In industrial markets, intermediaries may be the key factor in the success or failure of a company. Particularly in today’s global markets, manufacturers have great difficulty in serving markets directly, and therefore rely on intermediaries either in their home country or overseas to handle distribution. But also for consumers, distributors fulfil various roles. What are the functions of distributors? What roles do they play for manufacturers and consumers? In this article, we will investigate how distributors add value in the distribution process by looking at the different functions of distributors.
Table of Contents
Distribution can be defined as the process of delivering the right products, at the right time, in the right place, and in the right condition for consumers to buy them. Clearly, getting the products to the right place for consumers to be able to buy them is a part of marketing. However, getting products to the right place at the right time in the right quantity is the function of distribution. This role can be further divided into a number of different functions of distributors. In the following, we will differentiate between the functions of distributors fulfilled for consumers vs those fulfilled for manufacturers.
Functions of Distributors for Consumers
In today’s globalized world with markets exceeding national borders, manufacturers have great difficulty in serving markets directly. They therefore rely on intermediaries either in their home country or overseas to handle distribution. These distributors therefore serve the following functions for the end-customers (consumers).
Firstly, the functions of distributors involve the provision of fast delivery. This means that local distributors in the target countries hold buffer stocks, so that customers will not be held up by shortages of raw materials, components or spare parts.
Secondly, distributors provide a segment-based product assortment. This means that distributors such as tool distributors carry a wide range of tools for specific end-users.
In addition, distributors provide local credit to end-customers. They may be able to provide credit facilities in the country in which they operate. Clearly, due to differing financial control regulations, a foreign company would probably be unable to do this.
Further, distributors fulfil the role of providing product information. In other words, distributors can promote the products using the local language and cultural referents.
Going on, we see that distributors also assist in buying decisions. Distributors can often give advice about several manufacturers’ products, and can help consumers in decision-making since they are likely to have knowledge of (for example) reliability and availability of spare parts.
Finally, distributors can anticipate needs. Because the distributors know the local market and are closer to consumers, they are often able to guess what customers might need and advise manufacturers accordingly.
Functions of Distributors for Manufacturers
The functions of distributors go beyond those that are fulfilled for consumers. As already said before, manufacturers are typically unable to serve markets directly, especially in today’s globalized world. Therefore, they need distributors to help them in the process of getting the product to the final customers. In addition, since consumers are usually well aware of the potential benefits provided to them by distributors (see above), they will choose a distributor that is able to meet their needs. This is why choosing the right distributor in an overseas market is crucial for the manufacturer, as the distributor is like the gateway to the market.
The following functions of distributors for manufacturers can be identified.
Firstly, distributors fulfil a role that may be quite obvious: they buy and hold stocks for the manufacturer. In most cases, distributors actually buy the goods from the manufacturer, which frees up working capital for the manufacturer.
Secondly, the functions of distributors involve that of combining manufacturers’ outputs. End-users almost always buy from several manufacturers. This means that they will be exposed to the firm’s products even if they currently use a competitors’ products.
In addition, distributors can share credit risk. Although the manufacturer will offer credit to the distributor, this is less risky than offering credit to the hundreds of customers the distributor deals with, especially since the manufacturer will only have limited access to information about the creditworthiness of end-users.
Next to credit risk, distributors also share selling risk. The distributors have a stake in selling the products, since they have made a commitment by buying the products from the manufacturer. This means that they will be motivated to sell the products. In the event that sales are disappointing, the loss will be shared between the manufacturer and the distributor.
From a marketing perspective, one of the most important functions of distributors is that they can forecast market needs. Distributors are clearly closer to the market and are better placed than manufacturers to forecast what their customers will need. By providing this information to the manufacturer, the latter is better able to provide superior value to consumers.
Finally, distributors provide market information. They are well-placed to share information about the market, about competitive activity and so forth. From a manufacturer’s viewpoint, this information is invaluable for future competitiveness in the market.