Branding through business-to-business distributors

Luckily, you are just seconds away from some very smart brand marketing solutions. Click here!

Key points

Definition

There is a notional value chain in markets that runs from the first supplier of raw materials to the actual user of the final product.

For these purposes, a distributor is defined as someone, within a business-to-business context, who can give manufacturers and wholesalers access to customers further down the value chain, without significantly altering the product.

Communication and logistics channel

The Internet has made explicit what was only implicit before - that distribution is about channels of communication first, and about logistics second.

A brand has to be communicated, and distributors are two-way channels. They help communicate your brand by giving it "air time" in front of the customer (via shelf space, catalogs, their sale force etc.). Equally, they receive communications from their customers, either explicitly in terms of comments, or implicitly in terms of buying behavior.

Mutually supportive relations

The roles of the manufacturer and the distributor are mutually supportive in the branding process. The extent to which distributors help to build manufacturers’ brands often goes unrecognised.

By stocking a manufacturer’s products, a distributor is implicitly endorsing the brand. The stronger the distributor’s own brand, the more effective the endorsement. When a manufacturer gains high levels of weighted distribution (i.e. the brand is available through the major distribution channels in the industry), customers see the brand everywhere they look and assume it must be good because everyone appears to be using it - otherwise the distributors would not be giving it so much "air time". One way manufacturers can assist this process is to ensure that their communications and packaging underline how much "air time" distributors are according the brand, so it is critical that all products are seen to belong to the same brand family.

On the other hand, by stocking the brand leader’s products, distributors build their own brand. They must be reputable distributors if the brand leader is dealing with them.

Most advertising works in practice by persuading distributors to provide the brand with increased "air time", by featuring the brand more strongly in anticipation of greater customer demand. Arguably, brand advertising might work even if no customer ever saw it, so long as the distributors thought they did.

Distributors’ brands

Over the last few years, distributors have started building their own brands around the products they sell as well as the services they provide.

Manufacturers have tended to resent this, viewing their most powerful distributors as potentially their biggest competitors. The question is then asked on both sides "Who owns the customer, us or them?"

In fact, each type of brand – the manufacturer’s brand and the distributor’s brand – has its place. Manufacturers tend to build their brands around their products, and distributors tend to build them around their services, so it is rare for a distributor’s branded products to command a higher price than those of the leading manufacturer.

The key lesson is that no-one owns the customer. Both manufacturers and distributors must invest in building their brands with the customer. A manufacturer with a strong brand at the customer level has considerably more bargaining power with the distributor. Equally, a distributor with a strong brand will usually be a critical channel to market for major manufacturers. Neither has a natural role to play; you get to play the role the customer finds most credible.

Why distributors choose manufacturers

Distributors tend to work on the principle of maximising their revenue from the effort expended and the warehouse space available.

The key elements of the calculation as to whether they stock a particular manufacturer’s goods are:

• Market demand – the easier the product is to sell, the more likely the distributor is to stock it. There is always the danger that if they do not stock a major brand, the customer will go elsewhere
• How many alternative brands they are already stocking, and the role of each in the market place

• The profit per unit, which is a combination of the price the product can command in the market place and the level of margin (profit) the manufacturer will allow the dealer
• Historical relationships – these tend to be much more important than in the retail sector. Many distributors’ businesses have been built on the back of the success of a few manufacturers, to whom they owe considerable loyalty

The issues the distributor is most likely to raise with the manufacturer are:

• The selling-in (purchase) price
• The margin
• The delivery service

Of these, the selling-in price and the delivery service will tend to cause a great deal of friction between the two parties, but the margin is the only one that is likely to truly threaten the relationship.

If there is significant market demand for a brand, it commands a premium price, and the distributor is making a healthy margin on it, they will stock it if they can. After all, a general reduction in the selling-in price does not really help anyone as it will lead to a general reduction in the selling-out price, which will reduce profits all round; and delivery service in the business-to-business sector is very much less certain all round than in the retail sector.

Luckily, you are just seconds away from some very smart brand marketing solutions. Click here!

For further information, please contact enquiries@mudvalley.co.uk

© 2004, Mud Valley ™ brand marketing community.

Related answers