A recent article in McKinsey Quarterly defines one of the key values that distributors offer to manufacturers in terms of getting a product efficiently into markets that are fragmented, either geographically or by size of industry or company. It serves to remind us that the local knowledge of a distributor of its market and customers is its greatest asset.
The article looks at the high-tech industry -companies that make computing, telecom and networking equipment. They have in recent years sold directly to customers or to resellers online or through their sales forces and have become less dependent on traditional distribution partners. But as OEMs look for growth in new markets, this article contends that they should “take a closer look at the value offered by some distributors -particularly those known as two-tier distributors -so named because they buy from manufacturers and sell to resellers.” Especially in the developing world, distributors can help manufacturers sell to small and mid-size companies.
Some of the benefits outlined in the article:
- Cost of a manufacturer’s direct sales force is “prohibitive” compared with using a distributor.
- Distributors that sell multiple brands can gain scale and serve markets more effectively.
- Smaller companies prefer to buy from distributors.
- Local distributors are better at assessing credit risk in emerging markets and can finance smaller deals.
- Local distributors can better forecast local sales in emerging markets.