Exporting Series – Agents & Distributors – Part 3 (of 3)
How do I structure the deal and effectively manage the relationship?
So far in this series of three articles on agents and distributors we have explored the key differences; why you would choose to use a middleman; the most common pros and cons; the key factors when deciding upon your distribution model; and how to locate an agent or distributor.
In this last article of the series we will move on to structuring the deal and managing the relationship.
Having decided upon the agent or distributor that you wish to work with, it is suggested that you develop a Memorandum of Understanding (“MOU”) as a framework document to capture what both parties are endeavouring to achieve from the relationship; respective interests and responsibilities. Consider this as a blueprint to table, discuss and agree upon the essential elements for a mutually beneficial relationship.
Additionally, consider trialing the relationship for a finite period of time or to cover a specific project or purpose, supported by the MOU.
It is unlikely that the MOU will be as legally binding as a full agreement, but it will be useful as a stepping stone to the full agreement and to establish mutual trust and confidence.
Once both parties are confident that their respective aspirations can be achieved through mutual cooperation, it is essential that a legally binding commercial agreement is put in place. Professional advice should be sought, and as a minimum the Agency or Distributor Agreement should cover:
• The names Parties
• Exclusivity/non exclusivity rights
• Product Pricing/Service Fees
• Tendering/Quotation arrangements
• Ordering arrangements
• Delivery arrangements & responsibilities/insurances
• Contract Conditions
• Agent Commission Structure/Distributor Buy- Pricing & recommended end customer pricing
• Payment Terms: agents ‘as & when’? Distributors on/before delivery?
• Term: after trial period?
• Termination provisions
• Performance requirements & measures: clear & achievable KPI’s: sales targets for agents, minimum stock levels for distributors, etc
• Sales & Marketing activity/plan
• Reporting requirements
• Force Majeure
• Reciprocal Confidentiality
• Intellectual Property Rights
• After Sales Service/Warranties
OK, so you have negotiated and signed your commercial agreement and everyone is keen and full of positive intentions for the future. Great.
Now it is important that you recognise that the relationship is two-way and needs to be pro-actively managed from the outset, and that your Agent/Distributor needs to be (and feel like) part of the wider team.
Some tips for effectively managing the relationship include:
• Regular communication is critical. Consider a weekly telephone call as a minimum. Also consider including your agent/distributor on your company email circulation lists and company newsletters.
• Consider an induction visit to your NZ facility.
• You and/or your senior manager(s) should regularly visit the territory to support your local ‘partner’.
• Consider product/service training requirements; possibly at induction and to be periodically re-freshed in line with product development or new releases.
• Regular and timely reporting is essential, though often shied away from by the agent or distributor. Reports may be weekly /monthly/quarterly, and should cover performance against agreed KPI’s; and suggestions for improved or changed activity.
• You need clear visibility and comfort that your Agent/Distributor is proactive with their sales and marketing program. Ideally they should provide you with six monthly/annual Sales and Marketing Plans for your consideration and approval.
• You will need to provide quality marketing material, and periodic face to face support in the territory
• You may be required to provide samples/demo product, or contribute towards the costs.
• Consider promotions & incentives, and rewards for surpassing agency sales targets or distributor minimum buy volumes. Celebrate the wins.
• Ensure that you pay serious attention to your own performance – remembering that the relationship is a two way street.
Ideally you will be paying close attention to the above and the relationship will be mutually rewarding. However, you may reach a stage where you are not satisfied with the Agent /Distributor performance and you are seriously considering changing your Agent/ Distributor.
This is a huge call and you must tread very carefully. Carefully look at your options. Should you:
Maintain the status quo?
Maintain the relationship but with changed strategies/activities/support?
Terminate and replace your Agent/Distributor with another party?
Terminate and move to an alternative distribution model?
For each option, consider:
• Your t’s & c’s; your contractual commitments.
• The market impact.
• Implications for your brand.
• Implications for any orders in hand and in the sales pipeline.
• The likely lost ground and time to recover.
• The time and costs in sourcing alternatives.
• Possible litigation/arbitration – possible outcomes, cost, loss of focus.
Some important tips:
• Take your time and constructively engage.
• Seek professional advice : NZTE, legal
• Seek an amicable resolve, even if it is a parting of the ways.
So to wrap up this series on how to identify and effectively manage an agent or distributor:
Take time to research and carefully consider your distribution options/model.
Carefully consider any partnering criteria.
Seriously consider starting with a trial.
Underpin the relationship with a robust agreement.
Include clear and achievable performance targets and regular reporting..
Remember the relationship is 2 way.
Communicate; motivate; manage – and do not lose sight of cultural considerations.
Do not be hasty in pulling the plug.
If a parting of the ways is necessary, always seek a reasonably amicable resolve.
Professional advisers come at a cost, but the real cost can be greater if you do not use them!