The second in my series of blogs on market entry covers the choice of an agent or a distributor.
Agents are generally based in the export market and often represent several complementary product or service lines. They may operate on an exclusive basis, as the sole agent for a company’s goods or services in a specific export market, or as one of a number of agents for the exporter in that market –that is, on a non-exclusive basis.
There are many advantages in doing business through an agent. Here are some of them:
• You have control over branding, marketing and pricing.
• Commission only-based agent agreements can be a good incentive for higher sales volumes for your products.
• Agents tend to have smaller product ranges than distributors, which means that they can provide more focus on your products.
Working through an agent can also have disadvantages:
• A sales agent may have fewer resources than a distributor.
• Working on a commission basis can mean that the agent is less committed to your success.
• Significant overseas marketing and management support is required for a successful agent/client relationship. More effort is required from your business, such as fulfilling orders directly to customers and obtaining payment.
• Close attention is required to monitor the effectiveness of the agent.
• A poor agent can not only ruin your opportunities in the market but also undermine your marketing efforts and reputation.
• Working through agents (as opposed to distributors) provides less protection from risk of non-payment, currency fluctuations, product rejections, warranty claims, etc.
• You risk losing market share if your agent is poached by a competitor.
Distributors may carry complementary and competing lines and usually offer after-sales service.
Distributors are paid fees by adding a margin to products, and their fees are higher than those of agents because they usually carry inventory, extend credit for customers, and are responsible for marketing.
Because a distributor has more responsibilities in selling your product in market than an agent, they require a higher margin. This may impact on how you price your product; you will probably need to absorb the distributor margin otherwise your pricing to the end customer will be too high. Some exporters find that they are unable to use a distributor as their profit margin is too small to provide enough margin for the distributor and a competitive price for end users.
• The exporter has one large customer who supplies many smaller end customers in the market.
• The exporter maintains some control over distribution.
• The distributor provides back-up service to clients.
• The distributor holds stock in the market to reduce order lead time for customers.
• The distributor helps pay for and undertake marketing and promotion of your product in the market.
• The distributor develops a customer base for your product.
• The distributor handles more of the in-market work, saving you both time and costs.
• In-market risks are largely carried by the distributor.
• The distributor may provide warranty and product services.
• You have no control over the selling process.
• The costs of selling through a distributor can force the product out of market competition: for example, a distributor may add up to a 50 per cent mark-up, or more, on your product before it reaches a retailer.
• The distributor and sales staff will be less knowledgeable about your products than your own people.
• You can become removed from the market and not have firsthand knowledge of conditions.
• You may not know who your customers are.
• Because a distributor shares responsibility for marketing and promotion, you may not retain total control over the branding of your product.
• If the distributor is a wholesaler rather than a specialised master distributor, they may not sell as effectively as other wholesalers.
• The distributor may not have the sales force for new product introductions in larger markets.
• The distributor may represent multiple products, so attention and time may be divided away from your product.
• Sales-rights to your product are a valuable ‘right’ and should not be surrendered without a full analysis of the available options.
• Your distributor may be difficult to ‘disengage’ if you are unhappy with their service.