The ups and downs of using a distributor

If you’re selling goods, particularly on a large scale, there are several ways of making the process easier. One way, which we talked about last week, is to use a commercial agent. But there’s another way – using a distributor. Whereas an agent will market and/or negotiate the sale of your product on your behalf, a distributor will purchase your product from you, and then go on to sell it. Deciding whether to use a distributor can be tricky – so to help you out, we’ve come up with a list of some of the pros and cons:

Pros

  • If you choose to use a distributor, then you may be able to pass on a large degree of the risk associated with putting your product on the market.
  • Because a distributor will take on this larger degree of risk, particularly the risk of failing to sell the product, they’ll be more motivated to invest more resources in selling the product.
  • You won’t be responsible for compensating a distributor in the event that the distribution agreement (between you and them) is terminated.
  • Establishing good brand reputation can take a long time. One significant advantage, therefore, of using a distributor (especially if they are established and well-regarded) is that you can benefit from their reputation.
  • Last but not least, using a distributor may simply make things easier for you, especially if you’re planning to sell on a large scale. For example, you won’t have to deal with market research or advertising.

So there are a few of the pros. But is there a downside to using a distributor?

Cons

  • You’ll have less control over a distributor’s conduct, particularly in relation to marketing and pricing, than if you were to use an agent. So if you’re selling high-value, bespoke products then using a distributor may not be for you.
  • Unlike agents, distributors don’t work on commission. So that source of motivation that exists for a commercial agent will not exist for a distributor.
  • You’ll likely have an idea of how much you want to sell your product to the distributor for. The problem is, the distributor might have a different figure in mind. So if you do decide to use a distributor, you may end up having to sell your product to them at a discount, particularly if you’re keen on selling to them in particular.
  • Another disadvantage of using a distributor is that they may insist on exclusivity for a certain period of time. This means that, during that period, you won’t be able to sell to any other distributors.
  • If you choose to use a distributor, the agreement you’ll enter into with them is more likely to attract problems in relation to competition law than an agency agreement. This means that creating a suitable distribution agreement may be more demanding than creating a suitable agency agreement.

More on distribution agreements

So before deciding to use a distributor, you should think carefully. In particular: what type of product would you be selling to them, and how much control are you willing to give up?

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