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Choosing a Distribution System or a Distribution Agent

“Choosing a Distribution System or a Distribution Agent”

Getting your products to your customers means choosing the right distributor. Learn about your options and discover ways to find the best distribution system for your company.

OVERVIEW [top]You have a great product: you’re proud of it, and you have a terrific promotional strategy to introduce it to the world. Still, that’s not enough to reach your target customers and achieve the sales levels that spell success.

An effective distribution plan will help you place your product where those who want or need it will take notice. You must also have a distribution system that ensures what you have to offer actually reaches your end users.

In this Quick-Read you will find:

  • How to link distribution with other company functions.
  • How to choose the right distributor.
  • A few distribution options.


Your distribution system needs to fit in it with the rest of your business.

  • Different products lend themselves to different distribution systems.High-end software for corporations requires a relationship-building sales force and follow-up service. But Web sales might be the most effective way to distribute corporate office supplies or equipment parts.
  • Will your distribution system also allow for follow-up service?You might want your distribution system to give customers easy access to ongoing support or help for such problems as wrong or damaged goods, or poor service. Amazon.com uses package delivery services to get its goods to the customer. It also has a very efficient system for getting defective products returned. It sends you a replacement along with a postage-paid address label. The customer places the damaged item back in the box and uses the address label to send the defective product back to Amazon for processing. All the tracking information Amazon needs was preprinted on the label for easy processing back at the office.
  • Are you competing for shelf space?Be aware of your competition’s distribution system. Decide whether you want to share shelf space or sell your product in entirely different venues. One option is to sign exclusive agreements with distributors so you aren’t competing directly. But be careful because you, too, will be locked into such agreements. That could be a problem if the distributor isn’t meeting your expectations.
  • Is location a factor when trying to get your product out? Whether you’re aiming for local or national markets, you’ll first need to understand where your customers prefer to find your product and then to arrange a distribution system or channel that can get your product to those markets on time and efficiently.

Using a distributor

Many entrepreneurs turn to distributors (also referred to as wholesalers or distribution agents) to get the widest coverage for their products at the lowest cost. Distributors will sell your product or service to other distribution channels, such as retail stores, or directly to your target customers. They may even add value by handling installation, follow-up service, complaints and repairs.

Finding a distributor you can work with

  1. Get referrals. Don’t believe distributors’ sales pitches, which may promise more than they can deliver. Instead, ask retailers and other buyers to recommend favorite distributors.
  2. Check out distributors’ ads in trade journals, and visit with them at trade shows. Find out what other products your candidate distributors handle. Are yours likely to be lost among the multitudes? Do any of them directly compete with yours?
  3. Seek a distributor who can sell to your target market. If you have a specialty product, don’t put it in the hands of a mass-market distributor.
  4. Be prepared to “sell” the distributor on the benefits of handling your product. Take along a sample to your first meeting with a potential distributor. Also take anything that could prove your credibility — perhaps a draft of your advertising plan, along with copies of marketing materials, such as brochures and price lists.

More options

Assuming you haven’t granted exclusive sales rights to a distributor, you have several other options for distribution.

  • Your own sales force
      can be a powerful distribution mechanism. They are guaranteed to be focused exclusively on your products. They build relationships with your best clients. They actively turn up new business. The down side to a private sales force is the expense, especially if the customer base is widely dispersed.


  • Catalogs, mail order and telemarketing

require very strong fulfillment operations to be successful. United Parcel Service and FedEx both can help set up distribution systems for an effective direct marketing business. 


  • The Internet

holds great possibilities for certain types of products. Selling groceries over the Internet seemed not to work out. Selling books works out well. Freelancers are finding they can sell their services over the Internet quite successfully. Niche retailers also sometimes find a place for themselves on the Internet, where a retail brick and mortar store wouldn’t have the foot traffic to support the operation. Again you need to ask if your customers are likely to buy your products online. The most common marketing uses of the Internet are direct marketing — mounting product catalog entries on Web pages — and prospecting for customers through e-mail. Tips on getting marketing started on the Internet can be found in the Quick-Read “A Few E-commerce Strategies.” 


  • Franchises and affiliate programs

offer you a way to expand your reach without expending extra capital. You lose some control because you are in effect outsourcing certain parts of your distribution to a divergent set of independent employees. While they can significantly help you enter new markets, franchising, if not done carefully, can be a disaster for a brand. Baskin Robbins has struggled with its franchise distributors who vary greatly in their commitment to quality from store to store. More pros and cons of franchising and tips for getting started can be found in the Quick-Read “Franchising Your Business.” 


Patrick Porter, owner of Positive Changes Hypnosis Inc. of Virginia Beach, Va., distributes his products and services through 82 affiliates across North America.

“We began using affiliates as a way to grow the business,” Porter explains. “Affiliates set up their own Positive Changes Hypnosis clinics after spending two weeks working with us one-on-one here at headquarters. They learn to use our program to help people stop smoking, reduce stress, undergo painless childbirth or surgery, or lose weight. We also introduce them to our extensive marketing program for recruiting clients.”

Affiliates are set up in their geographical areas as exclusive distributors of the 140 personal-growth products — books, tapes, videos and CDs — that Porter markets to the general public.

Porter says distributing through affiliates is “a great way to roll out your product without dipping into your own capital.” Affiliates pay a one-time setup fee, and they also buy the products outright. “And they do well on the markup because they buy from us at one-third the retail price,” he explains.

Affiliates also can draw a lot of exposure for your products. “Positive Changes Hypnosis Inc. benefits from the free advertising every time one of our affiliates gets press attention from the media, such as the Wall Street Journaland Sally Jessy Raphael,” says Porter. “So far, 20 of our affiliates have been subjects of TV specials in their areas.”

Porter’s company has grown from $1.6 million to $2.6 million in sales since he launched the affiliate program. But he’s now moving on to the next level — distribution through franchising. With franchisees, you have more control. They must implement your marketing program to the letter, and report financials as well. “We’re aiming for an IPO within five years,” Porter says. “Our goal is to have 350 Positive Changes Hypnosis Centers in operation and to exceed Jenny Craig’s $120 million in sales within 10 years.” A great distribution plan, he says, will help him achieve those goals for growth.

Creative solutions

When Edward Lowe first started selling Kitty Litter, he sold it through retail pet stores. As sales grew, he looked for ways to expand his distribution and hit upon the idea of selling in grocery stores. Unfortunately, grocery stores mark prices up more than pet stores do. To keep the price reasonable for consumers, Lowe was required to cut his wholesale price to the grocers. This, in turn, angered his pet-store-owner distributors because he was offering the same product at a lower wholesale price to grocery stores.

His solution: create a new brand. The Tidy Cat brand was born and sold at a lower wholesale price to the grocery stores, and Kitty Litter remained the premium brand sold by pet stores. Sometimes creativity is required to achieve your distribution goals.

DO IT [top]

  1. Think about how customers would want to buy your products, and then choose the distribution system to fit that buying pattern.
  2. Treat distribution agents as your best customers. They’re the frontline customers who put your product in the hands of end users.
  3. Be honest with distributors. Never commit to more orders than you can fill.
  4. Decide what aspects of your relationship with the distributor are important enough to specify in a contract. Consider:
    • Exclusivity: Can you use other distributors? Sell your product directly?
    • Quantity expectations: How many retail outlets? Where? How much inventory will the distributor warehouse?
    • Guarantees: Yours that orders for the product will be filled on short notice and the distributor’s that it will not go out of stock at the retailers.
    • Billing and credit options: How much time does the distributor give retailers, and how much time should you give the distributor?
    • Retail sales reports
    • Electronic data interchange: Will either you or the distributor require online orders and payments?
    • Startup fees, commissions and retail price limits
    • Advertising and promotion: Do you anticipate joint sponsorships with retailers?
    • Handling product failures and returns, and customer complaints
    • Claims for lost goods: Who “owns” the product once the distributor takes it?
    • Contract length and termination conditions



Marketing Channel Management: People, Products, Programs, and Marketsby Russell W. McCalley (Praeger, 1996).

Selling Through Independent Reps,3rd edition, by Harold J. Novick (American Management Association, 2000).

Managing Channels of Distribution by Kenneth Rolnicki (AMACOM, 1998). Chapters 6-8: “Channel Selection Criteria,” “Eagles don’t flock: Locating Channel Member Candidates,” and “Channel Candidate Enticements and Inducements: Business Policies that Bond Your Channel to You.”


Delivering the Goods,” by Melissa Campanelli. Entrepreneur(March 1999), 49-51. Recommends using a warehouse service or fulfillment company to distribute goods sold online.

Missing Link,” by Anne Murphy. Inc.17:8 (July 1995), 58+.


Article Contributors

Writer: Kathleen Conroy