Expanding Your Sales: Distribution vs. OEM

Richard Atkins

Jan 15, 2013

One of the most common questions we are asked by manufacturers is whether it is better to expand sales through own brand distribution or OEM.  This question is particularly relevant when stating out or expanding into new global territories.

Distribution tends to be a more cooperative relationship where companies work together to promote your brand and products in different territories. Time needs to be spent nurturing these relationships so that the distributors will have an in-depth knowledge of your products and their strengths.  A summary of the advantages and disadvantages of using distributors includes:

Advantages:

+ Products are sold under your brand

+ The best distributors will help to promote your products and brand as you want

+ Quickly expand presence in global markets without having to set up infrastructure

+ Typically demand less discount than OEM

 Disadvantages:

–  The more labour intensive of the two options, typically it can take a year to get distribution contracts signed and distributors up and running globally

–  Not all distributors undertake their own marketing activities, so you retain most of the expense & efforts on a global level

–  You may need to manage many more relationships for global coverage compared with the OEM route

OEM agreements allow one company to sell their product to another (generally larger) company to relabel and sell as their own. This has allowed antibody companies in particular to build up vast ranges of products and has flooded the marketplace with a huge number of “me-too” products (quite literally in this case). There tends to be bigger advantages and disadvantages to Distribution which is why it’s such a difficult decision to go for one other the other:

Advantages:

+ Quick access to market

+ Quick revenue

+ Sustained growth

Disadvantages:

– Lose control of your brand

– Create a new competitor which has a bigger marketing budget and products that are as good as yours!

– Generally, demand a bigger discount than distributors

– Marketing of your own brand is still required if you are not to rely solely on the OEM supplier for your revenue.

If you have the finances then PSL would tend to recommend retaining brand identity and establishing a distributor network.  PSL has contacts with the best distributors across the globe, so can help to set up and manage the distribution network quickly and effectively.  We offer distributor training to allow you to focus on what you do best – developing new products.

If you decide to OEM your products, then PSL can introduce you to the key decision makers in some of the best suppliers around the globe.  These decisions do not need to be all or nothing, a subset of products may lend themselves to being OEM while more unique products could be retained under own brand.

the choice between OEM and Distribution should fit into your overall business strategy encompassing both a sales and marketing plan and with due consideration to any planned exit strategy.  If you have a sales expansion dilemma or would just like to discuss best routes to market whether distribution, OEM or a blended model then please contact us.

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