Manufacturers are the first link in the chain. They offer the products they produce, sometimes through intermediaries, and sometimes directly to the customers. The most preferred product distribution channels of the manufacturers can be considered as the following.
Direct product distribution channels
Manufacturers are the companies that research, develop and produce the finished product ready to buy. Manufacturer to customers is a widespread product distribution channel for expensive industrial products such as capital installations, heavy equipment, and machinery. This direct channel is popular since customers place orders directly to industrial manufacturers.
The starting point of the supply chain is manufacturers. Manufacturers generally have a minimum order size that can be too high for many small businesses. Most manufacturers start producing any product after the customer’s purchase order. This operating way can create a longer waiting time than dealers and distributors. However, if what you need is not ready-made or mass production, manufacturers can produce large volume orders to exactly the specifications you need. Manufacturers are ideal where price, efficiency, and complexity are top priorities. Large-scale industrial customers purchase goods from manufacturers to benefit from the lowest prices because there is no intermediary in direct product distribution channels.
Close business relations are necessary between the manufacturer and the customer because purchased products directly affect the buyer’s business activities. The manufacturer company participates in some activities with the buyer, such as installation, commissioning, quality control, and maintenance. This company is responsible for many aspects of its products even long after selling them.
Manufacturer ➔ Distributor ➔ Industrial Customer
Distributors are independent companies with product distribution rights to goods manufactured by others. Some manufacturers sell their products only through direct product distribution channels. In such cases, industrial buyers have no choice but to purchase from distributors. These companies usually comprise sales, logistics, and support teams. They take possession of the products they sell. They act as partners with their manufacturers.
The distributor company buys products directly from the manufacturer, holds an inventory of the product, provides after-sale services, and resells the product to dealers and sometimes straight to industrial customers. In industrial markets, there are three main types of distributors. Those are intensive , selective , and exclusive.
When manufacturer/vendor companies want to sell their products through the broadest possible channel as quickly as possible, they typically use intensive product distribution channels. Intensive distributors may work with many manufacturers or vendors. These distributor companies earn lower margins by selling high quantities of goods at lower prices. For industrial products where demand is high, intensive distributors are a very effective route to sell products to industrial customers quickly. While profit margins are usually lower, intensive distributor companies can benefit from improved cash flow.
Selective (Authorized) distributors:
These types of product distribution channels are also called authorized distribution model. Selective distribution is where manufacturers/vendors select and authorize specialized and experienced distributors to distribute their products. Manufacturers/vendors may restrict the range of customers that a distributor can supply according to geographic locations or industry types. Selective distributors maintain a high level of service and customer satisfaction. Manufacturer/vendor organizations retain distributor pricing for the whole distribution channel to reach the target market effectively.
Exclusive product distribution channels
Exclusive product distribution channels are the most popular and steady distribution type in industrial markets. This type is favorable when the manufacturer/vendor’s product has a niche market and targeted customers. Depending on the agreement, the distributor company may be limited to selling only one product brand. According to the manufacturer’s or distributor’s relative power, distributors may take more initiative.
Exclusive distributors are usually responsible for a particular territory that might be part of a large region or containing more than one country. Distributing through exclusive distributor companies is an effective system when channel control is essential to maintain brand integrity, brand image, and price policy. An exclusive agreement usually allows the distributor to sell to all industrial customers and retailers in the specified region. These companies act as the fully authorized representative of the manufacturer/vendor’s brand.
Manufacturer ➔ Agent ➔ Industrial Customer
An agent is an independent person or an organization acting on your behalf. Although an agent can arrange a sale, the sale contract will be between the manufacturer and the customer. Essentially, product ownership is the main difference between distributor and agent. Distributors take ownership of the products and sell them to their customers. However, an agent sells products on your behalf that you continue to own and bill to the end customer.
Agents are intermediaries who have the authority to negotiate the sale of goods on behalf of the manufacturer or vendor —aka the product owner—. They may deal with the sale of products on behalf of the owner. Agents don’t take responsibility for products because they do not own them. In product distribution channels, agents can bring very productive results when managed appropriately. The more support they get from the manufacturer/vendor, the more they contribute to the sale.