Distribution Agreements – What Are You Looking For?

You may have found a product you’d like to distribute into your market on behalf of its principal (manufacturer or developer). Indeed, you may have developed your own product for which you now need a distributor in new markets. Consider these points when setting out to secure distribution agreements.

1. Density of end-users

The higher the density of end-users, the more distributors you may need (or a small number of distributors, each with a significant sales team). The lower the density, the greater the area your partner may need to have “allocated” to him. But be very careful : geographic exclusivity is not permitted within the EU.

2. Length of purchase decision-making process

The longer the decision-making process, the more time consuming this may be for your distribution partners. If final purchasing is done online or via retail, then your partner can cover a larger area.

Distribution agreements
Distribution partnerships

3. B2B v B2C

Distribution of products direct to consumers is clearly much more time and energy consuming than through a channel. Selling B2B requires fewer accounts, with larger volumes per account.

4. Volume v margin

Too often, principals try to get away without rewarding their distributors sufficiently well. If your product is high-volume, then partner margins can be lower. Margins for lower volume sales, however, need to be higher.

5. Intra-distribution partner competition

If a principal is serious about supporting his distribution partners, then he will not undersell them. Nor will he try to bypass his “geographic” partner in order to sell direct to a large account in that partner’s area. It’s about respect.

6. Promotional support

I like to see principals who are dedicated to supporting their distribution partners, through pro-active marketing (often co-branded). On the flip side, I also like to see a distributor who does not demand that all marketing costs be borne by the principal. Willingness to spend + Willingness to share = Potential to succeed.

Here are some critical subjects about which a potential distribution partner needs to convince a principal :

  • product and market knowledge
  • visibility and being known in the marketplace
  • commitment
  • finances, ability to pay and handle cash flow
  • customer list
  • that he will not “bury” the product *
  • ability to promote
  • ambitious (but realistic) targets
  • branding
  • team – especially sales!
  • most importantly, trust

* Sometimes, a distributor will seek to take on a product from a principal, simply in order to bury it, i.e. stop or stall its entry onto and impact upon the market. Trust me, this happens.

Among micro- and small enterprise in Ireland, distribution is one of the Four Ps of the Marketing Mix that often gets ignored. As the old adage goes, you should seek to have others “selling your product while you sleep”.

Distribution Agreements – Resources

Read this Enterprise Ireland article on market entry and distribution.

Read this NI Business Info article on agents and distributors.

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