---
title: "Who Should Pay for Market Promotion Costs?"
description: "The most common dispute between manufacturers and distributors is who should bear market costs. Manufacturers argue they've already invested in product development and brand building, while distributors believe they shouldn't fund long-term market cultivation. The solution is to divide costs into network-building costs (borne by distributors) and sales-promotion costs (borne by manufacturers), clarifying responsibilities and fostering cooperation."
author: "New Distribution"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2014-06-27"
language: "en"
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# Who Should Pay for Market Promotion Costs?

> The most common dispute between manufacturers and distributors is who should bear market costs. Manufacturers argue they've already invested in product development and brand building, while distributors believe they shouldn't fund long-term market cultivation. The solution is to divide costs into network-building costs (borne by distributors) and sales-promotion costs (borne by manufacturers), clarifying responsibilities and fostering cooperation.

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Among the many conflicts between manufacturers and distributors, the most common is probably the question of who should pay for market costs. Doing market work requires money, such as various distribution costs, promotion costs, personnel costs, material costs, advertising costs, etc. So, who should pay for this?

**Different Perspectives from Manufacturers and Distributors**

Manufacturers believe that as the creators of the product and brand, they have already made significant investments in product development and brand advertising. They chose to cooperate with distributors because of the mature local resources distributors possess, and they have also reserved sufficient profit margins for distributors. Therefore, distributors should bear the relevant sales costs. This is a necessary prerequisite for distributors to make money in their own business—without investment, how can there be returns?

If manufacturers still have to spend money on specific market building locally, they might as well do direct sales themselves, making distributors meaningless. After all, manufacturers are not incapable of doing market work; technically and cost-wise, it might not be a problem. The core reason for cooperating with distributors is to save costs.

Distributors, however, think differently. In the manufacturer-distributor cooperation process, distributors first pay manufacturers for goods, meaning manufacturers take money first. Then distributors sell products to downstream customers to earn money. In terms of order, manufacturers earn from distributors first.

In terms of profitability, due to information asymmetry, distributors often believe that the per-unit profit manufacturers earn from them exceeds what distributors earn from downstream customers. In terms of complexity of earning money, manufacturers have it much easier: distributors pay upfront for goods, while distributors often deliver goods to downstream customers before receiving payment. Manufacturers ship full truckloads to distributors, while distributors deliver to downstream customers in small, scattered quantities.

In summary, from the distributor's perspective, considering overall profit margins, manufacturer-distributor relations, brand ownership, and future variables, distributors prefer to only take on the sales function. Within their controllable scope, they sell what they can and earn what they can, without the responsibility or obligation to help manufacturers with long-term market cultivation.

Especially when funds are limited, distributors cannot treat all agency brands as key sales targets, nor will they fully expand distribution, nor necessarily follow the manufacturer's wishes for key recommendations. If the manufacturer requires full expansion and enhanced promotion, then the costs should naturally be borne by the manufacturer. Besides, the manufacturer has already made a lot of money from the distributor, so isn't it only fair for them to invest a bit?

Both sides have their reasons and are confident, leading to endless arguments. A lot of time and energy is spent on bickering and shirking responsibility rather than on the market. In the end, when performance is poor, they blame each other.

**Determining Who Pays Based on the Biggest Beneficiary**

Actually, from an objective standpoint, this issue is not complicated. We can clarify the responsibilities of manufacturers and distributors by establishing clear criteria, thereby determining who bears the relevant costs. We can divide various market costs into two types: sales-promotion costs and network-building costs.

Network-building costs refer to investments in building the sales network, including developing downstream sales outlets, establishing cooperative relationships, building customer relationships, providing basic services (new product recommendations, delivery, basic display maintenance, returns and exchanges, etc.), and the resulting personnel costs, vehicle costs, relationship costs, and management costs.

This sales network building is within the distributor's own scope of work. Without this sales network, distributors would have no means to make a living, and manufacturers would not approach them. Therefore, network-building costs should be borne by the distributor themselves.

The other type is sales-promotion costs, which are investments necessary to promote the sales of specific products in the local market and enhance brand upgrading. For example, fees for entering specific terminals, costs for exclusive special displays, costs for exclusive promoters, costs for exclusive activities, and costs for exclusive brand advertising. These efforts are entirely for the manufacturer's product sales and brand enhancement. The ultimate beneficiary, or the greater beneficiary, is the manufacturer, so these related costs should be borne by the manufacturer.

By separating network-building costs and sales-promotion costs, manufacturers and distributors can divide their responsibilities accordingly, each determining their investment plans and implementation schedules. This way, the rights, responsibilities, and benefits of both parties become much clearer, and everyone can focus more on the market, working together to achieve performance and earn money from the market, rather than bickering and shirking responsibility.

**Extended Thinking: The Consequences of Distributors Not Taking Initiative**

Distributors rely heavily on their downstream sales network for their livelihood. This sales network is the distributor's capital, and it should be funded by the distributor themselves. It doesn't make sense to ask the manufacturer to pay for it. However, some distributors are accustomed to relying on manufacturers and lack initiative, which will inevitably lead to many problems in their future development.

**Not Taking Responsibility Will Gradually Lose Resources.** Some distributors push all costs onto the manufacturer, refusing to act unless the manufacturer pays. This is somewhat unreasonable. If this style continues, manufacturers will view the distributor as backward-thinking, petty, unreasonable, and greedy, and likely no manufacturer will want to cooperate with them in the future.

Of course, some manufacturers are generous and, while covering sales-promotion costs, also contribute to network-building costs. For example, they might use new product promotion opportunities to help distributors develop new outlets, or use channel promotion opportunities to help distributors strengthen customer relationships. To be fair, distributors should be grateful for such things and not take them for granted. If they get used to it and develop a habit, they'll wait for the manufacturer to spend money before developing new outlets or strengthening terminal relationships, which is wrong.

**Team Culture Will Become a Culture of Asking for Handouts.** Some distributors habitually ask manufacturers for resources and fees. Over time, the distributor's sales staff also learn from this. The boss asks the manufacturer for resources, and the salespeople ask the boss for resources, copying the boss's approach of asking the manufacturer for money and applying it directly to the boss, saying that the current market and customers can't move without resources and fees.

As a result, the resources and fees the distributor boss gets from the manufacturer are quickly taken away by their own sales staff, leaving the boss with nothing. Worse, over time, the sales staff develop a mindset that they need fees and resources to do market work, rather than relying on sales skills. Consequently, no one focuses on learning and improving sales techniques, and ultimately, sales performance is not achieved through skill but bought with money.

**Cooperation Leads to Win-Win.** Business requires rules. Asking for fees should be justified and reasonable, and it should make the other party happy to pay. Distributors can proactively explain to manufacturers: since we've established a cooperative relationship, we should face the market together. I, as the distributor, will be responsible for basic distribution, basic displays, and basic advertising. For brand promotion and sales-driving work, we should invest together and face it together, jointly achieving sustained performance and returns in the local market.

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