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What are the relationship expectations between manufacturers, distributors, and retailers?
Depending where you are within the sales channel you’ll likely have various expectations, concerns, or demands that need to be managed. I’ll try to describe what these are from each perspective in general terms.
What the manufacturer wants
First and foremost the manufacturer wants sales. They want to make their products and to sell them quickly and profitably. Usually this means selling through distributors and retailers - since this provides volume and requires low maintenance. That is, while you need to support your distributors and retailers - you don’t need to invest heavily in direct to consumer marketing.
How the manufacture manages the relationship
A manufacture has two main methods for building their channel relationships. They can work with their distributors and retailers to participate in their marketing opportunities. Or conversely, the manufacturer can create promotions on their products that they share with the distributors and retailers to encourage larger or more frequent orders.
If the manufacturer chooses the first option, this will mean offering either payment, free product, or a larger discount to the distributor or retailer in exchange for participation in their promotions. This could mean offering a free “sample” product with the order of a large product so the resellers can offer a “gift with purchase promotion.” Or the manufacture may offer a larger discount on an order in exchange for participating in a resellers email blast or having their product featured on the homepage. Managing these “buyer marketing” promotions can be time consuming.
The second option is the manufacturer can create their own promotional activities. They can offer the bundling of products as an incentive for resellers to order more. Or they may create samples that can be included with volume orders. While the first and second options seem very similar it’s a matter of who is creating and driving the promotional activities. And honestly, it’s not unusual for both types of activities to happen simultaneously.
But there’s a third type of activity that’s only ever provided by the manufacturer. This is true co-operative marketing budgets. Typically limited to larger brands these are actual marketing dollars set aside to be specifically spent with or provided to channel partners. And while these dollars always come with strings, they’re focused on building the manufacturer’s brand by creating marketing opportunities with or on behalf of the channel partners.
What does a distributor expect of a manufacture?
Distributors want good products, delivered on-time, that sell well. But they also typically want or expect other support too. The most common expectations for a distributor are exclusivity, lower pricing, samples, on-going support, and a continual chain of new or improved products in the pipeline.
Exclusivity isn’t always possible but when it is it’s highly desirable. You’ll typically find exclusive regions establish within new markets as a means to opening up new territories that the manufacture would have little hope of building a network or customer base within alone. The regions can be big or small: all of Europe or perhaps just France. But as in most arrangements this type of exclusivity will carry it’s own expectations from each party. The manufacturer will expect a ramp up in orders and sales during the period of exclusivity. And the distributor will expect support to help grow the brand. The level of support expected can vary from simply supplying graphics and collateral materials to creating special product samples or providing co-op marketing dollars or a set-aside marketing budget for the region.
Lower pricing is always desired and distributors will always ask for it. The game will entail both sides balancing price against order sizes, etc. Or lower prices can be used instead of providing marketing dollars. Essentially, the additional profit would be used by the distributor to market and promote the manufacturer’s brand. Or as described earlier, lower prices or free products can be exchanged for participation in the distributors marketing initiatives.
Samples. Everybody always wants samples - provided the product in question can be sampled. These can be provided based on order volume or purchased separately at a reduced cost. Or there can be a set aside “allotment” of samples. The specifics are usually quite specific to the industry and types of products. But it will come up and it will be a negotiation between the distributor and manufacture - since neither wants to absorb the costs completely.
On-going support can mean lots of different things. It may mean regular phone calls or meetings or simply providing new information, photos, or marketing materials. Or it may mean the distributor expects the manufacture to actively promote the brand to help drive end-user sales down the channel pipeline. What level of support is again influenced by the industry and types of products.
New products in the pipeline. All but the most mundane and utilitarian of products will carry the expectation of “what’s next?”. The same product sold for years and years will grow stale among consumers and so continual improvement or replacement is generally necessary - the need for iteration is driven by the consumer’s fickleness. Channel partners will expect new products in the pipeline several times a year or at the least, annually.
What does a retailer expect?
The exact relationship with a retailer can take several forms. Manufacturers may deal directly with retailers or they may supply them through distributors. In either manner, retailers will still expect various types of support to help them sell and promote a manufacturer’s brand - the difference will simply be who is supply the support to them.
Samples are a typical expectation of retailers. Samples or units labeled for individual sale allow retailers to provide low-cost or no-cost products to their customers. This could be as simple as a try-one container at a checkout counter or sampling can get complex where “sales reps” will actively promote a manufacturer’s brand at store events. In the later scenario you’re generally involving a “rep network” or taking advantage of the retailers promotional options (they might have a demo/sampling program).
Point-of-purchase (POP) displays are also expected. With any new product or brand introduction a retailer has to display and/or promote the new item to its regular customers. To grow interest quickly and to achieve the fastest return counter POPs, end-aisle units, or in-store displays may be high value expectations.
And of course there’s a host of other newer in-store advertising options - email marketing, display signage, circulars, etc. Not that it’s expected the manufacturer or the distributor take advantage of all of the promotional activities - but there will be some expectation to help promote the brand.
Distributors and retailers both expect marketing activity
Once you sign a distributor or engage a retailer to sell your products you’re not done. In fact you’re far from it. Each will expect you to be actively marketing your brand and products. Again, depending on the industry, this may be direct to consumer advertising, public relations, trade shows, social media, or whatever comes next. They want to know that the brand is alive and well and growing.
If you’re promoting the brand then they know customers will come looking to buy it. This means consumer will ask retailers for it. And retailers will ask their distributors or deal directly with the manufacturer. It just goes without saying that channel partners will expect the manufacturer to promote their own brand - with very, very, very few exceptions to this rule.
And there’s one more expectation - your channel partners will expect you to “not compete with them.” In today’s online world it’s easy for a manufacture to sell direct online. But distributors and retailers alike will expect that you’ll sell only at MSRP and that any “deals” or “special offers” you make will also be available to them.
Finally, expect the unexpected.
While I tried to touch upon general expectations manufacturers, distributors, and retailers will have of each other - it’s by no means a complete list. Which brings me to the best advice - expect to maintain a continual dialogue with your channel partners. If you’re communicating frequently you’ll catch issues before they become big problems and you’ll know what everyone needs and/or wants from each other. So keep the channels of communication open and manage expectations as best possible.
Oct 31, 2013
By: William Levins
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