What are the differences between Distributor, Dealer and Franchise?
Manufacturing is a process of know-how, research and development and engineering which vary from industry to industry. Although, higher investments and skilled employees are required in production business, selling is a completely different platform and require much more focus on the customers and commercial details. Despite enormous increasing on the number of production companies, the attention to the sales companies, consultants, and wholesalers increased significantly in last decades. Since the invention of marketing and sales systems, it challenges manufacturers to have successful sales systems even though high investments are being paid to the advertisements, marketing and efficient sales strategies. Today, companies hire professional consultants to have more efficient sales and catch long term success on the business.
The big-time winner in sales business is the invention of franchising system by Albert Singer n mid-1800s. Albert Singer used franchising as a means of distributing his sewing machines throughout the United States. He is credited as the first franchisor in the United States and the first to develop a franchise contract. Today, it is clear to many manufacturing companies that producing is one thing while selling something is completely different story. This is the reason why almost every manufacturer who look to increase sales are seeking to establish dealership network in every region. It’s quite a challenge for companies to obtain local conditions and reach to the end customers in every region since each market has its own rules and culture. However, creating an efficient dealership network solves this problem and elevated the sales along with the success of the companies.
There are many methods of creating a sales network locally and globally but all of them share the same philosophy behind: “win-win”. The most common ways are known to be distributorship, dealership, franchising and agency models where manufacturers create a chain of re-sellers in the region and decrease the number of contacts from every region.
Distributors are the main suppliers of the products in the specific region and they usually sell to dealers. Depending on the details of the agreements, distributors might be authorized as an exclusive supplier of the manufacturer or some of the products of the manufacturer for the entire country or only for some regions. However, obtaining these exclusive rights are not so easy and obviously brings more responsibilities which mean more startup costs for the distributors. To get an exclusive distributorship authorization, companies are required to buy minimum amount of goods per year, asked to prove to the manufacturers that they have enough capacity to handle the exclusive region with their current sales channels and even are required to give warranties or bonds to the manufacturers in return of getting authorized exclusively. Although, it changes from sector to sector, manufactures tend to be careful with giving exclusive rights to a single company for the region for a certain time which might also decrease the current sales and waste of time in the market if the distributor fails to be successful.
Dealers are the buyers of the distributors and they get benefits of freedom, yearly bonuses and promotions of the distributors in the market. Compared to a regular company, most of the times dealers get better prices which allow them to be more competitive in the market. Dealers are not always required to have minimum amount of purchase and not asked to keep high value inventories since there is already a distributor company doing that so. Moreover, the after sales services are shared between the distributors and dealers and many times distributors ask dealers to solve service problems locally with their supervision and support. Dealership system has been very efficient in food, medical, electronics, automotive and machinery sectors.
Among many systems, franchise has been chosen as the best fit for restaurant chains and real estate activities. Franchises are successful if there is a well-established brand in behind and currently consumed by the customers in the market. For example, restaurants who give franchises in different regions, do the whole set up and create and design the entire store according to their own rules and terms. A franchisee only recruits the necessary staff and make an investment to establish the store while additionally they pay annual fees to the brand as a return of the services. In some markets, franchisee companies also pay certain commission to the brand from the annual sales and also required to maintain certain conditions in the business such as the conditions of the stores and required skills and number of staff working at the franchise.
World market is enlarging every day and business opportunities are available to those who want enter to a business or grow by making such partnerships described in this article. From local companies to large scale global corporates, the target is very clear: make more profit and profit requires quality, strategy and partnerships especially for those who would like to sell outside of their base country. The dream of every company to export and be known internationally also make it possible to enlarge their sales network in one way or another. Whichever the sales network model is chosen, companies need successful partners in the regions of their interest and support each other in the best way possible.