Creating Profit Through Alliances - business models for collaboration E-book | Page 41
Distribution agreements and franchising
These forms of collaboration each seek to increase
the number of sales points for your product or
service. This can be in the form of your own shop, an
Internet channel, or by being included (as brand) in
the assortment of a larger store. Your distribution
channels ensure that the customer encounters your
products or services more quickly and can purchase
them more easily.
Generally speaking, a distribution channel fulfils the
following functions:
Information: to gather and spread market
research and intelligence
Promotion: to develop and spread
announcements about special offers
Contact: to communicate with potential buyers
Matching: to adjust the offer to a quantity that
meets the needs of the buyer , including
assembly and packaging
Negotiation: to reach agreement about the price
and other conditions concerning the offer
Physical distribution: transport and storage
Financing: applying capital to maintain stocks
and incur costs before payments are received
Risk taking: to maintain stocks of products and
invest in processes without guaranteed sales.
If distribution takes the form of a distributor placing a
number of the supplier's products on his shelf and
adjusting his purchase depending on the sales, this
does not meet the criteria of a partnership. There is
hardly any risk sharing, and certainly no joint
operational management. This changes as soon as
the supplier and distributor decide to work together
in marketing, sales and delivery. As a result, the
distributor will take a greater interest in the supplier's
product or service. It may be that the distributor, in
return for taking a greater interest, will demand the
exclusive distribution rights for his region or customer
group.
In case of franchising, the relationship becomes closer
yet. Here, the distributor enters into an exclusive
bond with the supplier, no longer working under his
own brand name but only under that of the supplier.
It is no longer or hardly possible for the distributor to
sell products or services of another supplier, and the
distributor/franchisee is bound to strict rules with
respect to shop interior and marketing
communication.
For both exclusive distribution and franchising, the
parties share in the risk that sales may disappoint and
thus not justify each other's efforts and investments.
In case of a distribution agreement the distributor
holds the reins, and the supplier will want to steer
along through generic marketing. In case of
franchising it is generally the supplier that holds the
reins, and the franchisee will want to steer along
with respect to his own sales area.
The value of a partnership for a supplier can be
quantified by considering the effort the supplier
would have to make in order to set up an alternative
means of distribution that achieves the same effect.
Relevant aspects to consider here are:
elaborating a shop concept;
leasing or buying and then furnishing
commercial space;
leasing or buying and then furnishing sales
offices;
hiring, training and managing sales personnel;
conducting local marketing campaigns and
developing sales promotion activities;
tending to the financing and possibly the
storage of goods.
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