2 Minute Read.
How do you go about deciding on an appropriate distribution model?
Clearly there are a number of traditional options, including:
- Selling direct from your home country
- Selling direct, but through overseas branch or subsidiaries
- Working with Agents and/or Distributors
- Forming a Joint Venture
- Working with specialist organizations e.g: Export Merchant/Agent/Broker, Commission Houses, Export Management or Trading Houses.
The options are many. There is no one perfect fit for all, with variations for different markets, and with some options that can work in parallel.
Faced with such an array, research and consider the fundamentals against each option
– Customer Preferences, Cost, Control, and Risk.
Research … research … and research again! Talk to exporters who are further down the path, and consult with support agencies including your Government export trade & promotion agencies.
Draw up and complete a matrix, including these topics.
- Will your target customers be comfortable with sourcing your product direct from you, or is their preference to source locally – whether through an agent or distributor, or through your own local set up (subsidiary, branch, sales office etc)?
- Will the sales process be more effective if channelled/fronted through a local party?
- What are your competitors up to? What distribution channels are used for competitor products?
- Is your product suitable for on-line e-commerce?
- Will short delivery times be a key factor for target customers, requiring local stock?
- What are likely to be the investment costs in setting up and running your own overseas operations, and can you afford it at this stage in company development? Are your dollars better spent elsewhere?
- What will be Agent commissions and Distributor discounted buy pricing?
- Can your product stand shared margins, and what will you make enough to cover your time, know-how and risk?
- What impact will the distribution option have on how your product is marketed, sold, and after sales service?
- How much say will partners or intermediaries have on the business?
- What impact will the distribution option have on your hard fought brand integrity?
- Will you face possible payment delays or default, particularly if dealing through an agency model where you carry the payment risk when dealing with a number of ‘end’ buyers
- How will your cash flow be effected?
- Will you face the vagaries of exchange risk?
- What contractual T’s & C’s will apply?
- What will be the critical path to market and likely timeframe for initial sales for the varying distribution options?
- Have you explored target market regulations and their impact on the distribution options available?
- If all turns to custard, what are the relative pains of exiting the differing distribution options?
OK, you’ve now done your due diligence; weighed up your options, and decided on your preferred model.
If the model requires an overseas agent, distributor or some other form of ‘local partner’, then draw up your preferred profile of ‘Must Haves’ (key competencies/track record, etc), and ‘Nice to Haves’.
- pull out the research hat again; talk with Government support agencies
- embark on secondary market research to identify possible distribution parties.
- develop a filtering process to sort out the rabble
- embark on primary research and target a shortlist of 3 or 4 candidates
- prepare a checklist for discussion
- do not commit at the first meeting, and be very wary of exclusivity
- seek professional advice on how best to conclude a robust deal underpinned with a solid commercial agreement (e.g “An Hour with Neil” per the Services Page on this website)
I hope the above comments are useful guidelines and draw your attention to further blogs in this series:
- In part 2 of this 3 blog series I discuss the key differences between agents and distributors, the advantages and disadvantages.
- In part 3, I discuss how to structure a robust Commercial Agreement with an agent or distributor, and I will also provide tips on how to manage the relationship for the classic "win-win".
I would be interested to hear your views and experiences for sharing with readers. Please comment below.
P.S You may be interested to receive a complimentary eBook “Sales and Marketing Essentials for SME businesses seeking to grow at home or in Export Markets”