Deciding upon a B2B sales channel is an involved process. However, it ultimately comes down to deciding between using a distribution channel to market or a sales agent or representative channel to market. This decision involves understanding the pros and cons of each option. So, how does a company go about choosing between the two?
Pros and Cons of Distribution Sales Channels
Companies often choose distribution channels because they are physically unable to access a given market. Whether due to the market being in another country, another time zone or another continent, companies look to distributors to represent them in markets the company can't reach. However, there are both pros and cons to using a distributor as a B2B sales channel.
Pros of Distribution
Selling through a distributor does have its advantages. First, they have a vast network of established contacts and they can use these contacts to grow your business. Second, they have “feet on the ground” and a salesforce able to access a market your company can't. That network is essential and helps you quickly ascertain the distributor's ability to make sales of your product.
Third, they are often market specialists, and or product specialists, who have invaluable insight into the market your company is trying to pursue. Fourth, a number of distributors have solid reputations, ones that allow them to position themselves as experts in their relative market and field. As such, they bring more than just sales to the table; they focus on a unique value proposition by being a full-service provider.
Finally, distributors should hold inventory of your product. This includes finished goods, consumables, spare parts and or other commodity-based components. After all, their goal is to shorten your product to market lead times. As such, they have to have the inventory readily available in order to properly service their market. If they aren’t willing to hold inventory, or discuss a consignment agreement, then move away from them. The ultimate benefit of a distribution channel is that it allows your company to benefit from customer consolidation. You ship large volume to one distributor who then covers the costs of sales to a given market.
Cons of Distribution
Unfortunately, there are drawbacks to working with a distributor. First, they often have exorbitant markups and will literally price your product out of the market. Second, they won’t share any information about their market and really shouldn’t have to. After all, it’s their market and their customers. Regardless of this, it’s not always conducive to establishing a solid partnership.
Third, some distributors just want your company to boost their profile and image. It’s a huge selling point. They are able to showcase a huge product portfolio as a means of demonstrating just how many companies have chosen them as a sales channel. Finally, it’s common for distributors to focus on a select few products they represent to the detriment of the others in their portfolio. In this case, they may intentionally price your product out of the market in order to make sure they close the sale on another product they have.
Pros of Sales Agents
The biggest benefit of working with a sales agent or sales firm is that you have no markup to worry about. Typically, they’ll take a 10% commission on the sale. This makes it ideal if your gross profit on sales are healthy enough to warrant that percentage. Second, they work with your company when providing official quotations to customers. You quote the customer directly and copy them on the email. This ensures you control pricing to the market you’re pursuing.
Ultimately, they can be seen as a lead generator. It’s their job to drive customers to your door. In this case, they’ll be more willing to share vital customer and market data with your company. However, this doesn’t mean they’ll be 100% transparent. It’s not in their best interest to tell you everything, but in many ways they really don’t need to. You’ll be able to converse directly with the market yourself and when you visit customers with your agent, you’ll be able to decipher market intelligence on your own.
Cons of Sales Agents
One of the main issues of working with sales agents is that they are limited in their reach. These are typically smaller firms with smaller overhead. In fact, it’s not uncommon for it to be a sole proprietorship where the agent simply refers to him or herself as a manufacturer’s representative or independent sales representative.
A number of agents do specialize on specific product offerings, but it’s up to you to make sure you are dealing with a specialist instead of just someone who sells whatever they can to whomever they can. They also don’t often have the same sales reach, established network or the necessary “feet on the ground” sales team that a distributor might have.
Additional issues revolve around the sales agent’s focus. Do they truly understand your product’s relevance to the market they’ll represent you in? Are they willing to learn everything they need to in order to make your product a success in that market? Or, do they represent any product from any company? These are important questions to answer as it is common for sales firms to have short life spans, and you don’t want to work with a sales agent that’s here today and gone tomorrow.
What Type of Product is Best Sold Through Distribution Versus Representation?
While there are certainly exceptions to every rule, the following approach applies when choosing a B2B sales channel. Typically, commodities, “me-too” product offerings and consumables tend to work better under distribution channels. This is because distributors should hold inventory to service their market. By holding inventory, your company reduces its costs of sales by shipping larger volumes to one destination.
Customized product offerings, machinery and equipment is best sold by manufacturer representatives, sales representatives and or sales agents. In fact, if your company sells these types of products, then it’s best to look for sales engineering firms and or agencies that specialize in highly engineered products. While an agent won’t typically hold inventory of your spare parts, they will help you reduce product to market lead times by being a much better partner when compared to a distributor.
If you want to read about how distributors can help lower your cost of sales, please go to:
Benefits of Customer Consolidation Through Multiple Distribution Channels
Choosing the Right Distributor, Dealer or Sales Rep for Your Products
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