Question

Topic: Strategy

European Distribution Strategy

Posted by d.mark on 10/24/2012 at 2:00 PM ET 250 Points
Hi,

we are a new manufacturing company from Europe and have started producing a product. This product has gotten a lot of media attention and is very promising to sell well.

We have to decide whether to market it ourselves in our country and the other EU countries or use a distributor who offers to do this for us. We do not have any contacts or experience in this market.

The distributor is a manufacturer (has existed for 10 years) of a very similar (same target group, but different material) product and would like to expand his product range with our products. He has contacts in all EU countries and several shops of his own.

My question is, should we go with the experienced distributor, have a smaller profit but would not have to deal with other companies and could focus on production and development. Or should we slowly start contacting retailers and wholesale customers by our own.

Thanks for any input.
D.

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RESPONSES

  • Posted by SteveByrneMarketing on 10/24/2012 at 3:19 PM Accepted
    My gut says go with the experienced distributor. But perhaps there is more to the story. Have you exhausted all options and opportunities with this distributor? Certainly they have access to data about the target audience, will they share this info with you? Have you explored a licensing arrangement with this distributor? Other creative shared revenue (or even shared ownership) opportunities? Have you worked with an outside consultant to ensure that every aspect of an agreement has been explored?

  • Posted by SteveByrneMarketing on 10/24/2012 at 3:28 PM Member
    My gut says go with the experienced distributor. But perhaps there is more to the story. Have you exhausted all options and opportunities with this distributor? Certainly they have access to data about the target audience, will they share this info with you? Have you explored a licensing arrangement with this distributor? Other creative shared revenue (or even shared ownership) opportunities? Have you worked with an outside consultant to ensure that every aspect of an agreement has been explored?

    Don't sign until you are completely confident that you have made the right deal for you.
  • Posted by SteveByrneMarketing on 10/24/2012 at 3:30 PM Member
    note to MarketingProfs staff, why is the system posting a final version while I am still editing and have not hit the "Update and Finish" button?
  • Posted by d.mark on 10/24/2012 at 4:12 PM Author
    We are currently negotiating so everything is open. I want to keep rights for our country and a neighbouring one, leaving the rest to the distributor. They are quite open regarding information and want to build a mutually working relationship. A plus for this distributor is, that they are a manufacturer and distributor of their products, they would add our products to their range. Our products are not totally mainstream, rather niche type, so it is great that they are highly specialized. Licensing arrangement - we haven't created one yet, it should designate which countries and in what manner they can sell, they should keep our brand, not sure if to incorporate minimum quantities. Shared revenue - we do not want to go this way; we will sell our products for an exclusive price. We are a start up and to not have funds for a consultant.

    I'm concerned to give exclusivity to one company. But to go with the distributor, if everything turns out ok, will give us a tremendous boost and give us space to focus on production and development, rather than employ other sales people or look for agents.

    Thanks for the link, I will take a look.
  • Posted on 10/25/2012 at 6:36 AM Accepted
    Hi Mark,

    The Business Tools Store www.businesstoolsstore.com has a checklist template where you can look at the full list of the tasks required to be done from initial market entry through the sales cycle to post sales support and decide if it is best for you or a 3rd party to do each task.

    You then have a list of the tasks you need the 3rd party to do and this is essentially a profile of the 3rd party you need.

    If you only need them to generate sales leads you probably just need sales agent. If you need the 3rd party to do most of the activities in the sales cycle you probably need a more traditional distributor who has warehousing facilities and a local dealer network, etc.

    One of the side benefits of this approach is that it also allows you to justify the revenue split. If you are doing 80% of the tasks then the other party can not expect or justify a 50% trade discount.

    I hope this helps

    Pat
  • Posted by Moriarty on 10/25/2012 at 5:27 PM Accepted
    You say that you are a new company.

    This is important, for if you can start to make a profit, you will be several steps ahead of most who start in business.

    My advice is to accept the offer you have been given. You can then invest the profits in new ventures. You will have two advantages, firstly that you have something running, secondly you will have money coming in.

    With that experience behind you - and I emphasize the word "experience" - it will give you insights into new markets and new ideas. It may even be that in the future you can look forward to a joint venture rather than merely supplying goods.

    I wish you success in your endeavours.
  • Posted on 10/26/2012 at 9:58 PM Accepted
    Seeing the comments from all the members, I say they have given you a right piece of advise. I am looking at an additional angle of the business. Your distributor itself a manufacturer of a similar product. Yours is a niche product. You are cutting your throat only. Your are giving a full access and control of your product to your competitor in some sense. They can easily get hold of your product, launch a competitive product and you are dead in the water. You have no access to the market. Though this is not the case, but companies drop take this kind of strategic decision. Remember the case of Samsung and apple. Samsung was assembling apple for a very low cost and now they are competing with apple only.

    So think about this angle as well and take appropriate decision. Anyways I am in favour of going with the established distribution channel. It saves your setup cost and puts you in a position of looking at the better production techniques.

    Hope this will help you

    Nishant
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