Marketing is not just advertisements.
Sometimes, before that, comes the decision on how to physically place a product in a given market. Do we open a new office and hire employees to do the job, or do we assign the job to a collaborating firm? The latter will be our focus here, whereas the former will be discussed in the next issue.
A local distributor is an independent company that is ideally well versed in the business of selling products similar to ours, and hopefully enjoys a good share of the market’s trust and current business. Such distributors are in high demand, but they do not come without their own shortcomings.
Finding a distributor is not difficult. In fact, local distributors abound in any market, and they actively seek exclusivity agreements. One needs only to have a booth at a major exposition to be swarmed by myriad such requests.
Here, we will examine the pros and cons of giving out our product(s) to a local distributor. We shall start with the positives.
The benefits of using a local distributor
Low investment level, at least in terms of capital because some labor will always be involved in educating and supporting the distributor and the end users. But it is less costly to use the existing resources of an established supplier compared with starting from scratch. To these expenses, one should not ignore the market research budget required to establish the location and find the right people even before normal expenses begin to accrue. So, using a local distributor is a low-cost entry.
Rapidity of market penetration, assuming the market is already knowledgeable of the product’s merits. A local distributor will have an already existing clientele to offer a new product if such product is based on existing technology the market is using. For example, a new phytase enzyme will be easier and faster introduced to a new market, compared with a lipase enzyme, if only because almost everyone has at least heard about phytase. With such products, one has only to make sure the selected distributor can sell added-value or low-cost products. Most often than not, it is rare to find a distributor who can do both.
Local trust remains key, at least among principled businessmen. As such, it is always easier to trust someone you have known for years as opposed to a newcomer. This becomes even more important as we focus on added-value vs. low-cost (commodity) approach, because of obvious implications.
The disadvantages of using a local distributor
They are hard to find, at least the right ones because they are always in high demand. In today’s world where everyone wants to export, expand and innovate, local distributors have a wide range of offers to represent/market various products. The right ones are always in high demand and therefore hard to secure. Offering exclusive marketing rights is a prerequisite, so the other means to lure such potential collaborators is to offer a better margin deal, but that often becomes so impossible that nears the cost (and risk) of going back to Option 1 – having your own offices and people do the job.
They market too many products, and this means our product will have to compete internally for their staff’s time and attention. Perhaps sales will spike due to initial enthusiasm in the first few months or first year, but more likely than not, our product will be eclipsed by a new product. After all, this is what modern nutrition is all about: innovation. There is a solution around this problem, but it takes mutual understanding of the problem, something that is not easily achieved.
They require high margins, if they manage to do their job properly. This is the most difficult part to overcome because we are used to enjoying our established margins and we are now asked to share them with a new entity. In small markets, the distributor’s margins are usually an add-on deal, but this is too transparent to last long in larger markets and with professional end customers. After all, we all live in the same fast-paced world where information flows easily.
Margins vs. cost
The reason I have opted to explore this option first is because it is the most common one used by international nutrition suppliers manufacturers, especially when they target smaller markets. In my experience, the above advantages weigh positively to the favor of local distributor at such level that their disadvantages are ignored.
Many international suppliers begin with local distributors only to establish a bridgehead in a local market expecting to open up their own offices if such a market develops later on. However, they forget two things: First, they have trusted the reputation of their product in the hands of someone who is not their employee and they surrendered the rights to end client “ownership.” Second, and most importantly, local distributors are fully aware about such intentions, especially if they have remained successful in their markets for long. As such, they are already prepared to counteract any threat to their own interests.
The end question on whether to use local distributors remains one of potential margins vs. cost, but such a simple yet powerful question should be examined under the dimension of time, which is almost always ignored.