Difference between Distributors and Suppliers

Distributors are intermediaries that purchase goods from suppliers and sell them to retailers or end-customers, while suppliers are the source of goods or services in the supply chain.

The difference between distributors and suppliers might initially seem irrelevant, but essential upon a deeper look. It can be challenging for those unfamiliar with business to ascertain the difference between distributors and suppliers.

Though these two terms are often used interchangeably, they refer to distinct entities involved in the supply chain. This post examines the difference between distributors and suppliers, their roles, and how they work within the industry.

Distributors typically have a limited ability to modify or customize the products they sell, and their role is to distribute the products as they are without making any significant changes.

Another key difference between a distributor and a supplier is their customer interaction level.

Suppliers have limited customer interaction, focusing on supplying products to the following link in the supply chain.

On the other hand, distributors have a higher level of interaction with customers, as they are responsible for selling the products to the end customers. This means distributors typically have greater responsibility for customer service, product support, and customer satisfaction.

In terms of pricing, suppliers and distributors typically have different pricing models. Suppliers sell their products at wholesale prices to the next link in the supply chain, and their prices are typically based on the cost of production plus a profit margin.

On the other hand, distributors add their markup to the wholesale price when selling to retailers or end-customers, which means their prices are typically higher than the wholesale prices.

Another essential difference between suppliers and distributors is their level of commitment to the products they sell. Suppliers are typically more committed to the products they manufacture or provide, as they are vested in ensuring the quality and reliability of the products they sell.

Distributors are often less committed to the products they sell, as they are simply intermediaries in the supply chain. However, this is not always the case, and some distributors can be highly committed to the products they sell, mainly if they specialise in a particular product line or industry.

The table below summarizes the difference between distributors and suppliers:

Difference between Distributors and Suppliers

Do distributors have control over the products they sell?

Distributors generally have limited control over the products they sell. Their primary role is to purchase goods from suppliers and distribute them to retailers or end customers.

Distributors typically do not have the authority to modify or customize the products they sell. Instead, they are responsible for ensuring the products are packaged, labelled, and shipped correctly according to the specifications provided by the supplier.

Distributors may have some influence over pricing, as they can add their own markup to the wholesale price set by the supplier. However, major decisions regarding product features, quality, and changes or updates usually rest with the supplier.

The level of control a distributor has over products can vary depending on the specific agreements and relationships established with the supplier.

Are distributors responsible for customer service and support?

Distributors often have some responsibility for retail customer service and support. As intermediaries in the supply chain, distributors are the direct point of contact for retailers or end-customers who purchase the products they distribute.

This means they play a crucial role in providing assistance, addressing inquiries, and resolving any issues that may arise.

Distributors are expected to deeply understand the products they sell and be knowledgeable about their features, benefits, and usage. They should be able to answer customer questions, provide technical support if necessary, and offer guidance on product selection or compatibility.

In addition to providing pre-sales support, distributors may be responsible for after-sales services. This may involve handling product returns, exchanges, or warranty claims.

Distributors may coordinate repairs or replacements on behalf of the supplier and ensure customers’ concerns are addressed promptly and satisfactorily.

Furthermore, distributors may offer additional value-added services to enhance the customer experience. This can include training programs, product demonstrations, or customized solutions tailored to specific customer needs.

However, it’s important to note that the extent of customer service and support distributors provide can vary. Some distributors may have dedicated customer service teams and robust support systems, while others may have more limited resources.

Their agreements and partnerships with suppliers often influence the level of customer service and support distributors offer.

Do suppliers have a say in the pricing set by distributors?

Suppliers typically have some influence over the pricing set by distributors, but the extent of their control can vary depending on the nature of their relationship and the market dynamics.

While distributors can add their markup to the wholesale price when selling products, suppliers often have input and can provide guidance on pricing strategies.

Suppliers usually establish suggested or recommended retail prices (RRP) for their products. These RRPs serve as distributors’ benchmarks and help maintain consistent pricing across different sales channels.

The supplier may provide pricing guidelines to distributors to ensure the products are competitively priced and aligned with their overall market positioning.

However, distributors must also consider their operating costs, margins, and market demand when determining the final selling price. They may negotiate with the supplier for better pricing terms or discounts based on factors such as volume purchasing or exclusivity agreements.

Suppliers sometimes enforce a strict pricing policy to maintain brand value or protect their products’ perceived quality. This can involve setting a minimum advertised price (MAP) that distributors must adhere to, preventing excessive price discounting that could undermine the brand’s reputation or disrupt the market.

Can a distributor and supplier have exclusive agreements with each other?

A distributor and supplier can have exclusive agreements. An exclusive agreement is a contractual arrangement where the distributor is granted exclusive rights to sell the supplier’s products within a specific territory, market segment or for a particular duration.

This means that the supplier agrees not to appoint any other distributors or sell directly in the designated area or target segment covered by the agreement.

Exclusive agreements can be beneficial for both parties involved. Exclusivity provides a competitive advantage for distributors by granting them a protected market and reducing competition from other distributors. It allows them to establish stronger relationships with retailers or end-customers and build a loyal customer base.

On the other hand, suppliers may choose to enter into exclusive agreements with distributors to ensure focused distribution, better market coverage, and enhanced brand representation.

Suppliers can leverage the distributor’s expertise and commitment to the products by granting exclusivity, leading to improved market penetration and increased sales.

Exclusive agreements typically come with certain obligations and responsibilities for the distributor and supplier. The distributor is expected to meet sales targets, promote the supplier’s products, and maintain appropriate inventory levels.

The supplier, in turn, commits to providing the necessary support, including marketing materials, training, and product availability, to help the distributor succeed in their exclusive territory or market segment.

Exclusive agreements should be carefully negotiated and documented between a distributor and supplier. The rights and obligations of both parties should be clearly defined. They should also consider factors such as termination clauses, performance metrics, and any potential exceptions or restrictions to exclusivity.

Can a distributor modify or customize products before selling them?

In general, distributors do not have the authority to modify or customize products before selling them. Distributors typically act as intermediaries in the supply chain, purchasing goods from suppliers and distributing them to retailers or end-customers.

A distributor primarily handles product logistics, storage, and transportation.

The products supplied by distributors are usually in their original form as provided by the supplier. Distributors are responsible for ensuring that the products are packaged, labelled, and shipped correctly according to the specifications provided by the supplier.

However, major modifications or customizations to the products are typically the responsibility of the supplier or end-customers responsibility.

That being said, there can be exceptions to this general rule. In some cases, distributors may have specific agreements with suppliers that allow for limited modifications or customization of products.

This can occur when a distributor specializes in a particular market segment or industry, and there is a need for tailored products to meet the unique requirements of customers in that sector.

However, any modifications or customizations typically require prior approval from the supplier, and distributors must adhere to the agreed-upon guidelines and specifications.

In such cases, the distributor would coordinate with the supplier to ensure that the necessary changes are implemented correctly before delivering the customized products to the customers.

How do distributors and suppliers handle product recalls or quality issues?

Regarding product recalls or quality issues, both distributors and suppliers have important roles to play in ensuring the safety and satisfaction of customers.

Here’s a breakdown of how distributors and suppliers typically handle such situations:

• Communication and Information Sharing: Suppliers are responsible for promptly notifying distributors about product recalls or quality concerns. They provide detailed information about the issue, including the specific products affected, the nature of the problem, and any necessary actions to be taken.

• Distributor Notification: Distributors then communicate the recall or quality issue to their retailers or end-customers. They inform them about the potential risks, provide instructions for returning or disposing of the affected products, and offer any necessary support or assistance.

• Product Retrieval: Distributors work closely with retailers or end-customers to facilitate the retrieval of recalled or problematic products from the market. They coordinate the logistics of returning the products to the supplier or a designated location for further examination or disposal.

• Collaboration with Suppliers: Distributors collaborate with suppliers throughout the recall or quality issue process. They provide essential feedback and information gathered from retailers or end-customers regarding the scope and impact of the problem. This feedback helps suppliers assess the severity of the issue, identify the root cause, and develop appropriate remedial actions.

• Quality Control and Improvement: Suppliers take the lead in investigating the cause of the quality issue and implementing corrective measures. They conduct thorough inspections, tests, and analyses to identify the source of the problem and implement changes to prevent recurrence. Suppliers also communicate updated product information, safety guidelines, or revised manufacturing processes to distributors to ensure ongoing compliance and quality assurance.

• Customer Support and Compensation: Distributors and suppliers work together to provide customer support during product recalls or quality issues. They handle customer inquiries, complaints, and requests for refunds or replacements. Distributors often serve as the initial point of contact, assisting customers with their concerns and coordinating with suppliers to address their needs.

• Preventive Measures: Distributors and suppliers collaborate to develop preventive measures to minimize the risk of future recalls or quality issues. They implement stricter quality control protocols, improve product testing procedures, and establish more effective communication channels to address potential concerns quickly.

It is crucial for distributors and suppliers to maintain open lines of communication and transparency throughout the process. By working together, they can swiftly and effectively address product recalls or quality issues, protect customer trust, and ensure consumers’ ongoing safety and satisfaction.

Conclusion: Distributors vs Suppliers

In conclusion, the difference between distributors and suppliers can be significant, and it is crucial to understand the role of each in the supply chain.

While both are involved in the sale of products, they have different levels of control over the products they sell, customer interaction, and pricing models.

By understanding these differences, companies can make informed decisions when choosing a distributor or supplier and ensure they are getting the right products, at the right price, from the right partners.

References

• Amit K. Ghosh, et al, Journal of Business & Industrial Marketing, “Understanding industrial distributors’ expectations of benefits from relationships with suppliers.” 
• Dimitris Bourantas, Long Range Planning, “Avoiding dependence on suppliers and distributors.” 
• Walfried M. Lassar and Jeffrey L. Kerr, Strategic Management Journal, “Strategy and control in supplier–distributor relationships: An agency perspective.” 

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