Life Science Distribution Agreements: A Distributor’s View
Feb 4, 2016
Feb 4, 2016
By Jonas Baeuerle, Business Development Manager at Biozol
ReagentHub’s blog from September 15th introduced several Distribution Agreements and their advantages and disadvantages. In this follow up blog I would to take the opportunity to give insights about each type of agreement from a distributor’s point of view.
I often have the feeling that life science suppliers are not very familiar with the different types of distribution agreement available to them and how each can have a large impact on their relationship with their new distributor. It is also important to understand the country and culture of each distributor as this will give you insights in the type of distribution agreement you should be offering them.
In light of this, I thought it would be useful to review each type of agreement again and to offer insight in how a distributor might view them to help suppliers to understand the benefits and problems different distribution agreements can cause.
Distributors that have signed an exclusive distribution agreement with a supplier will invest a significant amount of time and money to market and promote the supplier’s products in their territory.
The reason for this is that Distributors know that all the effort they expend will be rewarded as all orders are handled by them and all direct leads will be forwarded to them as well.
It is also possible to work very close with the supplier regarding marketing activities. The distributor can work with the supplier to create country specific brochures, they can recommend trade shows for the supplier to attend and can exhibit on their behalf too. Looking deeper, both companies can do Internet marketing together such as Search Engine Optimization, Google-Adwords campaigns and newsletters & promotions.
There is a big potential for both sides when entering into an exclusive distribution agreement but there are also risks. Both the Supplier and Distributor have to be realistic in their potential in the market. So before signing an agreement I recommend that both parties discuss what could be achieved in the 1st, 2nd and 3rd years and reassess the targets each year to see what could be improved if sales are lower than expected or how to continue the growth if they are higher.
Once you have signed an exclusive agreement with a distributor, it is important not to ask too much from them. We recommend not asking that your distributors do frequent sales reporting – every week or even every month. The most important thing for an Exclusive Agreement is trust: the supplier has to trust the distributor that they are investing time and effort over and above what they would do with a non-exclusive agreement, whilst the distributor has to trust the supplier, that their products has good quality and they can offer it with pure conscience. If both have the same strategy and you work really close together there is a big potential to increase your sale and make your brand well-known in the market. We recommend that meetings are held quarterly and that a face to face meeting is held once a year – either at each other’s offices or at an international conference or exhibition. Communication is the key to making an exclusive agreement successful.
An exclusive distribution agreement is one of the best agreements for both sides if both companies are willing to invest in each other – to be in close contact and to be open with each other at all times.
Territories where exclusive agreements work really well include most of Europe and some countries in Asia such as Japan, Taiwan and South Korea. Other territories where exclusivity should be discussed include countries in South America, Africa and the Middle East.
Recently, the majority of distribution agreements that suppliers use are non-exclusive. At both Biozol and the distributors that we liaise with the feeling is that these types of agreements hold only small advantages for suppliers but no advantages whatsoever for distributors. Most suppliers think that by signing a number of distribution agreements in any given territory that they will increase the number of potential customers for their products, and that is true to an extent.
However, from a distributor’s viewpoint – if you have a non-exclusive agreement it is always hard to focus your sales & marketing efforts on these suppliers due to a number of reasons:
In spite of their popularity, in Biozol’s opinion non-exclusive agreements are the least effective contract for both distributors and suppliers.
Countries where non-exclusive agreements are more suitable include the USA, India and China due to the size of each country.
For a distributor, there are many similarities between a co-exclusive deal and an exclusive deal:
There are differences between co-exclusive & exclusive which may be viewed as positive or negative dependent on your viewpoint. These can include setting sales targets – this can be done with greater authority for exclusive deals. If both parties aren’t clear on the terms of the deal at the outset then one company could undercut the other to generate a sale or works with a customer type that they shouldn’t then there will be a big loss of trust. For smaller companies we would recommend an exclusive deal to get the distributor to invest in sales & marketing. Larger companies with more resources may benefit more from a co-exclusive deal.
A co-exclusive deal is a very good agreement for both sides, supplier and distributor. As long as both have the same goal and working close together, this kind of agreement has big potential.
Co-exclusive deals work in territories were exclusive deals are popular.
Each of the distribution agreements above has their own advantages and disadvantages, and as a distributor we mostly have to agree with the terms that a supplier offers us. However we hope this blog has persuaded suppliers to be more aware of the options and has to give distributors the opportunity to explain what they could do to promote their products if they were to sign an exclusive or co-exclusive contract with them.
Biozol is a leading life science distributor based in Germany. If you are a manufacturer and would like to speak to Biozol about increasing your sales in this important European market please email email@example.com and we will introduce you directly.