The movement of goods from the manufacturer to the consumer who will use it can occur directly or with the help of resellers. Distributors are one of the types of the latter. These organizations undertake the tasks of selling products on certain conditions, which are fixed in the contract between them and the manufacturer.
Why do we need distributors
Distributors enable the manufacturing company to significantly increase the coverage of the sales market. With their help, the manufacturer can reach many more customers, therefore, increase the sales of his products. Another advantage of selling through a distributor is the separation of activities that are carried out for the purpose of selling. The intermediary takes on many tasks, the solution of which is problematic for the manufacturer. The distributor takes a certain fee for his services, which is paid in the form of a commission.
The strong point of a distributor is a good knowledge of the market. If a manufacturer plans to enter a new consumer segment or a new geographic market, it is advisable to find an intermediary for whom this market is well known.
Disadvantages of distributors
There are a number of disadvantages to using distributors. The manufacturer has limited influence over the intermediary's actions. If a company can manage its sales staff at its own discretion, in the case of a distributor, interaction takes place within the framework of a signed cooperation agreement.
By transferring part of the functions to the distributor, it is difficult for the manufacturer to control how well the intermediary performs them. Particular attention is required to issues that relate to customer service. Manufacturer's operating standards may differ from those used by the reseller.
Additional costs for distributor services must be included in the cost of products, which leads to an increase in the price for the end user. If the cost cannot be increased, you have to share your own earnings with the distributor, which significantly affects the final profit.
The profitability of cooperation with a distributor is determined by the initial goals that the manufacturer defines for himself. If the goal is to expand the market and increase the customer base, distributors will become a useful link between the manufacturer and the consumer. However, it is worthwhile to be especially careful when choosing a distributor who can maintain established standards of customer service. If the company does not plan to increase the number of new customers, but expects to increase the profitability of serving existing ones, you can reduce costs by eliminating resellers.
