Friendly Reminder: Click the blue text above “FMCG Distributor Professional Consulting” to learn more about marketing and distributor internal management. Disputes between manufacturers and distributors often arise from the manufacturer's failure to fulfill contract terms or exploiting loopholes. Generally, in such contract disputes, the manufacturer tends to hold the initiative because, in most cases, the contract terms are provided by the manufacturer. When the manufacturer originally drafted the contract, they certainly studied it in detail, so that in the event of a dispute, the terms often favor them. At the start of cooperation, how to sign reasonable contract terms is the primary condition to minimize the probability of pitfalls. So, how should distributor friends study contract terms when signing to avoid suffering losses without understanding why? First, focus on the key points when discussing the contract. The contract provided by the manufacturer often appears very standardized and rigorous, and due to the limitations of the distributor's own qualifications, most distributors will be "dizzy" and can only grasp some key issues, or only focus on market investment, while ignoring some fundamental principles. Based on my years of experience, in a contract text of tens of thousands of words, the core content that needs to be grasped during the negotiation process is actually only two parts:

  1. Basic items Agency product categories, agency region, price system, annual task volume and breakdown, initial payment, first order policy, deposit, contract duration, ordering (delivery, transportation, delivery), return and exchange mechanism, breach liability, litigation method, etc.
  2. Variable items Market support intensity, advertising investment (specific advertising plan, advertising form, total advertising volume), terminal investment (plan, amount, and form), promotional investment (plan, amount, and form), sales reward support (or rebate), market management and protection, etc. Basic items are easy to define, while variable items are easily blurred by manufacturers. Clarifying the core content helps to systematically distinguish the terms in the contract. Next, the core terms need to be communicated one by one and fully understood. Distributors may find it troublesome, but caution is the parent of safety. Regarding basic items, it is generally easier to clarify based on the manufacturer's sales policy, such as which products are being represented? What is the ex-factory price? How many kilometers of freight is included in the CIF price? ... Here, three points need to be emphasized:
  3. Regarding the manufacturer's new products. Most manufacturers develop many new products every year, especially after a product sells well in a certain market, they will develop many circulation products for high-density coverage. New product development in the liquor industry is relatively easy; changing the packaging makes it a new product, which is the so-called "new bottle, old wine." Now that manufacturers cannot sign a full-category contract with distributors, who will represent the new products needs to be discussed. Because in the early stage, you fought a bloody path through the market with the products you represented, and just when you wanted to enjoy the profits of the product in its mature stage, you were ruthlessly taken away by the manufacturer's new circulation products. Distributors are often played by manufacturers in this way. It is not wrong for manufacturers to launch new products; the mistake is that the contract does not include a clause such as "the distributor has the priority right to represent new products in that market." The manufacturer can directly seek a new agent for the new product without consulting the distributor, leaving the distributor unprepared. Many manufacturers will also ask old distributors in advance whether they are willing to represent new products, but attach many conditions that old distributors cannot accept, making them retreat, and then negotiate with new distributors. Even so, it is better than being caught off guard, because there is no room for counterattack. It can be seen that the manufacturer's new products are fiercer than counterfeit goods!
  4. Regarding the breakdown of task volume. The contract usually includes "if the distributor fails to complete the sales task for three consecutive months, their distribution rights will be automatically revoked." This sentence seems to have no problem, but in fact, it is a way for the manufacturer to leave a backdoor for secondary recruitment.
  5. Regarding the deposit. To manage cross-regional selling, manufacturers often charge distributors a certain amount of deposit. Charging a deposit is common and not unreasonable, but there are some companies that have improper purposes for collecting deposits: after collecting the money, they disappear, use the deposit as working capital, or conduct illegal financing. Therefore, distributors must be good at distinguishing. Large brands generally have strict deposit systems, but the risk is not high, while for some small brands, it is best to reduce the deposit amount to zero as much as possible. Variable items are always the most concerning for distributors, because few distributors truly understand contracts. Distributors care about how much support they can get for a payment of 100,000 yuan. Most manufacturers, when discussing market investment with distributors, calculate the market investment ratio using a "commission-based" method. After the manufacturer and distributor determine the ratio, how is support provided? For example, how much for advertising? How much for promotion? How much for personnel costs? ... In fact, it is difficult for manufacturers to detail all market investments; before forming a market launch plan, these investments are still vague. Manufacturers often use a clause like "specific market support shall be applied for by Party B (distributor) based on market conditions, and Party A (manufacturer) will invest promptly after review and approval." Faced with such a situation, distributors should best require the establishment of a joint account for market investment, with funds used exclusively for that purpose. Try to avoid clauses like "the distributor shall advance market expenses." As the saying goes: A lock can only lock gentlemen, not villains. Contracts are sometimes as helpless as locks; no matter how strict the contract, there are loopholes to exploit. If the manufacturer you cooperate with is good at exploiting, then the distributor's loss is doomed from the start of cooperation. Therefore, during the cooperation period, distributors also need to have a deep understanding of the manufacturer in many aspects, and take precautions and countermeasures in advance is the best strategy. Source: Internet --------------------------------------

Like this article? Feel free to click the top right corner to share to your Moments; About us: WeChat name: FMCG Distributor Professional Consulting Management Account introduction: 20 years of FMCG distributor operation and management experience, professionally targeting distributor internal: Click the "Read Original" below to enter our micro-community for interactive communication and questions. Learning and exchange QQ group: 344257092 Reply 1 to enter the micro official website to view historical messages. -----------------------------------------