Why manufacturers use distributors

There are a few choices. Another solution is for a manufacturer to create sites for distributors that are preloaded with its products.

As orders are placed on the sites, the revenue via credit card payments is received by the distributor into its merchant account. It is reasonable for manufacturers to charge the distributors a fee for the setup of the site. Manufacturers should also have very specific definitions of what this site would include.

This would encourage the distributors to use the site as their main ecommerce outlet, thus saving them the headache of setting it up themselves. How well this would work depends on the distributors and whether they are established online. Also, the distributors may require ongoing customer service training and instruction on how to use their ecommerce stores.

If many of its distributors are already selling online, a manufacturer can offer tools to make it easier to sell its products on their sites. This could include data feeds or files that enable the distributors to easily import the data.

It could also include an API that enables distributors to receive data about product availability and, also, to place an order. Before going down this path, manufacturers should survey their distributors and to learn what formats would be the most beneficial.

Manufacturers should consider standardizing the offering and have a plan for keeping it up to date. Another option is for manufacturers to create an ecommerce store and then sell products at a higher price than their distributors. This scenario provides manufacturers with higher margins. And distributors have the confidence that they can retain the business because they have better pricing. In most cases, distributors actually buy the goods from the manufacturer, which frees up working capital for the manufacturer.

End-users almost always buy from several manufacturers. In addition, distributors can share credit risk. Although the manufacturer will offer credit to the distributor, this is less risky than offering credit to the hundreds of customers the distributor deals with, especially since the manufacturer will only have limited access to information about the creditworthiness of end-users. Next to credit risk, distributors also share selling risk.

The distributors have a stake in selling the products, since they have made a commitment by buying the products from the manufacturer. This means that they will be motivated to sell the products.

In the event that sales are disappointing, the loss will be shared between the manufacturer and the distributor. From a marketing perspective, one of the most important functions of distributors is that they can forecast market needs.

Distributors are clearly closer to the market and are better placed than manufacturers to forecast what their customers will need. By providing this information to the manufacturer, the latter is better able to provide superior value to consumers. Finally, distributors provide market information. They are well-placed to share information about the market, about competitive activity and so forth.

Characteristics of Services: What is a Service — And what makes it so special? Perhaps the product is not suited to this type of sales arrangement. Or maybe the company chose the wrong distributors to market the item.

Moreover, like many companies, the organization may have no one person to oversee the process of selling through distributors.

In theory, the top marketing or sales executive bears this responsibility, but in practice it tends to be fragmented and neglected. Many of the mistakes producers make in selecting and using distributors can be avoided or corrected. Companies that want to rely heavily on industrial distributors must first decide if the products are appropriate candidates for this selling approach.

If they decide in the affirmative, they must then select the best distributor candidates. Products that are suitable for independent distributors usually have the following characteristics:. A large potential customer base. A distributor is unlikely to do as good a job selling a product with appeal to only a handful of customers as the producer will do. Yet producers often allow custom-tailored products to become distributor items. The broader the customer base with standard requirements, the greater the need for a distributor network.

A stockable item. Most customer-designed parts, chemicals, or machinery are easily eliminated as possibilities for distributors. The product should be easily stocked and serviced locally, as is a catalog item that is manufactured in large quantities and sold a few at a time. Small-quantity sales.

Items sold in bulk are usually not sold through distributors. The small quantity sales rule applies especially to heavy equipment items like construction machinery and trucks. The customer buys one or a few at a time and is concerned about the subsequent availability of service and parts. Replacement parts selling for a few dollars each can be sold by distributors. Low-level customers. The lower in the organization the responsibility for buying an item, the more likely it will be sold through a distributor.

The flat organizational structure of an owner-operated business has little or no buying specialization and therefore buys often from a distributor. Some products, such as certain aircraft control mechanisms, are bought directly from the producer by high-level managers in the buying company. However, other products being sold to that same airplane builder, such as O-ring seals or fasteners, are standardized and can be sold through distributors to purchasing officials to whom off-the-shelf service is important.

During the introductory stages of most industrial products, they are specified by and sold to design engineers. The selling effort often requires engineer-to-engineer type relations. As the product becomes more widely known, the purchasing department assumes the principal buying role. Rapid delivery and service. If the product is needed immediately because of an equipment breakdown or an operating supply shortage, speedy replacement is essential.

Minutes can be a matter of life and death when a hospital operating room needs a small piece of surgical tubing or parts for a life-support machine. In all these situations, the longer the downtime, the more costly the situation and the greater the need for prompt delivery and possibly for technical service by a local distributor. If a product fails to meet any of the previous five qualifiers, it probably will not succeed as a distributor item.

Yet merely meeting them all does not guarantee success. The core business practice of a manufacturer is to make and package products. A distributor becomes the sales arm of your company for which you do not have to pay. By using distribution, you are able to reach a mass audience of retail outlets without having to invest any of your own company money into developing and maintaining that business network. One of the key functions of a distributor is to grow and administer a network of viable retail outlets.

Many distributors also offer specialized retailers that can reach a specific target audience. When you use a distributor, you are able to get your product out to a mass market to expand your customer exposure, or you can reach a specialty target audience without having to do any of the necessary market research.