A distributor is not a market-entry strategy

It often starts at a trade fair. A company has decided that Nigeria is too big to ignore, someone meets a distributor who is keen, and a few months later the company has a signed agreement, a first container on the water and a line in the board report saying that Nigeria has been entered.

A year on, that line is harder to write. The first order sold through slowly. The second was smaller. Nobody at head office can say what the product costs on a shelf in Lagos, or whether a single carton has reached Kano. The distributor blames the market and the company blames the distributor. Both are probably right.

The distributor is rarely the one at fault. It was hired as a channel and then judged as a strategy.

What a distributor is for

A distributor buys your stock, holds it, sells it on to wholesalers and retailers, gives them credit and collects the money. In Nigeria that is hard work: goods have to be cleared through port and hauled long distances by road, and the customers at the far end pay late, in a currency that moves. A good distributor earns its margin.

It will not decide what your product should cost or which cities to start in. Why would it? It carries other lines besides yours, and it puts its effort where the return comes quickest. That is a sound way to run a distribution business and a poor way to build someone else's brand.

So when the distributor is the whole plan, the work around the appointment is missing. Nobody studied the market before choosing. The agreement is whatever was put on the table. Sales are counted in shipments. And no one in the country answers for the relationship.

Distributor onlyone stage of four in place

1. Diagnosenot done
2. Connectdistributor signed
3. Structurestandard form, national exclusivity
4. Measureshipments only

No one in the country answers for the relationship

Distributor inside a structured entryall four stages in place

1. Diagnosedemand, landed cost, registration
2. Connectdistributor chosen to fit
3. Structureterritory, targets, earned exclusivity, exit
4. Measuresell-out figures both sides see

One person in the country answers for the whole line

Diagnose before you appoint

Before asking who should distribute the product, ask where it can win and what it costs to get it there.

Nigeria is several markets. A distributor with good reach across Lagos and the south-west may have almost none in the north or the south-east. Much consumer trade still moves through open wholesale markets, and modern retail is a smaller part of the picture than a week on Victoria Island would suggest. Then there is the price. Freight, duty, clearing, haulage and two or three layers of margin all go into the shelf price, and the shelf price decides whether the product sells.

Regulated goods add a question of their own. Food, medicines and cosmetics must be registered with NAFDAC, the national food and drug regulator, and a foreign manufacturer registers through a local representative. Choose that representative on purpose. If the registration sits with the distributor, so does much of your room to change course later.

A diagnosis answers these questions on paper before any agreement is drafted, and it often changes the brief: a different city first, or two regional distributors where one national one was assumed. Two are more work than one, and usually worth it, because reach in Lagos says little about reach in Kano.

Only then do you know what kind of distributor to look for.

Write the terms yourself

Most first agreements are the distributor's standard form, or a template borrowed from another market. Either way, they tend to grant national exclusivity on signature and say little about volumes or how the relationship ends. The exclusivity is the costly part. You have given away your main bargaining position on the first day, and what you got for it was a first order.

A structured agreement is specific on four points.

• The territory is named: the states or cities the distributor already serves, with more added as targets are met.
• Targets are written down, for volume and for outlets reached. So is the stock the distributor agrees to hold.
• Exclusivity starts narrow or conditional, and widens when the targets are hit.
• The exit is agreed while both sides are still on good terms: notice, unsold stock, customer records and who holds the product registration.

Exclusivity is what a distributor earns by performing. Hand it over at signature and there is nothing left to earn.

Serious distributors tend to prefer terms like these. They show that you are committed, and that you will not appoint a rival next door the moment sales pick up.

Measure it, and give it an owner

You probably know one number: what you shipped. Stock sitting in a warehouse in Apapa has not been sold. The number that counts is sell-out, meaning what the distributor sells on, at what price, into how many outlets, and how much is left. Agree at the start which figures will be shared and how often, then go through them together every month, because once both sides read the same sheet the argument about blame turns into a discussion of what to do next.

Figures need an owner. A regional manager who flies in twice a year cannot hold a distribution relationship together, and the distributor's account manager does not work for you. Someone in the country has to visit outlets, check prices, sit in the monthly review and raise problems while they are still small. An employee can do it. So can a local partner with a mandate. Both sides just need to know who it is.

Diagnose, Connect, Structure, Measure. Those are four of the ten stages in the method we use, and the distributor only comes in at Connect.

A distributor chosen after a diagnosis, held to a clear agreement and measured on shared figures is a sound route into Nigeria, or into any market where distance and credit make direct selling impractical. Appoint the same distributor first and leave it alone, and what you have is a first customer. Possibly your only one.