Distribution systems

The distribution of goods may be executed in various ways. Firstly, the typical direct distribution form is conceivable in that the goods are distributed through the own marketing division. Secondly, distribution may be carried out through indirect distribution systems, i.e. an independently operating third party, for example Commercial Agents, Authorized Dealers, Commission Agents and Franchisors.

Commercial Agent System

The Commercial Agent arranges business between the company he represents and the customers, and receives commission accordingly. The advantage of the Commercial Agent System is that commission is paid on a performance basis, i.e. after secured success, as well as the Commercial Agent being obligated to provide a report to the Principals. It should be recognized that Agency Law has been harmonized Europe wide, and that calculation of sales agent compensation is varied in European Member States. The national differences are significant when setting up a Europe wide Commercial Agent System.

Authorized Dealer System

The Authorized Dealer purchases and sales goods in its own name and on its own account. In this way, an Authorized Dealer is integrated into the distribution organization of the manufacturer, who based on a contract with the manufacturer regularly takes over goods for distribution in the Agents contract territory. In commerce the manufactures trademark is issued alongside that of the own company. The mutual contractual obligations are generally summarized within a Framework Agreement: Individual sales transactions are, by contrast, regulated in separate individual contracts.

Commission System

The Commission Agent sales in its own name, but issues invoices on behalf of the supplier. Generally, the Commission Agent has a warehouse, which is the property of the Principal, from which the goods may be withdrawn and sold. If the Commission Agent is consistently entrusted to conclude such acquisitions in its own name for a particular Contracting Partner, the Commission Agent acts as a so called Dealer. The Commission Agent remains in a continuing obligation position, which constrains it to act in the interest and on the account of its Principal.

Franchise System

The Franchiser sales goods in its own name and on its own account to end-users. For a fee, the Franchiser is provided protected privileges (e.g. trademarks, design patents, etc.) and the relevant know-how. The Franchiser regularly does not act on behalf of its own company, but that of the respective franchise. As the Franchiser is particularly dependent upon the manufacturer, based on case law, the Franchiser is in special need of protection.

For the selection of the suitable distribution system, not only are the legal aspects and conditions of the market significant, but equally the effectiveness of the distribution management and calculation of costs.

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