What is a distributor?
A distributor purchases goods
from a manufacturer and
distributes them on their
behalf. They act as an
extension to the company’s
salesforce. They are
wholesalers who trade goods
for profit, like the early merchant traders.
They are used in different industries and sectors in
different ways appropriate to the sector requirements
and characteristics.
They form part of a supply chain which usually includes
a manufacturer and often dealers and retailers. The
basic supply chain structure has many variants. Let’s
have a look at some definitions.
Manufacturers produce products
Distributors move the product from manufacturer to
market.
Dealers or retailers usually purchase the product from
the wholesale distributor and sell to end users.
Types of distributors
There are several types of distributors –wholesale and
retail. There are also manufacturers’ sales offices,
agents, commission agents and brokers.
A distributor takes title and legal ownership of the
products, whereas a broker facilitates the transfer of
products without necessarily handling them or owning
them
Wholesale distributors buy product from the
manufacturer and offer them to resellers, but not to the
end user or consumers. They are a business to
business, or B2B, operation
Retail distributors sell directly to end users, or business
to consumer, or B2C
Similarities to franchising
There are some similarities to franchising, in that the
relationship is contractual, and the distributor is usually
allowed to use the brand, but not pass themselves off
as the manufacturer. Distributors and dealers usually
have the right to use the manufacturer’s trademarks
and logos.
There is usually a clearly defined territory and an
agreed strategy, objectives and specification, governed
by a contract. Powerful trading partnerships can be
developed.
But distributors don’t pay up front fees for the right to
sell goods. They purchase the goods on their own
account and then distribute them. The distributor or
dealer usually has their own established market and
reputation, and may carry several competing brands.
Why do manufacturers use
distributors?
Basically so that they can concentrate on their core
business of manufacturing without the cost and
distraction of managing a sales force.
The manufacturer may be involved in marketing
programmes, incentives for distributors and dealers,
discounts for the consumer, and if appropriate by
providing technical training programs for distributor and
dealer staff.
Although distributors might undertake simple repairs,
difficult technical problems will probably be referred to
the manufacturer. So distributors are an efficient
means of selling car parts to garages, or electronic
components to electronic companies. They ae not so
effective for selling complex industrial products or IT
equipment.
Share the financial load
For the manufacturer, capital is required to purchase
components, manufacture products and hold inventory.
Distributors purchase goods on their own account,
freeing up the producer’s working capital for new
production.
Import distributors.
A manufacturer may engage a distributor to cover a
territory for them. For example a company
manufacturing products in China will probably have
several distributors in the USA, one in the UK, another
in Germany, and so on. They are often known as import
distributors.
This means that the manufacturer can concentrate on
manufacturing rather than on selling their goods in new
territories, thus avoiding the risks incurred by entering
new markets, with the associated costs and investment
of time.
The distributor may carry several ranges which he
promotes to his network of retail buyers, showing them
the ranges, introducing them to the manufacturer,
acting as their point of contact in the relationship with
the manufacturer.
In turn the buyers may purchase directly from the
manufacturer, but will depend on the distributor to
manage the relationship, and deal with any issues. The
distributor will earn a commission on any business
transacted. Or the buyer may purchase from the
distributor in their home country.
This allows them to purchase directly where they want
to buy large volumes because they are sure of the
demand, or to mitigate the risk by buying from
domestic stock, or indirectly. The risk of purchasing
and importing the stock then lies with the distributor.
The buyer will pay a higher price for stock bought
domestically, rather than as a direct purchase from the
manufacturer.
A distributor purchases goods
from a manufacturer and
distributes them on their
behalf. They act as an
extension to the company’s
salesforce. They are
wholesalers who trade goods
for profit, like the early merchant traders.
They are used in different industries and sectors in
different ways appropriate to the sector requirements
and characteristics.
They form part of a supply chain which usually includes
a manufacturer and often dealers and retailers. The
basic supply chain structure has many variants. Let’s
have a look at some definitions.
Manufacturers produce products
Distributors move the product from manufacturer to
market.
Dealers or retailers usually purchase the product from
the wholesale distributor and sell to end users.
Types of distributors
There are several types of distributors –wholesale and
retail. There are also manufacturers’ sales offices,
agents, commission agents and brokers.
A distributor takes title and legal ownership of the
products, whereas a broker facilitates the transfer of
products without necessarily handling them or owning
them
Wholesale distributors buy product from the
manufacturer and offer them to resellers, but not to the
end user or consumers. They are a business to
business, or B2B, operation
Retail distributors sell directly to end users, or business
to consumer, or B2C
Similarities to franchising
There are some similarities to franchising, in that the
relationship is contractual, and the distributor is usually
allowed to use the brand, but not pass themselves off
as the manufacturer. Distributors and dealers usually
have the right to use the manufacturer’s trademarks
and logos.
There is usually a clearly defined territory and an
agreed strategy, objectives and specification, governed
by a contract. Powerful trading partnerships can be
developed.
But distributors don’t pay up front fees for the right to
sell goods. They purchase the goods on their own
account and then distribute them. The distributor or
dealer usually has their own established market and
reputation, and may carry several competing brands.
Why do manufacturers use
distributors?
Basically so that they can concentrate on their core
business of manufacturing without the cost and
distraction of managing a sales force.
The manufacturer may be involved in marketing
programmes, incentives for distributors and dealers,
discounts for the consumer, and if appropriate by
providing technical training programs for distributor and
dealer staff.
Although distributors might undertake simple repairs,
difficult technical problems will probably be referred to
the manufacturer. So distributors are an efficient
means of selling car parts to garages, or electronic
components to electronic companies. They ae not so
effective for selling complex industrial products or IT
equipment.
Share the financial load
For the manufacturer, capital is required to purchase
components, manufacture products and hold inventory.
Distributors purchase goods on their own account,
freeing up the producer’s working capital for new
production.
Import distributors.
A manufacturer may engage a distributor to cover a
territory for them. For example a company
manufacturing products in China will probably have
several distributors in the USA, one in the UK, another
in Germany, and so on. They are often known as import
distributors.
This means that the manufacturer can concentrate on
manufacturing rather than on selling their goods in new
territories, thus avoiding the risks incurred by entering
new markets, with the associated costs and investment
of time.
The distributor may carry several ranges which he
promotes to his network of retail buyers, showing them
the ranges, introducing them to the manufacturer,
acting as their point of contact in the relationship with
the manufacturer.
In turn the buyers may purchase directly from the
manufacturer, but will depend on the distributor to
manage the relationship, and deal with any issues. The
distributor will earn a commission on any business
transacted. Or the buyer may purchase from the
distributor in their home country.
This allows them to purchase directly where they want
to buy large volumes because they are sure of the
demand, or to mitigate the risk by buying from
domestic stock, or indirectly. The risk of purchasing
and importing the stock then lies with the distributor.
The buyer will pay a higher price for stock bought
domestically, rather than as a direct purchase from the
manufacturer.
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