An easy guide to creating your international distribution plan
Your distribution system can make or break an exporting venture. A good distributor aligned with your business can help you increase sales, efficiently manage inventory and open doors to new customers.
They can also provide other services such as installation and repair, give customer feedback and be a valuable partner in a wider international distribution plan.
It’s common, however, for exporters to have difficulty identifying the proper distributor aligned with their business goals. The result can be underachieving sales and market share targets due to clashes over issues such as promotion, inventory management and customer service.
“Distributors really add a lot of value when they are the right fit for your business and you set clear expectations up front,” says Sandra Coffey, an executive advisor with BDC’s Advisory Services who specializes in strategic planning. “They can make or break your entry into a market. They’re an important partner in your value chain.”
She adds that it’s important to understand the pros and cons of working with a distributor versus going direct-to-market yourself.
Pros and cons of selling through distributors
Selling through distributors is often best for novice exporters. You can take advantage of the intermediary’s established networks and knowledge of the target market. You don’t need to invest in your own infrastructure. Distributors may also offer additional services such as installation and returns.
The downsides of working with a distributor are that you must share some of the margin and that you give up some control over distribution and branding. Also, distributors may potentially be selling your competitors’ products unless you have a strong brand and can demand exclusivity.
Pros and cons of selling direct
Selling online now allows even smaller businesses to go direct to desirable export markets. However, having a strong logistics process—transportation, warehousing and shipping—is paramount to success.
Selling directly in a more traditional manner by establishing your own facilities in a foreign country requires resources and time to build your own infrastructure and ramp up sales. “If you don’t know the local norms, language and culture, it can take a long time to set up distribution on your own,” Coffey says.
Consider a multi-channel approach
Many companies adopt a multi-channel strategy that blends direct and indirect sales. This can take many forms.
As an example, Coffey says some clothing manufacturers use a three-pronged approach selling through:
- their own retail stores in larger markets, where they offer a special brand experience and showcase premium products
- other generalist retailers for their mid-range products
- wholesale outlets for discontinued items
Similarly, manufacturers can also sell through multiple channels depending on the strength of their brand and the quality of the distributors in the country state or province. “Each channel has a different approach, goals and margins,” Coffey says. “They’re making sure their brand is out there—everywhere—and that they maximize revenues.”
Three tips for a successful collaboration with a distributor
1. Find the distributor that fits with your industry and business goals
It’s important to find a distributor with a proven track record that knows your products and matches your business goals and customer segments. Look for:
- their knowledge of your industry
- their record on sales, customer service and inventory management and overall business reputation
- the territory they cover
- other products they sell and install, including ones similar to yours
- any additional services you need, such as customs clearance, delivery, installation, repairs, returns and marketing
“Scrutinize potential distributors to make sure they have a good reputation on what’s important for you and can provide the services you need,” Coffey says. “For example, there’s no point having a software distributor who can’t integrate your product with clients’ current systems, or doesn’t do it on time and on budget.”
She suggests several possible questions that need to be answered.
- Is their core business in your industry or a related one?
- Do they have good customer reviews?
- What other brands do they work with generally and in your industry?
- Can they meet your sales targets? What is their sales process?
- Will they buy your products for resale or sell them on consignment?
- Is their warehouse suited to your products?
- What’s their record for lost or damaged warehouse items?
- Are they equipped to manage returns?
- Can they offer other services like installation or after sales support
You need to do a formal due diligence exercise on potential distributors by doing a thorough credit search and speaking with business contacts, Canadian federal and provincial trade agencies, industry and trade associations, and bilateral chambers of commerce and business councils.
2. Foster a win-win partnership
It’s important to start with a clear agreement spelling out the responsibilities of both parties, including how the distributor will report on sales of your product and the quality of the related services delivered. You need to establish the formal communication channels with your distributor in advance.
“You need constant dialogue and transparency to develop a good collaboration and a win-win partnership,” Coffey says. “Set expectations and define your sales and other objectives at the start. Make sure you have checks and balances. Touch base frequently through regular reporting and quality audits of services like installation and repairs.”
The relationship can go off the rails if the distributor earns less from your product than comparable ones, or if your product has a lower inventory turnover.
“The distributor is going to promote the product where they get the most margin,” Coffey says. “Some entrepreneurs have a lot of mistrust toward distributors. They say the distributor takes a cut and isn’t really doing anything. I ask them, ‘Did you define your objectives at the beginning? Are you paying them fairly? And are you supporting them adequately through your own efforts to promote your brand in their location?’”
Another common source of friction is when an exporter sells its product online as well as through distributors. One solution, she suggests, is to award any direct sales to the distributor whose territory the order came from. The distributor then gets a cut of the revenue and benefits from offering installation, repairs and other services.
“This way all boats will rise,” she says. “It will lift sales overall if you’re easier to find and buy from.” Coffey says.
3. Promote your products
A distribution deal or channel doesn’t guarantee sales. You also need to develop a solid marketing campaign, especially in a new market abroad. “The lack of brand and marketing support is a common problem,” Coffey says. “Just signing up with a distributor doesn’t mean the product will fly off the shelves.”
Some distributors offer marketing support as part of their services. But even then, you should work with them to craft your message. “You have to educate customers about your product and create pull for distribution to succeed.”