Dealer and Distributor - Definition, Difference and FAQs
Often the products that you buy from your neighbourhood super-mart or purchase on online shopping sites involve a long chain of distribution from many sources. Delivering goods to the final destination, say the supermarket in your area ,requires several channels, involving dealers and distributors. This long chain is called a supply chain, and it comprises a number of intermediaries, between the manufacturer and the customer.
Though there are a number of differences between dealer and distributor, the difference can be expressed in terms of the number of goods each of them have on hand.
Often the products that you buy from your neighbourhood super-mart or purchase on online shopping sites involve a long chain of distribution from many sources. Delivering goods to the final destination, say the supermarket in your area ,requires several channels, involving dealers and distributors. This long chain is called a supply chain, and it comprises a number of intermediaries, between the manufacturer and the customer.
Though there are a number of differences between dealer and distributor, the difference can be expressed in terms of the number of goods each of them have on hand.
Who is a Distributor?
A distributor is a person, entity or selling agent who works independently to sell the products of a manufacturer, and is bound by a financial contract. They act as the middleman in the entire supply chain process and are directly connected with the manufacturer.
To explain further, it is essential to understand the process of distribution first.
What is Distribution?
A particular company, brand or manufacturer’s products and services are made available for purchase to customers through various means. These could be online e-commerce sites, telemarketers, multiple retailers or a real storefront, like the supermarket mentioned above.
The entire process involves many individuals and agents, who ultimately ensure that the product is successfully delivered to or purchased by a customer. A distributor makes sure all goods are supplied to the whole market.
He or she acts as an agent who has direct contact with the manufacturer or brand entities. Finally, they purchase these products from the manufacturers and sell them to various other buyers which include retailers and other parties in the supply chain.
It is useful to know that a distributor is usually appointed to work by the manufacturing companies themselves. This is part of the marketing strategy, which also authorises these middlemen to act on their behalf in specified geographical areas. Products and services are usually bought in bulk, and a distributor then sells them to other businesses and retailers.
Along with selling the commodities, a distributor is legally bound to offer a number of services like repair and replacements, technical support and after-sales services.
Depending on the power of the distributor, and the brand involved, a distributor may be entitled to sell only one brand of a product in an exclusive territory, or may have many brands to sell in larger areas.
Another type of distributor is the contract distributor who buys products from a manufacturer, combines them with other products, thus increasing the total value and then resells them. Therefore a contract distributor is different from wholesale distributors in the sense that, wholesale distributors only purchase products, while contract distributors combine them with other products from different producers.
Who is a Dealer?
A dealer is an individual who actively purchases goods from manufacturers and then sells them off as part of their account or stock. To put it simply, a dealer is someone who deals with the trade of a particular item or commodity. He or she indulges in commercial trading for themselves, as a part of their business.
For example, when you go to the nearest electronics shop to check out the latest smartwatches, you’ll know you are talking to a dealer.
Another definition of a dealer is the middleman between the consumer and the distributor is the dealer. They too, like distributors, are authorised to sell these commodities in their particular area.
What makes a dealer different from other middlemen is that a dealer can always attract customers loyal to other dealers or from a different area. For example, if you decide to visit the pizza chain outlet five blocks away, instead of the one in your neighbourhood, you know the dealer has successfully attracted you.
A dealer can sell products and items of the rival, competing brands, out of which some will have more customers, and some, a weaker customer base. He or she makes a profit out of selling these at a higher price than what he purchased for.
Dealer vs Distributor
While both a dealer and a distributor forms an essential part of the supply chain, there are several significant differences between the two that can be summed up in the following points.
A dealer pacts with specific types of products while a distributor is an individual who supplies certain types of products to the market.
A dealer connects distributors with potential customers while a distributor creates the link between the dealer and the manufacturer.
A dealer buys goods to sell them off as part of their regular business, from his or her own stock. Contrary to this, a distributor simply purchases products from the manufacturers and sells them to dealers or retailers.
A dealer can sell off a variety of products as part of their commerce, while distributors usually strictly deal with a single category of products.
Dealers are faced with stiff competition. This is hardly the case for distributors.
While the above points clearly explain the underlying differences between dealers and distributors, the following table can help you to further understand them.
Premise | Distributor | Dealer |
Definition | An individual or business enterprise supplying goods to dealers and other retailers | A person or business enterprise buying and selling goods to customers |
What is their function? | A distributor buys products directly from the manufacturer. | A dealer purchases products and sells them off as part of their own business. |
Role | Agent/Middleman | Principal |
Connects | Dealers and manufacturers | Consumers and distributors |
Deals with | Diverse products | Products of a specific type or category |
Competition | Moderate competition | Stiff competition |
Functional Area | Large | Limited/Restricted |
If you are curious to know more about dealers, distributors and the entire supply chain process, sign up for Vedantu’s live online classes and demo tutorials to gain an extra edge. With fun quizzes and live student interactions learning is made easy with the Vedantu app. Have your doubts solved instantly by our live doubt counsellors and get exam ready with our range of superior study material, all available in PDF form.
Can the Distributors and the Dealers be Authorised?
To answer the question properly you need to understand what kind of jobs are carried out by the distributors and dealers. The distributors purchase items from the manufacturers and sell them to the dealers or the retailers. The dealers purchase the products through the help of the distributors and then sell them on their own. Dealers can also be authorised distributors if they purchase items from a company and the manufacturers of the company have sold their products through the dealers. The authorised dealers ensure to maintain the quality of the products.
How to Start a Dealership Company?
In order to start a company, the dealers must decide the type of products they want to purchase and sell to the customers. They should contact the distributors and suppliers who are reliable. The dealers must set up a suitable workplace and invest to build and grow their network properly. The dealers must be careful while designing the purchase policy and they should also analyse every time how their performance and dealership business is going. It is very important for the dealers to maintain a good relationship with the customers and to make them trust their products and services. Over the course of time, their dealership business will grow.
FAQs on Dealer vs. Distributor: Key Differences
1. What is Dealership?
A local business that sells products at the retail level, based on a legal dealership contract with the manufacturer or producer, is known as a Dealership.
2. What is the Difference Between Franchising and Dealership?
Franchising involves selling products that are made in franchise outlets. A franchise owner has to buy a fixed number of products from the franchiser or main company.
A dealership involves selling already manufactured, packaged goods, as part of regular business. A dealer sets his or her own goals and is not contractually bound to buy a fixed number of goods every day.
3. What are the things that should be clarified before making a contract with the distributor?
Before finalizing any contract with the distributors, certain things should be clarified beforehand so that additional hassle can be avoided in the future. A distributor should have a fair idea of market demands and the preferences of the audience. The distributors should have the ability to distribute the purchased products to the retailers or the dealers within the prescribed time period.
The distributors should be able to maintain long-term relationships with the customers and with the people from whom they are purchasing their products. That is why it is extremely important to clarify certain things beforehand such as the company details of the distributors. The ability to supply multiple products at different places and the ability to deliver the items timely.
It is also very important to clarify beforehand whether the distributors have the knowledge of market demands or the customer preferences. The distributors must be able to maintain good relationships with the customers and purchase products depending on the market trends. These are some of the important factors that distributors must be good at.
4. What are the factors that make a particular distributor a good distributor?
Distributors should always remain updated about the market trends and the preference of the audience that is not constant. The trends are rapidly changing with every passing minute and the customers do not generally stick to one item while purchasing. The job of the distributors is to cater to the individual taste of the customers and provide them with a unique experience of purchasing.
The distributors must have good communication skills. On the basis of that, they can identify the buying patterns of the customers. The distributors should also have the ability to make changes in their pattern of purchasing items depending on the requirements of the customers. It will help them to grow their business as they will earn the trust of the customers.
Moreover, a good history of financial stability can also help them to grow their business. The distributors must be good at managing the payment timeline and carrying out the transactions with different sellers. Distributors also need to have the prerequisites to sell a particular product properly along with having competency in operating technological devices that will help them to manage their information regarding the customers and purchase. Most importantly, the sales history and good performance as distributors can help them to grow their business as well.
5. Is there any difference between the dealership and franchise?
There are some basic differences between the pattern of work carried out by the dealers and the members of a franchise. A dealership company can be run by an individual whereas the franchise is run by a particular franchisee. Any individual entrepreneur and independent marketer can run the dealership company. The members of a franchise cannot follow their own rules because they have to follow the rules of the company that are prefixed by the members of the board of directors.
The owner of the dealership company can make changes in their work pattern depending on the requirement. But the members of the franchise will have to go through some legal steps and procedures before making any changes in the work pattern because it represents the ideology of the company itself. If you want to know more about the work pattern of the distributors and dealers, then you can go through the other articles published on the website of Vedantu as well.
