Pros & Cons of Working with an Exclusive Distributor in Export markets

If you’ve decided that a distributor is the best option for your company to expand into overseas markets, then you need to consider whether you want to be working with an exclusive distributor or not.

Usually, for most small and medium companies a distributor is the most cost effective and beneficial option, but you have to clarify the question of whether they will have formal (or even informal but de facto) exclusivity or not.

Let’s look at the pros and cons of an exclusive distributor.

Pros:

Quality Over Quantity

Being exclusive usually means that a distributor is prepared to focus more on your brand and products. The relationship that you develop with them will be deeper (you’re not spreading your time and energy across multiple partners) meaning they’ll get to know your brand more deeply, in turn helping them achieve listings & collaborations that align with your brand and values.

Managing multiple distribution partners in a market is tricky to do well without them seeing one another as competitors and cannibalising your sales instead of focusing on doing better than the competition.

It means that you don’t have to repeat yourself several times in your discussions about the market and meetings can be more streamlined and therefore cost-effective.

Expert Guidance

If you are working with the right partner for your brand, they can guide you towards opportunities you might not even be aware of. Their expertise in the market will help you leverage your product and brand knowledge to grow sales. In the end, you have to be sure that you are building a solid foundation in the market as you don’t want to just be a “flash in the pan” who sells today and withdraws from the jurisdiction tomorrow.

It can also be better in countries where your product has to be registered for you to have one official importer who takes care of such procedures. Especially with complex products this can be a great advantage.

Leverage Relationships

Working with an experienced and well-regarded distributor means that you can tap into their circle of connections, built up over the years. It can be really tough working out who are really the decision makers in your chosen distribution channels so having someone on the ground who already has those relationships can both speed things up as well as increasing your chances of success.

Negotiation Skills

Working with an exclusive partner in the marketplace means that the buyers are not tempted to play one distributor off against the other to see who will offer them the best conditions. ?Of course, a distributor is also invested in getting the best deal as their margin represents a percentage of the sales generated, so the better the conditions which are achieved for the selling side on your brand, the higher the total a distributor can expect to earn.

Timesaving

You can focus on what you do best – providing an amazing quality product and brand – while they handle the logistics, contracts, day to day retail management, bureaucracy, and most importantly getting paid by the retail clients. ?

This isn’t the only way that you save time though by having a single distribution partner. Think about all the back office administrative tasks & also front facing work that are involved in “running a distributor”:

• Ensuring the account is kept up to date in the CRM system.
• Visiting the partners (& writing the minutes of meeting)
• Budgeting and planning
• Negotiating contracts
• Training and coaching their teams.

Don’t forget either that if you have more than one distributor in a market, chances are that at some point, you’ll have to invest time and energy to mediate in some kind of conflict between the two (or more) of them. Not always, but this is mostly the case. For example, if you have 2 partners divided geographically, which of them manages national accounts or online platforms?

Credibility

Being represented by a reputable distribution partner adds a layer of credibility and can help you progress faster with your sales.? Although it does need to be the right partner of course, not all distributors are created equal.

If you are working with more than one distributor, you additionally have to consider how to ensure they are accepted as the “official” partner for their region or sales channel.

Readiness to Invest in Marketing

If a distributor has the certainty that an exclusive contract brings, then they are more likely to be not only more invested in your brand, but also more likely to be prepared to invest in marketing.

If you divide for example Vietnam into a “north” & “south” region, chances are that neither partner will be willing to invest that much into marketing which may bring his rivals for your attention some benefit.

Managing Pricing

If you work exclusively with your partner in the country then you can agree with him or her a unified pricing policy. This doesn’t mean in any way that you are dictating prices to the market, but simply that you can more easily have a cohesive strategy without several partners trying to undercut one another or compete on conditions.

You can focus on gaining ground against the competition rather than “internal cannibalism”.

Cons:

Limited Control

You’re essentially putting all your eggs in one basket. If the relationship sours or the distributor doesn’t perform to your expectation, it can be a setback that costs you months of sales. This is the main risk of working exclusively with one partner in a market.

Do they really have the coverage?

This can be an issue especially in larger markets such as Brazil, the USA or China where working with an exclusive distributor may not make sense. Does any single company really have the connections to work equally successfully across the whole country?

In such huge countries it may be interesting to divide the country into regions by geography or by sales channel. The other option is to ensure that your exclusive partner has a strong network of sub-distributors (however that means checking whether the product calculation allows for an additional stakeholder who needs a margin).

Margins

Exclusive distributors take a slice of all the pie, so if you go exclusive they will expect any business that you previously handled directly to be passed to them.?

This of course is manageable – you can agree on a number of possible solutions. For example to continue with some direct shipments if there is a reason to justify this eg if you have a regional listing agreement with a key account, the conditions may be fixed already. In this case you may have to consider allowing your new exclusive partner to handle the local logistics and physical distribution, even if the margins are considerably lower for them than they would otherwise receive.

If the customer you are delivering directly is rather small (after all you are appointing an exclusive distributor either to broaden your distribution or increase sales) you might agree to hand deliveries over to the exclusive partner, perhaps after an agreed handover period.

You could also just agree with the partner that you will continue to deliver to the client (or stop working with them entirely) but neither of these options are usually that great.

Strong distributors may not be willing to collaborate with you

If a distributor has a strong portfolio of brands they may not be willing to accept to distribute your products on a non-exclusive basis, so you may have to decide which is most important to you.

Beware of Trophy Hunters!

Make sure that if you give a company exclusivity that they will actually focus on your brand. You don’t want to be just another logo on the wall of the meeting room and website!

There are also distributors who will try to get the rights to your products so that they can effectively block you from progressing on the market, so make sure you look at the portfolio of any partner to check for competitive brands.

Brand Alignment

Your exclusive distributor is your extended sales team in a market so you need to make sure you are entrusting your company reputation to a partner who will treat it with the respect it deserves.

Getting into “reputational hot water” in a market can put your brand back by years.

Some final thoughts for today

Most distributors will push for a long term exclusive agreement, however you shouldn’t sign one of those unless you have a proven track record of success with that particular partner or you are convinced that this really is the right partner.

Remember that times, markets and companies change. Your ideal partner 5 years ago might not be suited to growing your business in the next decade so you don’t want to be tied into a long term exclusive agreement with the wrong company…

Most importantly, discuss what working exclusively will be like.? When it works it’s a wonderful partnership, but when it doesn’t it’s usually because a detailed discussion about expectations, metrics and values wasn’t had at the start of your collaboration.

There will be a part 2 to this article as otherwise it would get too long ...

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