Why manufacturers refuse distributors. What is distribution and its advantages? The main tasks and goals of distribution

Inga Shidlauskienė, director of the Russian representative office of Global Radiatori

Each field of activity has certain difficulties. What is the main pain point for a distributor?

Today this is the absence of anti-dumping legislation. According to the Russian antimonopoly law, the manufacturer and importer do not have the opportunity to form an adequate pricing policy on the market, which would allow the product to remain attractive to the traditional distribution network. This state of affairs, unfortunately, opens up wide opportunities for dumping.

What professional mistakes do distributors most often make?

Sometimes, a distributor’s own ambitions prevent them from building a flexible system for supplying goods, which results in a shortage in their warehouse, which leads to loss of sales. Some distributors certainly want to be direct suppliers of products, not taking into account that such a scheme is effective only with large volumes of supplies and experience in importing or. Otherwise, in addition to increasing delivery times, distributors risk incurring additional costs that increase product costs and reduce margins, and lose efficiency and flexibility in their work.

What advice can you give to a young distributor? What nuances should you pay attention to at the start?

It is better to start cooperation with brands that have been operating on the Russian market for at least 10 years, which indicates the reliability of the enterprise and stable quality of products. If a manufacturer has a representative office and a distribution network in Russia, this is a guarantee that a beginning partner will not find himself alone with the problems that inevitably arise among consumers.

The second point is documentary evidence of product quality. European organizations carry out strict quality control and at the slightest violation, manufacturers lose their certificate. Enterprises cannot afford to produce questionable products because they risk losing access to several large markets at once. Unfortunately, Russian certificates are often formal in nature and the level of quality checks and technical characteristics is either completely absent or leaves much to be desired.

When concluding a contract, it is useful to pay attention to the terms of delivery of goods. For example, the Global enterprise does not have its own warehouses in Russia and operates in this market through historical importers and distributors. In some cases, it is more convenient for a local distributor to pick up goods from the warehouse of the importer-distributor; in other words, it is more convenient to remove and deliver the goods to their warehouse.

In other situations, you can completely rely on importers who organize the delivery of goods from central or regional warehouses. For small companies, the second option is preferable, which reduces logistics costs and possible transportation risks and allows you to work flexibly and quickly.

What are the advantages of being a distributor?

The distributor does not need to invest in brand promotion and the formation of a large warehouse, which leads to the freezing of significant funds. Thanks to the brand's popularity in the market, the availability of products in the warehouses of importers and large distributors throughout Russia, the marketing activity of the manufacturer and other distributors, there is good consumer demand and it is possible to flexibly organize work with products.

How is a distributor's income generated?

Profit largely depends on the market situation, especially in recent years, which have been marked by sharp changes in exchange rates and a significant devaluation of the ruble against the euro. Nowadays, hardly anyone can boast of income stability. And this applies not only to distributors, but also to importers and the manufacturer himself, who, in the conditions of the economic crisis, sought to stabilize selling prices to the best of their ability at the expense of their profitability.

What conditions do you offer to distributors who cooperate with your company?

The Global enterprise, whose production and warehouses are located in Italy, has a traditional multi-level distribution system in Russia. Importer-distributors ensure the supply of radiators from the factory and distribute these products through their distribution networks throughout Russia. The distribution network of importers includes a large number of large, medium and small distributors who receive products from importers and bring them to the consumer.

The specifics of the work of Global distributors are determined by the product and its scope of application. We are talking about engineering systems, part of which are heating systems. That is why only specialized enterprises working in the field of equipment for heating and water supply systems can become distributors.

The level of training of the distributor's personnel is very important. The distributor must be able to work with both technical specialists and end users, and provide customer support in the post-sales period, especially when problems arise. The manufacturer provides a 10-year warranty on its products, and the warranty must work in such a way that the buyer feels protected. Radiators are sold in the most remote corners of Russia, for example, in Krasnoyarsk or Vladivostok, and help, as a rule, is needed quickly, so the competent work of the distributor on its territory comes to the fore.

This activity requires not only good knowledge of the product, but also a lot of time, patience and perseverance. Sometimes more than one year passes from the start of work to the moment of direct delivery of products to the construction site. To protect the interests of such a distributor and ensure that he receives results from his work, we “assign” an object to him.

For socially significant objects, individual delivery conditions are developed. In this way, conflict situations between distributors are minimized.

Have you ever worked with unscrupulous distributors?

For more than 20 years of work, no serious problems have arisen with importing distributors. Sometimes unpleasant situations happen with local distributors who work with customers. For example, we are unable to stop dumping from some online stores, which negatively affects the entire distribution network.

Another example: one of the distributors refused to accept a consumer’s claim, citing the fact that six months had passed since the purchase, while the warranty on Global radiators is valid for 10 years. Such statements are outright deception.

We fight together against unscrupulous sellers, even to the point of stopping the supply of products to such enterprises. Recently, we have been working on another tool of persuasion - the use of copyrights for trademarks, registered names and distinctive designations of the manufacturer to regulate relations with those who do not want to heed our call to respect each other, work honestly and correctly.

Following the classic course of marketing, the meaning of the word “distribution” is quite simple - it is the distribution of products to the final consumer. As practice shows, it is not enough to attract end consumers, as well as dealers, once; you need to be able to retain them.

Agree, there is hardly a manufacturer who would not dream of a reliable distribution system that would help him become a market leader in the regions and provide an advantage over competitors.

In business, distribution means the conscious choice by the manufacturer of certain means and methods that would help him reach the buyer. If you produce anything, you have 2 sales routes:

directly;

through distributors.

Of course, the first option has its place, especially in high-tech and high-income industries. But for most segments of our market, the second option is more suitable.

Benefits of selling through distributors

So what's really good about distribution?

Product sales potential

Thanks to many years of experience of trading companies in creating effective and trusting relationships with the end consumer, the distribution network has truly enormous sales potential. After all, if a manufacturer decides to build his own sales network, he will certainly face fierce competition between other market participants. And this will not lead to anything other than huge material losses.

Service

Distributing companies can offer consumers a much higher quality and varied service, tailored specifically to their desires and needs. The manufacturer, in turn, does not have as many resources as the distributor and tries to adhere to strict standards that are not at all convenient for the consumer.

Logistics

Distributor networks organize logistics solutions for their clients much more quickly and with better quality, unlike manufacturers. This means that the products will be delivered to the end consumer in the required time frame and in the required volumes. Thus, it is possible to create operational stock of goods in warehouses.

Extensive geography

The only way to effectively and efficiently expand the boundaries of supply and appear in regional markets is distribution.

Lower price pressure

A proper, well-thought-out distribution network removes price pressure on the manufacturer. Everything is obvious: the wider the market coverage, the fewer price conflicts with competing companies.

Conclusion: Distribution today is an advanced modern effective way to connect the manufacturer with the end consumer. Using this network can solve many business problems. This is convenient not only for product manufacturers, but also for its consumers. "ACRIS LOGISTIC" offers the service. We are leaders in this field thanks to many years of experience and a professional team. Contact us - and your customers will never be left without goods!

The concept of distribution came to us from the English language and became familiar to our ears quite a long time ago. In the most general understanding, distribution is a type of activity in which a business entity purchases a product from a direct manufacturer and undertakes an obligation to him for the retail or wholesale sale of these products. However, this activity also includes other areas of work related to the development and implementation of logistics processes, the organization of distribution networks and the distribution of goods.

Two main views on this small business prevail:

• On the part of the product manufacturer, distribution consists of organizing channels for selling goods and effectively managing their movement from the manufacturer to the end consumer.
• From the perspective of the distributor himself, this activity is considered as a process starting from the placement of goods on his territory and right up to bringing the products to the consumer.

Thus, both directions complement each other, and, in accordance with which of them is accepted as dominant, different types of distribution can be distinguished. Legally, even an individual entrepreneur can act as a distributor. But, as practice shows, the most effective way to conduct this activity is by creating a distribution company.

General operating principles

As stated above, in distribution the interests of the manufacturer and supplier ultimately practically coincide. Consequently, the distributor can act both on his own behalf and on behalf of the manufacturer, indicating himself only as a supplier. As a rule, these approaches are combined.

Between the two main business entities - the manufacturer of the product and its seller - a corresponding agreement is concluded, which clearly defines and defines the principles and conditions of cooperation. They can also be considered as step-by-step instructions for creating a company from scratch. This:

• Product cost.
• The amount of surcharges applied for goods sold.
• Conditions for conducting wholesale trade.
• Policy of discounts and preferences.
• General description of the market and its regional distribution.
• Target audience of consumers.
• Procedure and conditions for settlements.
• Timing for the sale of commercial products transferred by the manufacturer to the supplier.

The amount of a distributor’s income depends mainly on how competently he calculates the profitability of the business, what equipment he will use to run it, and whether he will select premises, transport, and staff for it. Most often, the income of an entrepreneur-distributor has a variable value, because it is determined by seasonal factors of consumption, volumes of goods supplied from the manufacturer, and the time of settlement with customers on specific terms for each sale.

Legal regulation

It may seem strange, but Russian legislation does not in any way regulate the distribution agreement. There are no regulations about it contained either in the Civil Code or in other laws and instructions. However, since clause 2 of Art. 1 and paragraph 1 of Art. 421 of the Civil Code of the Russian Federation determines that legal entities and individual entrepreneurs are free to choose the terms of the agreement (except for cases when these agreements contradict existing legislation), then they act as a legitimate legal act that has no restrictions on the territory of our country.

Some features of the legal registration of a distribution company exist in the case when it is engaged in the sale of goods from foreign manufacturers. However, here too, the terms of the contract and other documents require additional elaboration only in connection with the nature of the products being sold.

Distribution pitfalls

As practice shows, this business idea has its pros and cons. According to experts, the main problems that you need to know about even before creating a company and entering the markets are:

• Where to start searching for an intermediary market, and how to organize access to it.
• How to hedge risks associated with distribution activities.
• How to independently assess the prospects of supplied technologies and products.

Opening a company in Russia should be accompanied by an understanding that the domestic distribution market is quite well developed. This is also evidenced by the fact that many product niches have already been distributed and occupied, and stable and long-term relationships have developed between manufacturers and suppliers. However, in the system of these relations there is often a rather low level of professionalism.

The main problem both for novice entrepreneurs who are just thinking about opening a distribution company, and for existing entities, remains the price of the product. This factor creates objective obstacles when working with quality products.

To overcome them, many distributors open parallel training centers where, at their own expense, they help customers understand the advantages of the product offered. It goes without saying that this entails additional costs, and therefore requires a very prudent attitude from the beginning entrepreneur when choosing a brand that he intends to promote in the retail or wholesale markets.

Another common mistake when starting a business is incorrectly assessing the volume of these markets. Among the new challenges for distributors, one cannot fail to mention the high level of competition in certain groups of goods and the lack of freedom in their promotion. This problem can only be solved by a high reputation - that intangible part of a business that is formed over a very long process, but begins from the very beginning of the company’s functioning.

Eventually

Before you open a distribution company from scratch, you should understand that our country represents a huge market for this activity. Therefore, at the initial stage, it is necessary to direct all efforts to developing your data portfolio for effective cooperation and developing competent tactics for interaction with both manufacturers and end consumers.

The survey data suggests that slightly more than 42% of surveyed companies are engaged in retail sales in one form or another. In 2013, 32% of our respondents considered themselves retailers. Then, in their opinion, 34 suppliers could compete for the title of best IT distributor for retail. This figure was the lowest for the entire period of the rating. But this year, survey participants expanded the list of candidates. It included about 80 companies. One thing remains unchanged: only those distributors who were able to cross the channel threshold have a real chance of winning (for more information about this indicator, see “Rating Methodology”). Let us recall that in 2013 seven companies managed to do this: ELKO, Lanck, Merlion, OCS Distribution, OLDI (STATEN), Marvel Distribution, Technotrade

In 2015, despite the fact that there were more candidates for victory in the nomination, the number of finalists was reduced, and their composition was updated. It included two companies that have never managed to cross the channel threshold in this category during the rating. This indicates that our nominees have begun to pay more attention to this segment of the Russian IT market. But the fact that some finalists in the previous rankings gave way to more successful and effective players cannot be discounted. As a result, the following companies became contenders for the title of “Best IT Distributor for Retail” in 2015: "Marvel Distribution", "OnLine Trade", Merlion, MICS Distribution Company, OCS Distribution, STATEN(listed in alphabetical order).

But before announcing the results of the project, we should dwell on one trend that emerged during the current rating.

Throughout the history of CRN/RE research, among our respondents there were those who believed that the title of best distributor deserved companies that, at their core, had nothing to do with the distribution business. Vendors appeared more often than others in the questionnaires of these survey participants. This fact can be explained by the fact that in our market there are different interpretations of the very concept of “distributor”. For some partners, this is the company from which they purchase, and not the one that purchases vendors’ goods and builds a sales channel. Thus, for those retailers who were able to agree with manufacturers to work directly, these companies become “distributors”. Therefore, the appearance of individual vendors in our ranking is no longer surprising.

But this year, large federal retail chains, online stores and discounters selling digital equipment began to appear in the questionnaires. And they were mentioned more often than in every tenth questionnaire. The reason for the emergence of these companies is the same as in the case of manufacturers: it has become more convenient for local players to purchase goods from these companies than from official distributors, which is why they were included in the list of “best suppliers for retail.”

What made regional retailers bow to their larger competitors? As one of the representatives of the local IT business reported, wholesale prices in large retail chains, which are trying to get rid of “stale goods” purchased at a not very high rate, are now so attractive that not a single distributor is able to offer something similar. This time.

The second factor that caused this trend is the reduction of distribution warehouses in the regions. Even in those territories where warehouses as such have been preserved, their product range has noticeably decreased. This also forces local market players, who are unable or unwilling (for various reasons) to pick up goods from the central warehouses of distributors, to look for alternative suppliers.

Well, third. Distributors are once again tightening their credit policy when working with their partners and, as a result, are losing one of the main advantages that previously firmly tied small regional companies to them. Now, without being able to get a loan from a supplier, local players are more free to choose the source of goods. At the same time, they are looking for a product taking into account only one criterion - price, whereas previously they were ready to purchase some products at a higher price, since it was much more important to get an installment plan.

Thus, this year the question arose again about the future of an entire class of companies - regional subdistributors, to which, as it seemed, we had already said goodbye some time ago. There seem to be prerequisites for their revival. After all, distributors, retreating from the regions, are losing that very segment (or rather, small regional retailers), which some time ago they so fiercely conquered from local resellers.

Of course, those who want to follow this path may face many problems, the main one of which is large financial investments. Therefore, it is unlikely that regional companies will enter this business. But large retail players already present locally may be interested in this type of run-in. However, in order to succeed in this field, they will have to reform their business model, since subdistribution and retail are still different types of business. Whether any of them will want to start developing a new direction - time will tell. But it seems that almost all of them will use the opportunity that has arisen to periodically resell “something unnecessary” to their smaller competitors.

Introducing the winners

This year, the Retail Distributor nomination turned out to be one of the most unpredictable. And this is despite the fact that the market processes that worried this group of distributors before summing up the 2011 ratings seemed to have ceased to have a negative impact. If something happens somewhere, it no longer surprises anyone, but is perceived as a logical and quite predictable development of the retail segment. Large, eminent distributors, who rode the wave of increased interest in retail during the crisis year and announced a special attitude towards this group of partners, now “simply continue to work in this direction.” Their press services periodically report the addition of new distribution contracts to their portfolio and the improvement in the quality of services that interest retailers.

At the same time, the constant migration of product groups from “retail only” to corporate and back suggests that it is much easier for a distributor working with both corporate suppliers and retailers to manage the product range, since he has the opportunity to offer “diffusing” products one, then another group of partners.

True, there is one “but”. In the case of a “split” personality of the supplier, the number of problems when working with a “double” sales channel also increases by two or even more times. Still, every year the difference in requirements for suppliers from “corporate” sellers and retailers (and not only large federal ones) becomes more and more noticeable. So it turns out that few people manage to successfully “fight” on two fronts at once. Judging by the results of our rating and the list of companies that reached the finals, at the moment this is best done by the largest players with solid financial reserves and administrative resources.

In the fight for retailers, their worthy competition is from suppliers who are completely focused on working with “stores”. Those who have not yet been able to become “very large” and have not yet decided on their orientation are beginning to gradually give up their positions. As mentioned above, the absence of some finalists of the previous ranking within walking distance of victory is explained by the fact that they simply left the market. Well, recently, reports about mergers and acquisitions, the conclusion of strategic alliances, and simply the “selection” of missing distribution contracts after the disappearance of a competitor will not surprise anyone. The only question that second-level partners have is: “Which company will be next?” And if the processes of “integration” and “globalization” in the distribution market maintain their current pace, then perhaps in four years the rating “Best IT Distributor for Retail” will lose its meaning - the results will be known in advance.

In the meantime, judging by the list of applicants nominated by our respondents for the title of “Best Distributor,” second-level partners are not wasting their time. They watch with interest the eternal struggle not only between “breadth” and “depth”, but also “specialization” - it is not for nothing that niche suppliers specializing in the distribution of a narrow product line, for example, photographic products, were included in the number of applicants. By the way, second-level partners not only observe; they have already become accustomed to the current situation and are receiving understandable benefits by skillfully combining the advantages of those who want to become a “priority supplier for retail.”

As already mentioned, in 2013, seven distributors crossed the channel threshold: ELKO, Lanck, Merlion, OCS Distribution, OLDI (STATEN), Marvel Distribution, Technotrade (listed in alphabetical order). Then “Marvel-Distribution” and “Technotrade” were not included in the top five winners. And two years ago, OCS Distribution became the leader, beating its closest competitor by more than 60 points.

This year there are six candidates for five prizes. But, as they say, five cannot be divided by six. This means that one finalist, whose final ratings (read more about this indicator in the “Rating Methodology”) will remain only a finalist, and all the rest move on to the “next round” and become winners of the “Best IT distributor for retail - 2015". In accordance with this “algorithm of action,” STATEN dropped out of the competition for a place in the top five.

Well, finally the time has come to say a few words about the distributor who, having scored the most points, became the winner of our rating. And here a surprise awaits us. At the top line is not just a “new face” (the leaders in this category change with each rating). This time, respondents gave the title “Best IT Distributor for Retail” to a company that had never previously been able to cross the channel threshold. At the same time, the ratings received by this distributor in previous ratings were quite high. This means that only the small number of votes given for this supplier in previous studies did not allow the company "OnLine Trade"(and this is what we are talking about) join the fight for victory earlier.

So, this year the leader of the “Retail Distributor” nomination scored 846.361 points, which is 25.19 points more than the closest pursuer, and 64.624 points higher than the final score of the winner of the previous rating.

And this despite the fact that in 2013 the leader was recognized as the best in eight out of 12 distributor performance criteria, and the OnLine Trade company received only five top marks. In conclusion, we note that the difference in the final scores of distributors who took first and fifth places this year was 108.263 points (in 2013 - 111.237 points).

As a result, this year's top five looks like this: "Marvel Distribution", "OnLine Trade" (№ 1), Merlion, MICS Distribution Company, OCS Distribution(listed in alphabetical order).

Criteria

This year, the “Distributor for Retail” nomination turned out to be not only the most unpredictable, but also one of the most unstable - only three supplier performance criteria retained their positions in the ranking of importance: “Prices”, “Availability of goods in stock” and “Management of relations with vendors” " Despite the fact that various criteria for distributor performance have moved up plus or minus one or two positions in the ranking of importance in two years, the fluidity of requirements for distributors from the channel should remind them of the need to constantly keep their finger on the pulse. Let us only note the fact that two characteristics of the supplier’s work, “Breadth of assortment” (8.97 points) and “Ability to solve problems” (8.914 points), which were not previously on the margins in this nomination, rose even higher this year, taking respectively third and fourth place in importance, adding more than 0.3 points compared to the results of 2013. Respondents returned the “Financial support” criterion to fifth place (which it occupied in 2009 and 2011). Note that in 2013 its importance was assessed at 8.694 points, and this result allowed “Financial Support” to take an honorable third place. Two years later, as mentioned above, the criterion had to part with the “bronze”, although its absolute score was only 0.042 points lower than the previous one.

“Marketing Support” also retreated two steps back, stopping at 10th place. True, in this case the difference in the assessment of the criterion in the current and previous ratings is more noticeable - 0.365 points. Apparently, retailers are now concerned not with organizing promotions and traveling with distributors to warm countries (although, of course, no one refuses this, as well as the development of the marketing budget), but with the most important issues of doing business. It is not for nothing that they “moved” forward the “Profit Generation Program” criterion, returning it to sixth place in the importance rating. Note that if in the previous study this characteristic of the supplier’s work, although it dropped to seventh place, was inferior to the criterion one line higher by only 0.006 points, then in 2015 its advantage was 0.172 points. This means that the wishes to distributors working with retailers, which we formulated two and four years ago, remain valid. Margins in the retail channel have fallen so much that retailers can no longer compete on price and make a living at the same time. Therefore, they are trying to find other “salary increases” for their hard work. Don't ignore this trend. Offer your partners interesting compensation schemes that will allow them to improve their well-being at least a little. It would also be good to strengthen their financial support... It is worth paying attention to one more fact: the eighth line in the rating of the importance of criteria is “Having clear standards in working with partners.” It doesn't seem to be a very high place. But if you remember that in the previous study this characteristic was the last ten most important, and its score was more than one point lower than the current one, it becomes clear how much retailers expect predictable behavior from their suppliers.

By the way, the fact that the nomination “Distributor for Retail” turned out to be one of the most “mobile” is also evidenced by the fact that even such a characteristic as “Consultations, assistance in developing projects,” which for four ratings in a row turned out to be the least significant for retail companies , this time stepped up one step. At the same time, she improved her previous result by almost two points. Thus, the criterion “Having a B2B system” has moved down to the last line. By the way, he also, compared to the results of 2013, scored more points (by 0.616). But this was not enough to keep his place.

And now about the criterion that manages to maintain its position for the fifth consecutive rating. The most important thing that distributors can offer to retailers is again price. This year their importance was assessed at 9.781 points (two years ago - 9.514 points). The gap between the closest competitor (like the two previous ratings, “Availability of product in stock”) was 0.473 points, and the criterion in 12th place was 2.868 points. Let us recall that two years ago these indicators were 0.325 and 4.208 points, respectively.

In 2013, it was retailers who gave this criterion more points than our other respondents. In addition, two years ago this score became the highest among all criteria in all rating categories. In 2015, the same situation repeated itself.

In addition, retailers rated five more distributor performance criteria higher than their channel counterparts in other specializations. These, in addition to “Breadth of assortment” and “Marketing support” (listed in descending order of importance), which repeated their success in 2013, included “Availability of goods in stock”, “Profit generation programs”, as well as “Availability of clear standards in working with partners" (listed in descending order of importance). We can say that this year retailers are the group of partners most in need of distributor services. They ranked second among those who needed “Problem-solving ability,” “Financial support,” and “Flexibility, individual approach to partners” (listed in descending order of importance). And this is despite the fact that in 2015, retailers did not give a single lowest rating, whereas in the previous rating they were more critical than other respondents regarding four criteria at once (“Consultations, assistance in developing projects”, “Flexibility, individual approach to Partners", "Vendor Relationship Management" and "Problem Solving Ability").

All of the above shows how mobile and responsive a distributor should be to the requirements of his channel. At the beginning of the article, we mentioned that the difference in requirements for suppliers working with retailers and companies serving the corporate segment is becoming more noticeable every year. The results of our project are clear proof of this. If we compare the ratings of the importance of distributor characteristics obtained in these two categories, it turns out that a supplier working for two sales channels must equally pay “special” attention to all 12 criteria. The main thing is not to confuse which services to offer to system integrators and which to retailers.

2015 Retail IT Distributor of the Year contenders (listed in alphabetical order)

1C, 3Logic, A1 Tis, Absolut, Avras Flama, IPikom, Aklis, Arconada, APT distribution, Afoto, Bananza, Berks, Weber , "Grafitek", ISA Group of Companies, "Discount Photo", "DNA Corporation", CSN, "Denko", "Eurocolor", "Inline", "Instal", "Inforcom", "Irson", "ComLinK SPb", “Laser World”, “Light Style”, “Lux Case”, “Marvel Distribution”, “Martins”, “Majin”, “Msota”, “Nix”, “New Line”, “Window TV”, “OnLine Trade” , “Optics and Photo”, “Ost-Kom”, “Player”, PRONET, “Resurs-Media”, “RIVA”, “Rixom-M”, “Russian Game”, “Svyaznoy”, “Synchro”, STANDARD ( GK), "Tayle", "Technopoint", "Technotrade", "TRINITY Felcons", "Foto-sklad.RU", "Photoframe", "F-store", "Fujimi Photo", "Exton", "Elcom" , Yulmart, Bright World, Auvix, AV centr, Axoft, CompTek, CTC Capital, Delight2000, DIGIS (GK), diHouse, Drift, Elittech, ELKO, GES Computers, Landata, Legion, Merlion, MICS Distribution Company, MONT, NERA MSK, NETLAB, OCS Distribution, OFT Group, Polymedia, RRC (Group), s3 VIPmarket, STATEN (OLDI Group), TEKO, Treolan, VVP Group (Distribution Center).

Let's look at this method of promoting goods and services as distribution. Let us outline its pros and cons, mistakes of novice distributors, benefits and possible costs. We will also compare different types of distribution and highlight the best one.

What is distribution

It is the activity of selling and delivering products and services from the manufacturer to the customer. As businesses become more global, distribution becomes a higher priority. Creating a product or service is half the battle, and the other half is delivering the product to the client.

There is confusion about what a distributor is and how it differs from a wholesaler. Typically, the distributor works closely with the manufacturer to sell more products. Typically, distributors find wholesalers who will sell their products. A wholesaler works more closely with retailers to meet their needs by purchasing products in bulk at a discount. Therefore, distribution is an important part of the distribution channel as it acts as an intermediary between the manufacturer and its customers.

How distribution works

The manufacturer has two options for delivering products to end users - direct selling or using distribution. The advantage of distribution is that it allows the manufacturer to focus on its core business of producing products and leaves the sales to the distributor. By understanding how a distributor works, you can determine if it is right for your business.

Retail

A distributor's value lies in its network of outlets. The manufacturer develops contract prices for bulk purchases with the distributor, and the distributor sells the products to its retail customers. This allows the manufacturer to deliver its products to a wide network of retail outlets without the cost of maintaining this network.

Customer service

Sales organization involves customer service and support. A distributor is a sales organization that must have a skilled and efficient customer service department that handles retail customer accounting, delivery issues and product issues.

The Distributor also assumes responsibility for replacing or repairing items that are still under warranty. The manufacturer only needs to provide customer service to the distributor, which significantly reduces administrative costs for the manufacturer.

Adaptation and additional options

Manufacturers often use distributors to create point-of-sale and end-user configurations. The manufacturer will require the distributor to send personnel to be certified, and the distributor may then charge retail outlets a fee for performing the custom work.

The manufacturer supplies the distributor with parts, and the distributor carries out the integration work. For example, if a particular retail customer has a corporate customer who wants upgraded memory installed on all of their computers, then the retail customer will order custom configured computers from the manufacturer.

Rules

Product distributors are responsible for delivery of goods to retail outlets, which includes the delivery of international customs documents. Manufacturers may ship the product to the distributor's location, and the distributor then takes the steps necessary to deliver the product to foreign markets. This allows the manufacturer to expand its customer base without the need to open international delivery or sales points.

Main tasks and distribution goals

Distribution monitors and improves relationships between manufacturers and customers and can provide improved service. If there are glitches in the process, supplies are lost, customers, retailers and suppliers cancel contracts, trust is lost. For product distribution to be truly successful, continuous feedback must be implemented to ensure everyone is happy with the process.

Types of distribution

First, let's look at the basic rules and standards in order to have an idea of ​​the types of distribution. Distribution components:

• Package. Providing adequate packaging for the product so that it can be transported safely.
• Inventory Management. Maintaining high and stable inventory levels is extremely important to distribution and is one of the primary responsibilities of distribution management.
• Order Processing. Once an order arrives from a customer, distribution management must schedule delivery. This includes picking the product, loading it, and delivering it on time. For this step to be valid, confirmation must be sent and an invoice must be issued.
• Logistics. For all orders, it is important to consider the mode of transport for delivery. If they require overseas shipping, agreements must be in place to obtain approvals quickly. Loading and unloading operations must be handled in such a way that all necessary equipment is available on site.
• Connection. Clear communication is essential both inside and outside of distribution centers. This is to ensure that the right items are delivered and customers know when they will receive their items. If a shipment is delayed, distribution management must notify all interested parties immediately.

Qualitative (numerical) distribution

This is a category expressed not in numbers, but in the form of a description in understandable language. In statistics it is often used along with “categorical” data. When there is no natural category system, nominal categories are used.

When categories are ordered, they are called ordinal variables. Categorical variables that define size (small, medium, large, etc.) are ordinal variables. In other words, this is a focus on quality and profit, and not on the quantity of products sold. This option is suitable for expensive products that bring large profits even when selling one unit.

Quantitative (weighted) distribution

Numerical distribution refers to the number of stocking units or stores that contain a particular brand of product. The numerical distribution helps to calculate the percentage reach of a brand in the relevant market. Digital distribution is not related to the sales volume of a product brand. Thus, the numerical distribution determines how many places a particular brand is available to customers.

The numerical distribution is calculated as follows:

Numerical distribution = (Number of stores carrying a particular brand) ÷ (Total number of stores)

Consider the example of Colgate toothpaste being sold in a store and its sales volume in a particular store.

The shops	Store 1	Store 2	Store 3	Store 4
Volume of sales	5%	10%	15%	70%

Numerical distribution = ¾ = 75%

This shows that Colgate toothpaste is available in 3 out of 4 stores, giving a numerical distribution of 75%. If a certain decision is made in favor of this figure, it can be misleading to the business owners as it is seen that stores 1 to 3 only contribute 30% of the sales volume while store no.4 contributes 70% of the sales volume.

This anomaly can be eliminated with a weighted allocation that takes into account the quality of the allocation, resulting in a weighted allocation of 30% for stores 1–3. Therefore, when making any decision based on product distribution, both numerical and weighted distributions should be considered.

Passive and active distribution

There are concepts of active distribution and passive distribution. These terms do not have a marketing meaning; they only express the subjective attitude of the supplier to the distributor involved in the distribution of goods, either only from a distribution position (passive distribution), or who makes significant marketing efforts to promote the product through the marketing channel (active distribution).

Effective distribution is the final achievement of specified indicators of quality distribution and quantitative distribution with minimal costs (effort, time and money) to complete the task.

Exclusive distribution

This is an agreement between a supplier and a retailer that gives the retailer exclusive rights in a specified geographic area to sell the supplier's product. Often the supplier will strictly limit the quantity of goods it supplies to the retailer.

There are many factors involved in deciding whether to use an exclusive distribution strategy and determining whether exclusive distribution is appropriate for a supplier's product. The supplier must understand:

• what type of product they will distribute;
• what products their products will compete with;
• who is the consumer and why will he buy the product;
• what retail options are available.

Digital or content distribution

Electronic distribution of content is a win-win option that requires minimal costs. The electronic version can be copied an infinite number of times at no cost. These items include video games, computer software, movies, music and e-books. Due to the ease of purchasing and immediate receipt of purchase, this industry is growing rapidly and is highly profitable.

Unlike physical distribution, electronic distribution must be fast to be successful. Customers who do not receive a download link within minutes of purchase will turn to other providers.

The downside to this form of distribution is that receiving products requires a constant internet connection, and the file formats can become corrupted or downloadable, which can lead to customer dissatisfaction.

Benefits of cooperation with distributors

The following are the advantages:

• rapid business growth;
• making a profit in passive mode;
• advertising in partner networks;
• guarantee of profit and insurance against unforeseen situations.

How to become a distributor

Wholesalers can sell any product, including food, electronics and furniture. As a wholesale distributor, you will run an independently owned and operated business that purchases products and sells products for which it is licensed. Typically, such a business operates out of a warehouse where goods are received and then shipped to customers for profit. Let's take a closer look at how to become a wholesale distributor.

• Decide what will be implemented. You can distribute almost anything, but it pays to know about the product you are selling.
• Find out if the business can be profitable. Contact product manufacturers and find out the exact cost of each product. Determine the exact cost of delivery from the manufacturer to your warehouse, as well as from your warehouse to your buyer. Be sure to include the cost of storage plus any incidentals. Finally, add profit for yourself. Once you have all this information and have determined the final price of the item, consider whether the market will pay the price you would like.
• Open a business account, submit a tax identification number, and obtain all necessary licenses.
• Arrange financing if you think the business can be profitable. Calculate how much money you will need to deposit over at least three months.
• Equip your warehouse, place your first order and work with it.

Distribution agreement

This is an official document concluded between the supplier and the distributor. The contract specifies the following:

• liability of the parties;
• terms of contract termination;
• fines and sanctions;
• duration of the contract;
• requirements and deadlines for reporting;
• profit and distribution of funds.

Each company has its own contract, the number of clauses may differ, but regardless of the charter, the contract must be clear, it must clearly describe the conditions and features of cooperation.

Distribution channels and how a distribution network is built

Algorithm: building a distribution network

The classic strategic planning algorithm includes four stages.

• Collection and analysis of data, making assumptions. Analytics will help you immediately direct the company in the right direction and increase profits and sales growth dynamics.
• Distribution network modeling. At this stage, several variants of the distribution network model are developed based on the data collected in the first stage and the assumptions made.
• Selection of the optimal model and its implementation. Depending on the type of product, you need to choose one of the methods described above.
• Dynamic network modernization. Regardless of the type of product, you can change and/or supplement the set of promotion methods with new ways. For example, CDs, which were previously sold only through physical media, are now sold through online stores. This also includes training and coaching, which are now sold in the form of consultations via Skype.

A distribution network helps to develop a business faster and more efficiently, expands the scope for increasing sales, and allows you to use all available promotion methods.

The largest distributors in Russia

For convenience, all data is collected in a table. You can immediately notice that they are all located in Moscow.

Typical distribution channel options

Marketing distribution can be divided into categories of locations. Examples of distribution channels include:

• A manufacturer may hire a distributor to contact suppliers or retailers to purchase their product.
• The supplier can list its shares on the market so that sellers can find and sell them.
• A retailer can stock a wide range of products strategically placed throughout their store to entice customers to buy.
• A wholesaler can create a website to allow customers to order products directly from them.

Standard distribution errors

How they make mistakes at the start.

• Lack of analytics. Neglecting analysis and testing of the market results in loss of funds and bankruptcy of the company in a few months.
• Distribution in two companies simultaneously. Most contracts do not allow this, but even if the contract does not contain such a clause, distribution "in all directions" brings more costs than benefits.
• Multi-level distribution. Selling a product as “Product within a product” is a losing strategy. This method discourages confidence in the distributor and reduces the percentage of sales. Imposing additional services and products also reduces the conversion of casual customers into regular ones.

It is worth noting that there is no single and best type of distribution, otherwise all the others would not exist. Let's consider the main postulates of the article:

• before starting to create a network, you need to familiarize yourself with market analytics and think through a plan;
• It’s never too late to add another sales channel or eliminate an unprofitable method;
• Everyone makes mistakes, but not everyone eliminates them;
• It’s better to start with electronic distribution, since it doesn’t require much investment or practical skills.

Both distribution and wholesale trade have the right to life in modern market conditions, but the best choice would be their alternation and skillful combination.