Sales and Distribution Channels for Manufacturers in Europe
When choosing sales partners and a distribution channel, you are making an important strategic decision. For exporters and manufacturers, this decision cannot be changed later on without much effort or high costs. Therefore, this choice is fundamental for the long-term and strategic importance of your European business sales organisation. In the European markets, there are different distribution channels and sales opportunities, depending on the industry sector.
The channels you deploy to go to the market directly impact the effectiveness of your sales strategies and the profitability of your future turnover.
All different channels have unique characteristics, performance and costs, depending on your product assortment and who you are selling to. Leading sales organisations understand and operate their channel mix to achieve optimized revenue whilst delivering the value and brand experience customers feel they deserve.
Distribution and sales companies vary in the following ways:
The level and depth of technical service and advice they provide
The industries in which they operate
The clientele they work with
Their method of regional expansion (i.e., local dealers vs. distribution chains)
The range of services they provide (e.g., stock keeping, repair, maintenance)
Selling Through Wholesales and Distribution
Many international manufacturers start their sales through wholesalers and importers. They don´t have direct access to the European market and they don´t have a sales organisation in the market. This leads to sales chains such as this:
Chain for international manufacturers using wholesales and distribution
Manufacturer → Wholesaler → Distributor → Customer
Here, the customer is the end user of the product and either a company (B2B) or a consumer (B2C). Many products are suitable for this type of sales channel, though some are not. Often, this model applies to products that need only few additional services or support to succeed. If documentation such as an instruction manual is provided and sufficient, this sales model may be acceptable and suitable for many exporters. But this model has its limitations when products are more sophisticated.
If products are sold through organisations that sell many different products, even competing products, the exporter cannot expect the importer or wholesaler to give much attention, service, and promotion to their product. Often, importers and wholesalers even request the Asian manufacturer to deliver products in neutral packaging without any markings. This allows the importer to switch its supplier at any time. Accordingly, the manufacturer receives no promotion or advertising for their brand. Instead, the wholesaler will promote its own brand.
Often Asian exporters are requested to customize the labelling and packaging of the products with another brand name. This typically is the name of the importer or distributor. This way of entering the European market is standard for many Asian companies; in particular, Chinese manufacturing companies and Chinese exporters. They do not have their own access to customers and, therefore, depend on distribution. As this is the foundation of the distribution business, the distributor will not support direct contacts between the manufacturer and the customer. As long as the distributor has sole access to the customers in the market, he is in better control of the business and is in a strong position relative to manufacturers in Asia and elsewhere.
Building up a Brand Name with an Own Sales Organisation
Only a few of the larger Chinese companies have managed to establish a brand name in Europe. The advantages of an Asian manufacturing company having a brand name in Europe are:
Control over prices and conditions
Freedom from pressure to be replaced by an importer
Opportunities to sell a wider range of products
Direct access to customers
For an Asian company, building a brand name is a difficult and expensive task. It requires thorough analysis, a wise strategic vision, and expertise in operations.
For individual industries such as automotive, food, pharmacy, machinery, and tools, industry-specific sales and distribution companies have arisen in Europe that have the best access and close cooperation with their customers on a daily basis. Some operate at the level of large manufacturers, but are only active in certain narrow segments.
Technology products require complex sales solutions including additional servicees
Some serve a wider range of customers in many industries. Suppliers to the automotive industry act as Tier 1 or Tier 2 suppliers and are expected to have qualified experts in place and available for their key accounts around the clock.
For large system builders in turnkey projects, purchasing decisions are made by technical experts, who pass their demands on to purchasing departments, which buy directly from the manufacturer without any distribution. This involves only the sales personnel for the customer and technical experts where required.
Some products are marketed from manufacturers to end users through trade agents. One one hand, trade agents offer a high degree of specialization, but on the other hand they often cover a limited territory. They combine high-level problem-solving skills with sales expertise. If your products are technically sophisticated, this may be a sales solution to consider.
Strategic Choices in Selection of the Sales Model and Channel
Often the product and type of customer industry determines if just one sales or distribution channel is needed to access your target industries, or if you need to develop industry-specific solutions.
Basic Sales Channels for B2B and B2C products
For any new manufacturer that wants to enter the European markets, these general questions arise:
Should we use the same sales organisations and distribution channels as the incumbent manufacturers?
Do we want to compete with manufacturers that are already established in exactly the same domain?
Do we have a competitive advantage that would make the distributor favour our products and services?
The last question is important. If there is no competitive advantage, the distributor will not invest much in a new supplier, but will stay with his existing partners. New manufacturers should be aware of this situation and carefully evaluate their strategic situation and their options.
Some more specific questions to explore include:
What do we believe to be the most promising sales channels?
Do we need to evaluate alternative sales and distribution channels?
What are our chances and opportunities to find alternative European partners for selling in the European market?
Who has access to the customers we want to target?
Do we need our own sales company or representation in Europe?
Market entry into Europe means answering these and other important and fundamental questions for your sales and distribution strategy. Cotanum can help you in analysing your business model and sales opportunities, and in finding the best way for your products and services to reach customers in the European market. Contact us to learn more.