Agents & Distributors
(b) The Customers
A distributor has a direct relationship with the customer base; they are his customers rather than the supplier’s customers. Thus, the distributor with his superior knowledge can often dictate the product and marketing strategies for his territory. Crucially, if the distributorship is terminated, the supplier will not have any direct link with the distributor’s customers and there is a risk that the distributor will supply them with a competing product. An agent, however, has a less central role in the customer relationship since the supplier retains direct contact with each customer. Accordingly the customers are those of the supplier rather than of the agent. This type of relationship would therefore seem to be more relevant where customer contact is essential.
(c) The Price
If a supplier wishes to retain the right to control the price of the goods, the appointment of an agent rather than a distributor is probably the correct choice. In most jurisdictions, the supplier will be prohibited from setting the resale price for a distributor, though it can make a recommendation. An agent would not normally set prices (though he may have discretion to negotiate within certain bands).
(e) Financial Risk
In a distribution agreement, sometimes the supplier is used as a source of interest free credit, as a distributor may purchase from the supplier on longer credit terms than those it provides to its customers. This can leave the supplier exposed to taking the credit risk for all of the distributors customers. If the supplier were to use an agent however, it can separately assess the credit risk of each individual customer before deciding to do business.
(f) The Market
If the goods require on-site technical support and after sales service, an agency seems less suitable as in most cases, the commission will not be sufficient to fund the investment required. Where this option is not feasible the supplier must find a local operator who will undertake the investment to provide a full service local operation; in this case a distributor would be more preferable.
(g) Termination
In the EU, an advantage of appointing a distributor over an agent is that the Commercial Agents Directive does not apply to distributorships (and therefore there is no requirement to pay compensation or an indemnity to a distributor at the end of the agreement). However, a distributorship agreement is subject to certain Competition Law rules.
Summary of Supplier’s Level of Channel Control
The following figure provides a summary overview of the level of control that a supplier may expect to exercise in an agent or distributor relationship.
A distributor has a direct relationship with the customer base; they are his customers rather than the supplier’s customers. Thus, the distributor with his superior knowledge can often dictate the product and marketing strategies for his territory. Crucially, if the distributorship is terminated, the supplier will not have any direct link with the distributor’s customers and there is a risk that the distributor will supply them with a competing product. An agent, however, has a less central role in the customer relationship since the supplier retains direct contact with each customer. Accordingly the customers are those of the supplier rather than of the agent. This type of relationship would therefore seem to be more relevant where customer contact is essential.
(c) The Price
If a supplier wishes to retain the right to control the price of the goods, the appointment of an agent rather than a distributor is probably the correct choice. In most jurisdictions, the supplier will be prohibited from setting the resale price for a distributor, though it can make a recommendation. An agent would not normally set prices (though he may have discretion to negotiate within certain bands).
(e) Financial Risk
In a distribution agreement, sometimes the supplier is used as a source of interest free credit, as a distributor may purchase from the supplier on longer credit terms than those it provides to its customers. This can leave the supplier exposed to taking the credit risk for all of the distributors customers. If the supplier were to use an agent however, it can separately assess the credit risk of each individual customer before deciding to do business.
(f) The Market
If the goods require on-site technical support and after sales service, an agency seems less suitable as in most cases, the commission will not be sufficient to fund the investment required. Where this option is not feasible the supplier must find a local operator who will undertake the investment to provide a full service local operation; in this case a distributor would be more preferable.
(g) Termination
In the EU, an advantage of appointing a distributor over an agent is that the Commercial Agents Directive does not apply to distributorships (and therefore there is no requirement to pay compensation or an indemnity to a distributor at the end of the agreement). However, a distributorship agreement is subject to certain Competition Law rules.
Summary of Supplier’s Level of Channel Control
The following figure provides a summary overview of the level of control that a supplier may expect to exercise in an agent or distributor relationship.
Figure 3: Comparative characteristics of Agents and Distributors
| Factors for Consideration | Agency | Distributor |
| Control over price and other terms of sale | Yes | No |
| Ability to dictate choice of customer | Yes | No |
| Direct contact with customer | Yes | No |
| Close control over marketing | Yes | No |
| Ability to offload risk of stock | No | Yes |
| Commission payable | Yes | No |
| Compensation payable for termination or expiry of agreement | Yes | No |
| High risk of Competition law issues | No | Yes |
| Simpler tax position | No | Yes |
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