Distribution Agreements
Business & Commercial
Legal Advice For Distribution Agreements in Newcastle NSW
A distribution agreement manages the relationship between suppliers or manufacturers and distributors. It is crucial both parties understand the key terms of a distribution agreement, as terms may vary depending upon the specific arrangement between the parties. Businesses may use distribution agreements as a vehicle to get their products on the market.
Other business may appoint a distributor to gain knowledge from their expertise, or to have shared access to customers lists and market contacts.
The key terms of a distribution agreement should outline:
- The product to be distributed;
- Appointment of the distributor; and
- Any obligations each party have in relation to the marketing, sale and distribution of the product.
Burgess Thomson can help draft or review the key terms of a distribution agreement.
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Frequently asked questions
What does Exclusive or Non-Exclusive Appointment mean?
An exclusive appointment means that a distributor is the sole distributor of the product. The distributor can be exclusively defined to a specific area (such as a state, country or region). These appointments can be beneficial for businesses that wish to have a distributor represent them in an area where that distributor has particular familiarity or market presence.
A non-exclusive appointment means the distributor is not the sole distributor but can operate alongside other distributors (potentially including the supplier or wholesaler). This can lead to competition within the distribution network.
Do distributors have minimum standards or performance?
In many exclusive distributive agreements, suppliers or wholesalers may require the distributor to maintain a level of performance. This performance is often on the basis of revenue targets or minimum purchase orders. These clauses help justify the exclusivity of the agreement. A minimum standard or minimum performance also helps codify the appointment of additional distributors if the sole distributors fails to meet the standards or performance in a specific area. Minimum standards should ideally be agreed upon by both parties. Determining the standards before the distribution agreement commences ensures that both parties are aware of the obligations they must fulfill.
Who is responsible for the marketing and promotion in the agreement?
The distributor, the supplier/wholesaler or both parties may be responsible for marketing and promotion. The supplier/wholesaler may require the distributor only use specific assets to market or sell the products for distribution. They may also stipulate that the distributor follow guidelines relating to branding. Distributors may also be obligated to undertake additional marketing or promotional activities.
Additional activities may include:
- Attending trade shows;
- Creating the marketing or promotional materials or;
- Attending to customer visits or training events.
If it is an exclusive arrangement, the distributor is likely to have more obligations regarding promotion and marketing. The obligations will also depend on a range of factors, including the nature of the products being sold, the amount of control the supplier or wholesaler wants to retain over their brand and their reputation in the market.
