International Distribution Network?

[ken]

Hello all...

I got an email today from a person who claims to be a high end distributor of guitar parts in Europe. He wants to know how to become a distributor of my pickups in his home country. I checked him out, and he 'seems' OK.

Have any of you tried this, and what issues have you had? I'm kinda interested, but I keep having nasty visions of what happened to Jim Marshall when he sold his amp's distribution years ago. It took him years to recover.

Ken

[cbarrow7625]

I can't directly answer your question but just keep in mind that you do NOT have to "sell" your distribution rights just to get a distributor. Most reputable distributors are signed up with a contractual obligation that specifies that they buy/sell a certain amount of product each year, put "x" number of dollars into promoting your goods and in return they receive money from a percentage of those sales. In addition, they are able to buy your products at "dealer" prices (usually International prices are discounted further than US prices due to currency differences.

The specifics in the contract (including a time period for the contract) allow you to back out of the contract if the distributor does not meet their obligations (and vice versa). With a carefully constructed contract you will minimize risk for both parties and not have to worry about "losing" your ability to distribute. I don't know what Jim Marshall did specifically but it must have been naive and short sighted.

[belwar]

Hello all...

I got an email today from a person who claims to be a high end distributor of guitar parts in Europe. He wants to know how to become a distributor of my pickups in his home country. I checked him out, and he 'seems' OK.

Have any of you tried this, and what issues have you had? I'm kinda interested, but I keep having nasty visions of what happened to Jim Marshall when he sold his amp's distribution years ago. It took him years to recover.

Ken

International distributorships are quite common. My company deals direct with dealers in the US and Canada, but with Europe/Asia we have to deal with distributors. Its almost impossible to learn all of the markets in other countries (think how long its taken to learn the US) - That is why distributors are so important. They come to the table with knowledge of their market. For us, distributors have several key benefits

1) They handle all advertising in those markets (Big savings)
2) Little to no repairs costs.
3) Little to no returns (they often dont want to pay shipping back)
4) Often not as picky as an end user.
5) Pre-payment of invoices (no terms).

The Downside of a distributorship is that you have to drop your pants. If you product is A-mark (50% off to a standard US dealer), then prepare to drop your price even further for a distributor. Somewhere between 50/10 and 50/30 is not un-common. You have to do this for several reasons:

1) To keep your MSRP in Europe about the same it is in America (otherwise people in europe will order from America and your distributor is useless).
2) This helps the Distributor lower the cost of the VAT.
3) The distributor has to make a profit too. So if you sell it at 50/20, he will likely sell it to a Euro dealer for 50 off retail.

Some things you need to keep in mind when negotiating:
1) Most important is, What countries can the distributor sell to? As a growing company you might be temped to let him have all of Europe, but what if a great opportunity opens up in the Netherlands?
2) What are the distributors expectations as far as what other countries you can sell to?
3) What pricing structure are you going to use?
4) What payment terms? I would start with pre-pay and after a year or so then grant them terms if necessary - But remember that it is harder to collect from Euro accounts.
5) Who pays freight?
6) Advertising - What can you get out of the deal?
7) How are warranty issues handled? Will they handle the warranty and bill you?

Hope that helps.

ML

[Billy Bones]

Well said Belwar.

Billy Bones

[belwar]

After reading my post back, I realized a point I was trying to get across didnt come out.

It's about what I call "Grey Market" .. Not sure if this is an actual term or one we made up. Basically, if you have a distributor in France and one in Germany, what happens if your German distributor starts selling into France?

Where it gets really tricky is that if your International Net pricing isn't correct, the price to the consumer in Europe will be too high and end users there will buy product from the USA and ship it bypassing your distributor and pissing him off.. You try telling your USA dealers that they cant sell to whoever they want .. just try it, I dare you!

So basically you have to disallow Grey market product in Europe, but prevent Grey market product shipping from the USA to Europe ... without disallowing it.

[ken]

Thank you for the great advice, and there's a lot for me to think about.

I am interested in anything that will open up my markets, but I'm not too sure if it is worth it to do this. I am going to have to do a lot of thinking before I move.

'Gray market' is a term used by multinational companies for products that was supposed to be only sold in one country, but were sold in others. I found out about this years ago when I bought a new Nikon film camera and it broke. I tried to get it fixed under warranty, but I was told that the particular camera I had was only supposed to be sold in Japan, and they wouldn't cover it under warranty even if I had the reciept. It made a great paperweight.

I read once that Jim Marshall wanted to expand his plant, so he sold his American distribution to another company in the 1970's... just in time for demand for Marshall amps to explode. Supposedly, he lost millions in profits
over the term of his deal.

Thank you,
Ken