When you’re trying to get a product to market, it pays to think about the key players who will open the doors to your customer.
These are the three main players in the supply chain between you and the customer: a Distributor, a Reseller or an Agent. Each of them performs a different role and serve a different function.
A Distributor can be seen as a sniper – they are proficient at targeting a particular niche or location. They:
- Hold stock;
- Are held accountable and must meet targets;
- Can retail or wholesale; • May perform servicing or warranty functions;
- Usually specialise in a particular niche;
- May be granted limited power to act on the manufacturer’s behalf.
- The relationship between you and your distributor is usually exclusive for a particular geographical area.
You can compare a Reseller to a scattergun – they have a wide reach and will get your product into as many places as they can. They:
- Buy the product at a wholesale level and generally on-sell to a third party;
- May or may not hold stock; • Are not usually restricted to any geographical location;
- May not work exclusively with your product and may even sell competing products;
- Are not granted any power to act as an agent of the distributor or the manufacturer;
- Will generally make a commitment to promote the product;
Your relationship with a Reseller is usually non-exclusive.
You can picture the agent as a weapons dealer (think Nick Cage in the movie Warlords) – they broker the deal between the parties but don’t hold any stock. They:
- Are granted certain powers to act on behalf of and bind a Principal. They can enter into a contract with a third party (e.g., retailer) and the manufacturer or principal is obligated to fulfil the contract;
- May not hold stock (they can, but they generally don’t);
- Don’t usually deal with warranty or service concerns;
- Will actively promote the product or service.
Which Key Player to Choose?
Like most things, it all depends on your individual situation: your business, product and niche. If you need to reach a niche market, then a distributor may be your best choice because they will offer a specialised service within the protection of an exclusive arrangement.
Of course, you will need to perform due diligence when selecting this distributor to ensure they can deliver on their promises. The last thing you need is to enter an exclusive arrangement with a dud. A properly executed distributor agreement will provide you with an exit strategy if your distributor doesn’t perform.
If your product is more generic in nature, then you might be more interested in establishing relationships with various resellers or agents so that your product will appear in as many places as possible.
Once you’re settled on the type of supply chain roles and chosen your partners based on due diligence, it’s time to document the terms of your arrangement so that there is no confusion about:
- The roles of the parties;
- The term of the appointment;
- Payment for goods;
- Use of Intellectual Property;
- Disputes and termination;
- Indemnity, and so forth.
The best way to set up a clear framework for the relationship is to implement a written agreement tailored to each key role in the supply chain. You don’t need to spend thousands organising these documents; you can protect your interests by using one of our professionally drafted templates for a Distributor, Reseller or Agent.