Any entrepreneur or manager who has export experience knows that the most important factor in succeeding in a foreign market is finding the right distributor, or importer, or sales agents.
A company can offer even the best product in terms of quality and price, but if it fails to have the right sales channels, sales will not take off. Conversely, a company that has a medium product (not the best), and a strong presence on the sales channels will still be successful on the market.
The choice of the distributor is a crucial factor in having success in a new market.
Let’s see 5 criteria to consider when selecting a new distributor:
Understand where you want to sell your products/services
You have to understand what distribution channels are the most suitable to sell your products. Most of the distributors are specialized only in some of them, so not all the distributors are the best for you.
Let’s take an example: a wine producer.
Wine can be sold in several channels, very different from each other like:
- HoReCa (bars, restaurants, and hotels)
- GDO (supermarkets)
- Small specialized shops (wine shops)
- eCommerce (online wine stores)
A winery with a limited annual production that sells high-priced wine should prefer to sell wine in specialized wine shops or high-end restaurants. The most suitable distributor is one specialized in selling expensive wines that work with wine shops and restaurants.
In this case, a distributor specialized in selling wines in supermarkets would not be the best choice for such a winery, even if it is experienced and well established.
This aspect is very important, because since it is not easy to find a distributor in some countries, sometimes companies tend to select the one who came forward first. Sometimes, however, it is not the most suitable, and in some cases, it is good to say no even if it means losing sales in the short term.
Distributors often cover a specific territory, it can be a city, a region, an entire state, or even several states.
It is necessary to carefully evaluate what is the effective coverage of the local distributor.
In the negotiation phase, it is good to ask the distributor for this type of data. Many distributors that claim to cover the whole national territory actually cover the main cities. This is normal in some countries where the population is highly urbanized and concentrated in a few cities. However, it is good to make sure that there are not too large gaps in the coverage.
It is not a problem to do business with distributors that do not cover an entire territory, however, it is necessary to be careful to grant exclusivity to distributors that do not have good coverage of an area.
Experience in the sector, contacts, and customers
This is the first thing that is asked to a distributor.
It is advisable to ask the distributor for data demonstrating his experience and contacts in the sector.
However, the recommendation is to do independent research on your own and not rely solely on the distributor candidate’s statements. You should look for:
- Online presence (check the social channels, look for him on Google by searching in its local language and using keywords, etc)
- Take data from online databases (in many countries the annual report is public even for small companies, you can download it from official government websites)
- Check its presence in local shops (if a distributor claim that is selling in an area, simulate to be a customer and contact some local shops and ask if you can buy products that are supposed to be imported from that distributor)
Yes, it is a kind of detective work, but it is necessary especially if you are going to sign an important agreement.
Distributor’s interest in selling your product
In this aspect, we must be very careful. It is not enough to have the right distributor, but also it has to be motivated to sell your products.
We will write a dedicated article on this in the future, but I would like to make a couple of important considerations.
The more the distributor earns, the more interested it is in selling. So be careful when setting prices during negotiations. Maxing out the transfer price in some circumstances could be counterproductive because if the distributor is dissatisfied, it could be unwilling to sell your products especially if it has similar competitor products in its portfolio.
Another consideration concerns the products that the distributor already has in its portfolio. It is not always a good aspect when a distributor has too many similar products in its portfolio.
Some distributors are interested in having as many brands of a product category as possible to avoid being taken over by the competition.
Another important aspect to consider is the resources of the distributor: warehouse, bank support, human resources, etc
For example, does the distributor have a warehouse large enough to stock the products? This is particularly important if the distributor is on another continent where the transport times are longer than 2-3 weeks and the ships do not depart very frequently.
The distributor’s human resources are also to be evaluated carefully. Does it have experienced marketing staff? Does it have enough technical staff to handle repairs on-site or provide prompt assistance?
Role of the distributor
What do you expect from the distributor?
Is its role solely to sell, or do you expect it to promote the growth of your brand in the new market?
It is an important difference and companies with a well-known brand are aware of it. In fact, in signing a contract with the distributors they define clearly all the aspects related to marketing activities.
However, even smaller companies must keep these aspects in mind, especially if their brand has been seen to have a certain influence on local consumers. Because there is the potential to do so it also abroad.
If you want the distributor to invest in building your brand, you need to clearly define the marketing tasks and expectations of the distributor. For example, you should define who has to manage the local site, how the marketing costs are allocated, how many trade fairs the distributor have to attend, etc
These are just 5 criteria to consider when choosing a distributor, there are many others and we will talk about them later in other articles.
A suggestion that I would like to give is to be very clear during the negotiation about expectations by both the manufacturer and the distributor.
Even when you post a business ad on Globartis. Make it clear in the ad those aspects you are looking for from the distributor, and vice versa.