What is a Manufacturers Representative?
A manufacturer’s representative is a business entity working in a defined territory, selling related but non-competing products for more than one manufacturer or principal. Income is generated from commissions on sales in the territory. A representative does not take legal title or physical possession of the merchandise to be sold, which generally is shipped directly to the customer from the manufacturer.
The use of representatives brings the manufacturer an established marketing and sales network and territory saturation that accrues from a representative’s knowledge of and experience in the territory. It allows entering new markets quickly, efficiently and effectively … particularly important in a volatile industry like electronics. While one branch of the industry is maturing, standardizing, turning to more routine distribution methods, a new segment of the industry is coming to life, seeking a sales organization with technical knowledge and marketing savvy to create a need for its products. Representatives supply an immediate available sales force whose members are highly trained and knowledgeable of the market. It develops a broader, more stable source of market feedback. Because representatives sell a number of lines in a territory and to customers they know well, they provide a more reliable source for market intelligence. Their customers feel confident in discussing changes and opportunities in the marketplace with them, as well as airing criticisms, praise and suggestions they’d be reluctant to share with factory personnel. It establishes a highly motivated sales force. Representatives operate their businesses on commissions only. Their motivation is understandably higher than that of factory personnel who know a set income is guaranteed them regardless of their sales volume.
Through multiple-line selling the process of carrying more than one product line to market both the effectiveness and the cost-effectiveness of the basic selling function are increased. Because they sell multiple lines, representatives are exposed to more customers within the territory than factory sales people. Multiple-line selling thus creates a broader, better-defined customer base, and with more complete coverage, resulting in deeper market penetration and increased sales.
The manufacturers’ representative system eliminates the manufacturer’s expenses in maintaining sales offices. From commissions, the representative maintains a staff and office operation. Representatives hire and train their own sales people. They pay their own taxes, insurance, retirement benefits, travel, entertainment, trade show and secretarial expenses. The system establishes predictable costs of selling. Commissions are paid only after orders are shipped. It reduces marketing costs. When they sell through representatives, manufacturers reap the benefits of extra services – all at no cost beyond the commissions – such as regional sales management and sales analysis; credit reporting; product detailing; application engineering; and promotion and merchandising. In addition, reps often provide local warehousing and stocking service, if required, at far lower cost than a factory warehouse.