The expansion of sales markets almost inevitably requires the inclusion of new professional figures and intermediaries in the business. What is the difference between dealers, distributors and sales agents, and most importantly – which one is more profitable?
Everything was simple before. Every person who sold or resold something was called a merchant. But in our time, everything has changed: dealers, distributors, sales agents, brokers, commission agents and other intermediaries have appeared, and it is not easy even for entrepreneurs, not to mention ordinary people, to understand their differences from each other.
Why have so many intermediaries divorced? Yes, because selling goods directly is not always realistic. Sellers and buyers can be separated by hundreds and thousands of kilometers. Any distance is always a cost, logistics. And it is very difficult to understand exactly what exactly and in what volumes buyers of another region want without the assistance of a third party. Thanks to intermediaries, the movement of goods becomes more efficient and economical.
Dealers and Distributors: What’s the Difference?
So who are the dealers? Dealers are usually called sellers who buy goods from the manufacturer in small or large wholesale and then sell them at retail in their region. They acquire goods in the property, and then they themselves sell it on their own behalf and through their own stores. The dealer can independently set the final price of the goods or use the manufacturer’s recommended price.
An important feature of the dealer is that he occupies the last place in the commodity exchange chain and works directly with the end buyer. Due to the fact that there are a lot of goods and services, and their specifics vary significantly, dealers can be any wholesale and retail companies that act as intermediaries between the manufacturer and the consumer. If everything is more or less clear with the commodity sphere, then in the service sector, for example, dealers can be legal entities that distribute communication services under an agreement with a mobile operator.
Distributors are often confused with dealers. Unlike dealers, distributors usually do not deal with end customers and do not work on their own behalf, but on behalf of the manufacturer. It is important for distributors to promote a specific brand, while for dealers the popularity of the products they sell may not matter. Distributors act as intermediaries between manufacturing companies and dealers, mainly engaged in large wholesale deliveries. That is, distributors are a higher level than dealers. In practice, a distributor can be either a large company, for example, a transnational corporation (TNC), or an individual entrepreneur.
Both the dealer and the distributor are engaged in sales, restocking products, looking for ways to sell it, but the distributor is primarily interested in creating and expanding the dealer network and finding new intermediaries. Therefore, distributors are also called distributors. Usually they do not buy goods in full ownership. They have various kinds of discounts and benefits from the manufacturer – commodity credits, deferred payment, the right of the first shipment. All these benefits, however, require distributors to implement a fairly strict market policy of the company. For example, they need to conduct an extensive advertising campaign, constantly expand the circle of potential customers, hold presentations and meetings with buyers. In addition, distributors may be prohibited from purchasing and selling competitors’ products.
Who is more important: dealer or distributor
In order to create a full-fledged distribution network for its products, a manufacturer needs both distributors and dealers, because both of them are somehow intended for the sale of goods. Naturally, distributors can be considered a more significant link, as they develop the network and create large volumes of sales. Typically, dealers are created by distributors to increase market coverage and are directly subordinated to them. At the same time, if the dealer manages to significantly increase sales volumes, then he can become a distributor.
Due to this, it can be concluded that from a financial point of view, a distributor is more important than a dealer. However, if dealers are completely removed from the trade chain, then the distributor will have to find buyers on their own, which will have a detrimental effect on the final profit. Therefore, both parties are needed in the trading process.
Who are Brokers, Agents and Commissioners?
A manufacturing company can also implement a marketing policy with the help of another type of intermediaries – agents. Agents are paid in the form of commissions. They do not need to buy goods in the property, and sales are usually carried out from the manufacturer’s warehouse. There are several types of sales agents, and the relationship of agents with manufacturers is negotiated in their own way in each specific case. For example, agents may also be prohibited or permitted to distribute similar products from competing suppliers.
The most common type of agents are producers’ agents. Typically, such agents represent two or more manufacturers of related products, with each of which a separate agreement is concluded, which indicates the pricing policy, territory of activity, delivery terms, commissions, and so on. Agents are usually small commercial firms made up of skilled salespeople and have extensive connections with buyers.
If the manufacturer does not want or cannot sell, then contracts can be concluded with authorized agents who receive the right to sell all the company’s products. Authorized representatives have more free hands: there are no restrictions either on the territory, or on pricing policy, or on the terms of sale. In fact, authorized agents perform all the same functions as sales departments at enterprises.
In some cases, agents may take physical possession of the goods, enter into transactions on their own, and have inventory on consignment terms, that is, payment for the goods sold after a certain period of time. Such an agent does not guarantee the sale of goods, works without a contract and, as a rule, without a long-term relationship. Such sales agents are called commission agents or commission wholesalers.
Brokers are another type of sales agents. The task of brokers is to bring buyers and sellers together and help them reach an agreement. In other words, brokers are the third official party to the contract, which helps the other two to establish contact with each other. Brokers do not hold inventory, do not take part in the financing of transactions, without taking on any risks. They always operate with the consent of one of the parties, the terms of the transaction are negotiated in advance, and the contract indicates exactly what actions the broker must take in order to achieve a positive outcome for his customer.
When and why are sales agents needed?
If manufacturers resort to dealers and distributors with large volumes of deliveries, then sales agents are used with a very narrow range and limited sales volume in different market regions. The agent trades no more than 30 items and can focus on one product with a limited market, which a wholesaler cannot do.
The advantage of using agents is, firstly, cost-effectiveness: usually it is 2-6% of the sales volume, while wholesalers charge 13-25%. Secondly, agents are convenient to use to enter new markets and promote new products. Therefore, agents are most often hired by representatives of small businesses who cannot afford the maintenance of their own staff or larger enterprises, but who want to master, “probe”, new markets.