Distribution channels and retailers
Select the distribution channels that best suit your company’s products. When choosing the channel, decide on the number of intermediaries and retailers, the need for parallel distribution channels as well as individual retailers. You can use retailers and commercial agents for sales promotion. Always conclude retail and representation contracts in writing and with due diligence.
Distribution channel options include
- sales directly to the end customer
- sales directly to a retailer
- sales through a wholesaler
- sales through an importer
- a combination of several distribution channels.
When selecting a distribution channel, you must decide on the number of intermediaries and retailers. You must also find out whether your company should use multiple channels for reaching different target groups. Select individual retailers based on products and situations.
When you begin selecting a distribution channel, determine your customers’ buyer behaviour: how, when and where would they buy your product. Determine what added value and competitive advantage using each channel would generate. Examine how different places of sale would affect the image of your product. Chart the risks connected to distribution.
Examine the efficiency of different distribution channels with parameters. For instance, you can use these to determine how widely your product would be sold (shop and customer coverage) using each distribution channel. Also calculate which channel would provide most profitable distribution.
A retailer is an independent entrepreneur who buys products from a producer and resells them in its own terms. The retailer carries the financial risk. For example, importers are often retailers. The law of Finland does not contain specific provisions on the retail relationship.
Use a retailer if your company would like to focus on production instead of sales. Your company’s financial risk is reduced when the ownership of products is transferred to retailers. On the other hand, part of the profits will also end up with the retailer
A commercial agent will usually work for and under the name of the producer. Its duty is to promote the sales of the product on behalf of the producer. The agent is often paid a commission on concluded sales. The activities of commercial agents are regulated by the Act on Commercial Representatives and Salesmen.
Use a commercial agent if you wish to control the sales and distribution of your company’s products and create direct customer relations. However, the financial risk may be more significant, as your company will own the products.
The retailer and producer draw up a retail contract together. It is based on general statutes on contracts, commercial law and competition law. No statutes apply directly to retail contracts in Finland.
The commercial agent and producer draw up a representation contract together. It is based on the Act on Commercial Representatives and Salesmen.
You must always draw up the retail and representation contract in writing. Take regular contractual aspects into account in the contract. You should also consider issues which may generate disputes.
Agree on the distribution of responsibilities concerning marketing and complaints lodged by customers. Clarify issues related to distribution, such as the distribution method and schedule. Agree on the exclusive rights to sales regions if necessary.
In case of a retail contract, agree on the price of products in business transactions between the producer and retailer.
In case of a representation contract, agree on the selling price and conditions of products as well as commissions. Also note in the contract whether the commercial agent is entitled to conclude agreements in the name of the producer.
In retail, value-added tax (VAT) is paid on two consecutive sales. First the producer sells the product to the retailer, after which the retailer sells the product to the consumer. The VAT must be determined separately for both sales. If the product does not come from outside Finland and does not leave Finland, the same tax rate is usually applied to both sales.
The retailer pays VAT on the consumer sales even if the ownership of the product is transferred directly from the producer to the consumer. The producer pays the tax on the sales of the product when selling it to the retailer. The retailer may deduct the VAT included in the sales price that the producer charges from the retailer.
If a commercial agent sells the product on behalf of the producer, the agent only pays VAT on its commission. In this situation, the agent is selling a brokering service to the producer. The general VAT rate is applied to the sales of brokering services if the party purchasing the service (producer) is located in Finland. The VAT rate applied to the products sold is not relevant when the tax rate on the commission is determined. The producer pays VAT on the products when they are sold to consumers.