You’ve got a great product. You’ve connected with your home market and your sales are growing. It’s time to expand. If you are scaling up, or entering a new market or territory, you will undoubtedly be wondering how you are going to manage the supply chain logistics. Is it going to be better to work with a distributor or a 3PL? What even is the difference?
What is a distributor?
A distributor is essentially a purchaser of the supplier’s products, which it then sells on to end-user customers, sometimes via another party, like a retailer. Legal ownership of the products concerned passes to the distributor and they, not the supplier, have the contractual relationship with any end-user customers.
What is 3PL?
In contrast, a third-party logistics company simply provides a service to the supplier for storage and distribution of the product to the end-user customer. Legal ownership of the products still belongs to the supplier and the contractual relationship is between supplier and customer.
So what does this mean in practice and how do you decide which is best for your business?
Maintaining control of your brand in your new market
The fundamental difference between using a distributor and a 3PL company is that with a 3PL you remain in control. Let us explore this a little more.
Sales and marketing
A distributor will buy your products and then sell them to retailers or directly to the end-user, taking on the responsibility for storing and delivering the products. Distributors usually focus on a specific market or region, and they often have established relationships in that area and a knowledge of the local market. However, it is up to the distributor to decide what price they will charge, how the products are stored and distributed, advertising messages to customers, and even your brand identity in this new market.
A 3PL specialises in warehousing, distribution, and fulfilment services and can therefore help manage your inventory, prepare orders, and ship products to customers. The price you charge for your products, how you market your products and your brand identity remain your responsibility. You may even look to adapt your brand and pricing to fit the new market. Some 3PL companies can provide advice and help on how to do this.
Exclusivity clauses and sales
Some distribution agreements may contain exclusivity clauses which can limit your options within your new market. Additionally, and most importantly, a distributor needs money to buy your stock. Distributors are often cash limited and will spend their money on the products and brands they know they can sell. This means you could find yourself under contract with one distributor, who quite simply doesn’t have the wish, or means, to buy your products, and with no ability to sell your products elsewhere. If you are considering working with a distributor, especially with an exclusivity clause, you should ask to see their annual statements and clearly understand how they will market and sell your products.
When you work with a 3PL there is no need for exclusivity clauses. A 3PL is simply managing your supply chain. You control how much of your product is available to your end customers. You are not reliant on another business having the means to purchase, market and sell your products.
Profit margin
Getting lost
Distributors often carry a number of products and brands. While these can sometimes be complimentary to your product or brand, you also run the risk of ending up as a small fish in a big ocean. It can be hard to compete against established products and brands, with greater resources and recognition. Many distributors will also stick to the same industry, meaning that it is very likely that you will not only be competing in the market, but also within your distributor partnership.
By working with a 3PL, and maintaining control of your brand, you can use other opportunities to be successful – you can innovate, be more agile and consider niche marketing.
Conclusion
Ultimately, the choice between a distributor and a 3PL depends on your business’s specific needs and goals.
Working with a distributor can be good if you are looking for simplicity. Distributors enable you to access new markets quickly. In the short term, a distributor can mitigate cost and risk, you can benefit from their experience and name, and you have only one customer.
However, in the longer term, you are relying on someone else for the success of your business. You hand over control of your sales and ability to market your products and brand. In the longer term many SME companies find they either fail or their brand does not meet its full potential. By working with a 3PL you maintain control of your brand and your success in the market is driven by you.
Maintain control of your brand with Stocka
At Stocka we want you to be successful in New Zealand because, after all, if you are successful, so are we. That’s why we will work with you to ensure all your supply chain logistics are taken care off. That’s one less thing for you to worry about and leaves you time to sort out your marketing and sales strategy for your new customers. Oh and by the way, you maintain complete control – of your inventory, brand messages and the prices your charge for your product.
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