sales channels and effectively act as a ‘middle-man’, handling the sales, marketing and supporting the product in the marketplace.
The reseller trades the product on behalf of the manufacturer or the distributor, meaning it is quite common to engage more than one reseller. If you consider major brands like Target, Harvey Norman and Bunnings they are operating in the market as resellers.
The term reseller is quite broad and is sometimes used to mean someone anywhere in the supply chain either at a wholesale or retail level.
So which one is right for my business?
Basically, it comes down to your business strategy as to which relationship is better suited.
A distributor is usually better suited to a business that has no representation in a particular territory where the product supplier requires additional after-sales services or seeks greater control over the marketing of the product.
Resellers on the other hand are appropriate for a business that seeks a partnership with an established company or wishes to sell to different global markets concurrently. However, a reseller arrangement generally has greater risks than that of a distributor, but the profit margin may be greater due to the lack of exclusivity and the ability to engage several resellers at once.
Whether you engage with a distributor or reseller, it is important to consider the responsibilities of each party and adequately document them in a formal agreement.
By Ian MacLeod