Setting up distribution channels

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You have designed a strategy defining the combination of product characteristics you are going to offer to satisfy the need, expected outcomes and buying behaviour of the customers in your target segment. The characteristics of these customers have an influence on how you are going to reach them and how you are going to get your products to them.

Your strategy statement may or may not already include details as to how you are going to advertise your products and distribute them. Nevertheless, you will have to build your capability to distribute your products either internally or through external means.

How you distribute your products should contribute to maximising your bargaining power. Design a strategy that is realistic, and achievable.

Identifying established industry distribution chains

When looking at particular markets or market segments, it is important to check whether there already is an established distribution chain going from the producer or service provider through to the consumer. It is also important to identify the various players and mechanisms within this chain, and to assess whether participating in the distribution chain would still allow your company to have good bargaining power, or whether it would be in the interest of the business, and at the same time feasible and economical, to bypass the chain.test

In the handicraft sector, for example, the distribution chain would include:


You could reach all the final handicrafts outlets by working directly with sales agents and representatives, or by using websites of craft marketers (including buyer-exporters, and importer-wholesalers). You could also reach the consumers by directly selling to these outlets, or operating the outlets yourself. Another way to reach the consumers is through alternative or fair trade organizations. We will discuss these further on in the section on Fair Trade organizations.

Market entry options

Agents and Sales Representatives

Agents and sales representatives are people you hire to get orders for your products or services either on a commission, or salary basis. You are still selling the products to the consumer, but the agent represents you in the market and maintains the relationship with the end customer, and negotiates when necessary. As the exporter, you set the price you want to sell at in the market and the terms of payment, but this does not necessarily mean that you will automatically have more bargaining power, or that the intended customers will actually buy from you.

Distributors and Wholesalers

Distributors purchase products from you and sell them to another intermediary in the chain, such as a wholesaler or a retailer, at a price that they decide. Unlike an agent, a distributor can establish the price of the product from this point onwards in the chain. It can also be decided in partnership with you, the exporter. The arrangement between the producer-exporter and the distributor is specified in an agreement or contract. Individual sales to that same distributor may require additional agreements.

Buyer-Exporter / Trading Houses

A buyer-exporter or trading house is someone/company, in Kenya, able to handle the exporting aspects for you. They would be responsible for researching and understanding the foreign market, and handling all export and marketing procedures. Typically they attend trade shows and prepare advertising and sometimes even package your goods. They may have their own distribution networks in the foreign countries where they operate.

Manufacture under licence

An agreement with a foreign manufacturer for the production of the exporter’s products under licence can save appreciable distribution costs and also possible import duties and other imposts. Goods manufactured on the spot with direct access to the market in that country or countries in close proximity can be an advantage.

There are a number of methods under which this can be undertaken – e.g. patent rights, technology transfers, the use of trademarks, etc. The Kenyan exporter receives his recompense from the licensee in the form of royalties on the number of units produced.

Goods on consignment

Goods on consignment are supplied to an agent who will feed them into the market at his discretion and in order to obtain the best possible price. Ownership of the goods remains vested in the Kenyan exporter and no immediate payment is made to the consignment agent. Once the sale has taken place the agent is remunerated while profits/losses are shared on a mutually agreed basis. What proportion of costs, etc, is to be borne by each party is also made subject to prior agreement.

It is very clear that for goods supplied on consignment a great deal of mutual trust and confidence must be maintained between the exporter in Kenya and the agent abroad. This will require a highly competent agency agreement.

Direct exports

For the multiplicity of companies with quality ranges of goods, the final “graduation” into exporting is the ability, after some years of experience, to export direct without the intervention of intermediaries, all of whom require to be remunerated.

To achieve this goal, it is clear that the company involved must set up in each export market skilled management and marketing teams whose responsibility is to know the major buyers in the markets intimately, to create relationships of goodwill and loyalty with those buyers, and to ensure the utmost integrity in all dealings with them.

Finding buyers, distributors and agents

There are several methods of searching for a buyer, distributor or agent:

  • Ask commercial attachés in the target country to recommend intermediaries for your type of product, or for intermediaries handling related products whose customers match yours.
  • Obtain a list from chambers of commerce in the principal cities of your target export country.
  • Advertise in the trade journals that agents and distributors of your type of product would most likely read.
  • Search through directories of businesses in the target country.
  • Search through agents and distributors associations' publications.
  • Seek out the web sites of distributors in the target country using one of the Internet search engines (such as Google, Yahoo, WebCrawler, etc.).
  • Go to your product/industry trade show in the target export country. All of the distributors and agents should be there.
  • Contact those people who buy from distributors to see who they deal with.

Appointing an agent or distributor

Personal contact is essential. After establishing a list of possible representatives, you need to visit the market to meet them and assess their various merits. Some of the things to consider when appointing an agent or distributor include:

  • Personal rapport is vital and is by far the most important factor when determining which representative to appoint. If there is no rapport between you, the relationship will not work, no matter how good the fit between their company and your product, and it would be foolhardy to proceed.
  • Do they have good knowledge of the local market? A good representative will assist you in your marketing programme and give you the benefit of his/her local market knowledge.
  • Are they confident about your company, your product and your chances for success?
  • Are they financially sound? (A credit check should be carried out through their bank or use a credit-checking agency).
  • Do they belong to a recognised Association?
  • How many years’ experience do they have in your market sector? You may want a company that is established with a good network of contacts but is not very flexible or open to change; or you may prefer to appoint a young, energetic company that is out to prove itself, is flexible and innovative but does not offer extensive experience or contacts.
  • Do they have a good network of representatives and/or contacts?
  • How many employees do they have, in particular sales staff? Ideally, the size of their company should be similar or slightly larger than your company. There can be a clash of cultures between a corporate structure and a family owned business.
  • Ask retailers, customers and other exporters to tell you about their representatives, and especially those with good reputations for professional service and support.
  • In large markets, use regional distributors (i.e. more than one) for the best market coverage.
  • Your chosen representative should have a thorough understanding of competitive products and prices to assist in product modification or advertising requirements/changes.
  • Ensure you fully canvass all options before appointing a sole agency – you want to get value for money. Most agents will want exclusivity – we recommend you consider a trial period and advise the agent/distributor they may receive exclusivity of your product if they meet identified performance targets.
  • If contact identification research is undertaken, follow up rapidly as interest in new products can evaporate quickly. They will see your lack of follow up as unprofessional and a sign that support will be slow later.

Fair Trade

Consumer cooperatives are an alternative distribution channel worth looking at. The Fair Trade distribution network is relatively small but is growing. It is an important network for small producers from developing countries as they typically purchase from small producer cooperatives.

The network of organizations which make up this alternative trading system include:

  • The Fair Trade Standards Organization known as the International Fair Trade Labelling Organization, or FLO International.
  • Marketing and distribution organizations all along the market chain, from Fair Trade Producer Organizations, to Fair Trade Exporters, Fair Trade Wholesalers, Fair Trade Retailers, and Fair Trade umbrella organizations such as the International Federation for Alternative Trade (IFAT) and the Fair Trade Federation (FTF).

Fair Trade buyers-distributors could assist with product development and design and may provide advance payment to the producers.

If you think your organization can meet the Fair Trade Standards, you can contact the International Fair Trade Labelling Organization, or FLO International, at This email address is being protected from spambots. You need JavaScript enabled to view it..

Locally you can contact the Cooperation for Fair Trade in Africa (COFTA), P. O. Box 00124 -00100, G. P. O Nairobi – Kenya, Fair Trade House, Kindaruma Road - Off Ring Road Kilimani, Tel.: 254 (0) 20 38866005/6/7, Fax: 254 (0) 20 38866008, Email: This email address is being protected from spambots. You need JavaScript enabled to view it., Web Site: www.cofta.org

Mail Order

Certain demographic groups or market segments tend to prefer mail-order purchases. If you are not prepared to launch your own catalogue, you may find it useful to approach existing catalogues to persuade them to carry some of your products.

For a list of mail order catalogues, visit the Catalog City website (www.catalogcity.com).

Museum shops also sell crafts and high-end products.

For more information on how you can sell crafts and high-end products through Museum Shops, visit the Museum Stores Association website www.msaweb.org.

Handicrafts

Handicrafts are sold through mainstream gift and house ware channels. In addition, they are sold directly to consumers’ craft shows and through craft galleries. Wholesale buyers of crafts usually do their purchasing at national trade shows. Using a sales representative may be necessary in order to show your product at a national trade show. High-end handicrafts are often sold through galleries, either on consignment, or on arrangement whereby the gallery act as a wholesaler.

Organizations that may assist in identifying agents or distributors include:

BrandKE, Anniversary Towers, 1st Floor, University Way, P.O. Box 40247, Nairobi GPO 00100, Tel: 020 2228534-8, Fax: 020 2218013, Email: This email address is being protected from spambots. You need JavaScript enabled to view it. or Website: www.brand.ke

Kenya National Chamber of Commerce and Industry (KNCCI)

A written agreement

There are various forms of agreement you can enter into with your international agent or distributor. These range from a simple handshake to establishing a formal joint venture. The more formal the relationship the more control you have in the marketplace, at the same time your time and financial commitment to the relationship must also increase. A brief description of the four common types of exporter and agent/distributor agreements follows:

1. The ‘Hand-Shake’: Many Kenyan exporters confirm their agent or distributor’s appointment and the terms of their relationship on the strength of a handshake. BrandKE does not recommend this approach. If there is no written document the relationship can run into difficulties in areas such as measuring performance, resolution of differences of opinion, terminating the arrangement and payment. It is important to have a written agreement that covers the key components of your relationship.

2. Exchange of Letters: In the majority of cases, an Exchange of Letters is the best starting point in terms of an export and agent/distributor agreement. Such an agreement implies trust and a formal relationship and is a good mechanism to protect your interests. However, it does not involve the time and cost of working through lawyers. The agreement should include the following:

  • products involved – description;
  • territory covered by the representative;
  • the timeframe of the agreement;
  • termination clauses – under what circumstances the engagement may be terminated by either party
    (it is important to think about these at the start of the relationship when you and your representative are on good terms);
  • review clauses – when you want to review the agreement and what you want to review; and
  • performance targets – these could cover such things as amount of sales, number of customers, number of advertising campaigns etc.

3. Formal Agent/Distributor Agreement: This is a formal agreement that requires the services of a lawyer, considerable time and money on your behalf. Just as too many Kenyan exporters rely on the handshake agreement, too many also jump in at this stage. Whilst the handshake is too flimsy, the formal agreement at the outset can be a waste of time and money if the relationship only lasts for a few months. It is usually better to start with a Heads of Agreement or Letters of Exchange and progress to this stage once the relationship has proved itself to be ongoing. Be aware, however, that formal agent/distributor agreements should not be seen as legally binding, except perhaps for the East African Community. It would normally be too expensive for a Kenyan company to sue an offshore partner who breaks such an agreement, despite its legal basis. The key advantage of a formal agreement is that it is a written statement of intent that ensures everyone understands the rules and is working to the same objectives.

4. Joint Venture: Once you have an established and successful relationship with your representative, you could consider entering into a joint venture with them. This is a public show of your commitment to each other and sends good market signals.

The International Chamber of Commerce (ICC) provides model contracts for both agency agreements and distributorship agreements… www.iccbooks.com.


About BrandKE

The Kenya Export Promotion and Branding Agency (BRANDKE) is a new State Corporation established under the State Corporations Act Cap 446 through Legal Notice No.110 of August 9th, 2019
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