Markets on the move

Page 1

Frank Garrelts:

Markets on the move – trade associations as a business opportunity

an abstract in English


The book by Frank Garrelts was first published in its German version in 1998 by C.H. Beck, a renowned German publishing house. It bases upon the long lasting experience of the author in the field of cooperation in the ICT sector. Frank Garrelts successfully built up the IT trade associations comTeam and AKCENT. Both are integrated nowadays in two of Europe’s largest IT trade associations: comTeam in Electronic Partner, AKCENT in SYNAXON. What made Frank Garrelts’s book even more interesting and exceptional from the beginning on is the fact that he got engaged in and used electronic communication already in a very early stage of its development.

Contents 1.

An example: the PC market .................................................................... 1

2.

Trade associations.................................................................................. 2

3.

Services a trade association can render................................................... 4 3.1.

Coordination of purchase ................................................................. 4

3.2.

Financial services ............................................................................. 5

3.3.

Support at the point of sale .............................................................. 6

3.4.

Advertisement.................................................................................. 8

3.5.

Public relations ................................................................................ 9

3.6.

Central stock-keeping and logistics ................................................ 10

3.7.

Information and communication..................................................... 12

3.8.

Quality assurance........................................................................... 14

3.9.

Apprenticeship and further education ............................................ 14

3.10. Central services ............................................................................. 15 3.11. External services............................................................................ 17 4.

What can members do for the success of a trade association? .............. 18

5.

What can the head office do to help its members to be successful? ...... 20

6.

What can distributors contribute to a good cooperation? ...................... 21


An example: the PC market

1. An example: the PC market The PC market is a quite young market. The start of the technological development which laid the foundation for today’s PC markets was only about 60 years ago, in the beginning of the 1940s. And it took another 40 years, until PCs became a product interesting for a broader range of consumers. But from the 80s on, the PC market virtually exploded. The technical development was immense – and the same for the decline of prices and gross margins. This is a development that continues in a mild form still nowadays. IT trade has formed some specific market structures over the years. The distribution side is dominated by a small number of large companies, while the reseller’s side is more heterogeneous: You can find small PC shops, large system houses, direct sellers like Dell and of course large chains of stores selling IT products as well as consumer electronics. These chains are mostly operating internationally, e.g. MediaMarkt and Saturn (belonging meanwhile to the same corporate group), and they are the largest challenge for the small PC reseller round the corner. Here we have one of the basic reasons why channel trade associations play an important role: They offer an opportunity for unaffiliated specialist shops to survive in view of the chains’ competition and their low prices and sophisticated advertising and other marketing instruments.

1


Trade associations

2. Trade associations The first trade associations in Germany were founded in the middle of the 19th century as purchasing trade associations – the reason was as simple as it was evident: Common purchase means more procurement quantity means better purchasing conditions, above all better prices. The more trade associations emerged, the clearer it became that there are various forms of trade associations, each one having a specific background and a specific goal: •

Horizontal trade associations are usually initiated and founded by resellers and operated by their representatives. They offer a high degree of opportunities to co-decide – what makes decisions on the other hand often a difficult and long task.

Vertical trade associations are usually founded by manufacturers or distributors, basing mostly on special offers for the distributors’ customers. In many cases, these vertical trade associations become independent entities after a certain time, influencing the distributors’ activities more and more.

Franchise systems are characterised by a complete business concept which is developed by the franchisor and adopted and paid by the franchisee.

Unlike in its beginnings, trade associations are today much more than just groups of companies organising their purchases together. They play an important role above all in marketing matters, in developing a common marketing strategy for all their members. This provides an advantage both for the single member and for the trade association as a whole: also small members obtain a highly professional marketing, and the trade association has the chance to present itself as one entity towards the public. Since the mid 90s, the internet has begun to become more and more important in trade associations’ matters. The internet provided trade associations with many new opportunities in representation towards the 2


Trade associations

public as well as in addressing potentially interested companies and above all in supporting and serving own members.

3


Services a trade association can render - Coordination of purchase

3. Services a trade association can render There are various services a trade association can offer its members to make it easier especially for small companies to survive. Such services are e.g. coordination of purchase, financial services, support at the point of sale, advertisement, public relations, central stock-keeping and logistics, information and communication, quality assurance, training, central services and external services.

3.1.

Coordination of purchase

Cooperation of purchase should nowadays not only focus on the lowest purchase price, but also on good relationships with both the partners and the distributors. There are a few important conditions for a functioning coordination of purchase: •

A general agreement regarding the purchase conditions of all trade association’s members shall be fixed. Usually, distributors are ready to grant benefits like extending the term of payment or free delivery. Such a general agreement is also advantageous for the distributor and makes many things much easier for him.

Central buying means finding out the best offer for a certain product among various distributors, forwarding this offer to the trade association members and densifying their orders to one omnibus order with decentral delivery. For distributors, this is interesting as they can use central buying of trade associations as an extension for their sales activities. Additionally, many trade associations offer their members and distributors a central stock-keeping. This has advantages and disadvantages – on the one hand, this makes a trade association even more attractive for the distributors, on the other hand, it requires an own merchandise information system. 4


Services a trade association can render - Financial services

The terms of payment are usually simplified for the members of a trade association as their creditworthiness is in most cases checked thoroughly – this results above all in an extended credit period.

In many cases, trade associations are able to grant their members free delivery – which makes its much easier for the single reseller to calculate his retail price.

Rebate agreements the trade association has negotiated may support the members either through a direct transfer or indirectly through extended marketing or service activities and projects.

3.2.

Financial services

Trade associations are in Germany not allowed to transact bank business – that is why there are several possible solutions for them to offer their members financial services. •

Central settlement has several forms: Easy central settlement means that the member reseller buys from a certain distributor, the distributor charges the amount to the reseller but hands in the invoice at the bank which is responsible for the central settlement. Often, a del credere option is added to the central settlement: The central paying entity is liable for bad debt losses which may occur at the one or other member – so, the distributor is always on the safe side.

Trade associations may help create a basis for favourable leasing conditions for their members with regard to inventory leasing – office and shop equipment, exhibition pieces etc.

Trade associations also play an important role in the implementation of leasing systems the resellers can use to offer them to their customers. Leasing can be made a sales tool for the single reseller – and the trade association’s role is to fix reasonable leasing conditions for their members.

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Services a trade association can render - Support at the point of sale

Trade associations can open up interesting and serious and reputable bank offers especially in the small loan sector – so, also small resellers will be able to offer their customers the opportunity to buy on hire purchase.

And trade associations may help their members to offer their customers a debit card. Such a debit card bases on an agreement between a credit card service company and the trade association, creating a debit card tailored to the trade association’s needs.

Partnerships with a debt collection service provider are a valuable service for cases in which customers do not pay. Trade associations can initiate these partnerships for their members. As these cases are usually rare, it would not be worthwhile for the reseller to contact the service provider – and the other way round. But a trade association brings together a potential that is worth considering for a debt collection company.

3.3.

Support at the point of sale

The point of sale is the place where the interests of the seller meet the interests of the customer – it is the place that decides whether a product will be successful or not. Trade associations can and must contribute a lot to making the point of sale attractive for their members. There are several ways of supporting the reseller in his efforts at this crucial point of offering products and services to the customer. •

Brochures shall attract the customer’s attention to a certain product or service. Often, manufacturers make such brochures available for free. Also the trade association itself can create brochures and stickers with basic information and contact data of the reseller as well as some facts about the trade association. Besides that, a catalogue can help the reseller present the whole range of his products.

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Services a trade association can render - Support at the point of sale

Promotion flyers are a special form of brochures, helping to draw attention to current special offers. A trade association can help its members by promotion flyer drafts that can be adopted fully or partly by the resellers – producing such flyers in higher quantities of course makes them cheaper. Important is to choose really attractive offers for these flyers, above all with regard to the price, to convince the customer that the small reseller can keep up with the large chains.

Leitmotif flyers go beyond that – they are supposed to show particular strengths of the specialised resellers, e.g. extended service offers, environment protection. This positive impression can be intensified by showing that the reseller is part of a national network promoting these strengths, which is the trade association.

The trade association may also help their members to find a promising approach to certain target groups and to address them in an attractive way – e.g. with special flyers or advertisements.

Online shopping is an opportunity trade associations should use to attract further customers for their members. Important is that there is a link created between the trade association’s central online shop and the services and products of the resellers on site. For example, the trade association can advise its online customers while buying a certain product online of the services their members provide for these products.

Customer magazines are an interesting opportunity to inform the customers in a more detailed way about products and offers, but also about the reseller and the trade association and their philosophy. Such magazines can be entirely designed by the trade association – or a certain part may be reserved for the reseller’s news. Of course, it is important that style and content suit the target group.

Last but not least, the physical equipment at the point of sale is a deciding component in the question whether the customer feels attracted to the reseller or not. Here, a reasonable mixture has to be found, composed by the reseller’s identity which he built up over the years on the one hand and the design of the trade association with its positive supraregional recognition value on the other hand.

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Services a trade association can render - Advertisement

3.4.

Advertisement

Advertisement campaigns of trade associations show some special features: They are often financed by a manufacturer – or by several manufacturers. The first challenge is to create an advertisement that suits all these manufacturers. The second challenge is that suiting the manufacturers’ needs has to be combined with positioning the trade association within the market. And the third challenge is that the trade associations’ needs have to be considered, but also the needs of each reseller. •

Supraregional print ads are thus a balancing act. These ads should meet the following demands: focus on customers’ benefits as well as on the manufacturers’ needs and show the relation to the regional partners as well as the supraregional/national role of the trade association. Besides the content, design and style is important – it should be inventive, funny, eye-catching and professional.

Whoever thinks about advertisement spots in television should be aware of the fact that a professional TV spot requires a considerable investment and should be accompanied from the beginning on by a powerful sponsor.

Out-of-home advertising is another opportunity which might be too expensive for an independent reseller – but not for a trade association. Anyway, out-of-home advertisements require a unique brand recognition with regard to the trade association and therefore a strong and highpower trade association. At the same time, people should associate the local reseller with the adverting campaign – a difficult balancing act.

Shop handouts are an opportunity that also small resellers can afford. An advantageous method to create them is to have them produced by the trade association which may present itself in the handout, leaving one page left for the individual reseller. Such handouts will pay off given a print run of 1,000 or more. Although a simple method, handouts are often appreciated by customers as they learn more about the people they buy from.

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Services a trade association can render - Public relations

“Corporate Design” (CD) means a uniform appearance of a company or organisation towards the public (e.g. same colours, same logo, uniform clothes…). CD is geared to customers’ expectations as well as to style and preferences of the company’s owner or CEO. Therefore, it is a difficult task for a trade association to develop a really uniform CD profile.

3.5.

Public relations

Public relations are a method each company may use to inform about its activities. Although being part of the marketing mix, public relations do not belong to the advertisement sector: the PR department tries to create positive associations for the company by publishing reports and stories about the company itself, its products, activities, managers and employees. Especially the people working in and for the company are essential for public relations because they are what customers may identify with. For a trade association, publicity is an extremely valuable method to present itself – especially as it is in many cases the only way to inform the public about its work without cooperating with manufacturers or distributors. •

Central public relations are essential as the trade association’s head office is concentrating its members’ opinion and has the power to multiply the power of each individual reseller. A good PR department’s strengths are a good network, imparting the respectability of the persons the customers shall identify with and a good mixture of pure information and self-praise in its press reports.

Regional work in the field of public relations has another focus: supporting the local reseller while at the same time making a connection to supraregional topics. Press reports from the trade association’s head offices may be published also on a local level, referring to the local members. Being part of a successful association should be worth mentioning now and then – do good and talk about it!

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Services a trade association can render - Central stock-keeping and logistics

Panel discussions at trade fairs, congresses or in television are often a great opportunity for trade association managers to discuss current issues and represent at the same time their association. Usually, their participation in such events is most welcome as trade associations are channelling knowledge and enable their executives to obtain deep insights in the development of a certain industry.

The most common form of presentations is the participation in a trade fair, usually in the form of a joint trade association-member-distributor booth. Such a performance often contributes a lot to an increasing degree of popularity.

Sponsorships makes sense in certain cases, e.g. for trade associations working in the sports industry. In most of these cases, sponsorship will be organised on a local level, e.g. for local sports clubs. Sponsor is thus not the trade association itself, but its local member. What the head office can do is supporting this initiative by e.g. procuring jerseys – for several of its members and this way cheaper as if each small reseller would buy them on his own.

The trade association should become an active member of relevant associations and chambers, lobbying their members’ interests in these institutions. The members itself should also become engaged there on a regional level as networking becomes more and more important.

3.6.

Central stock-keeping and logistics

The question whether central stock-keeping and logistics is advantageous must be answered separately for each industry – but as a rough rule of thumb, it can be said that central stock-keeping makes sense, especially when combining the products of several small manufacturers. Fast and reliable stock availability is essential in many industries and may be supported by an own logistics system.

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Services a trade association can render - Central stock-keeping and logistics

Especially with regard to a core product range, products being available fast and constantly are vitally important. Large retail chains like IKEA or MediaMarkt made the consumer learn that goods can be obtained immediately or at least very fast – at the end of the day, this is a standard the small reseller cannot meet completely, but at least he should come very close. Trade associations make it much easier to grant the availability of a certain core product range, given a good cooperation with distributors and manufacturers. Of utmost important is to bind the distributors for at least two years in the beginning as the introduction stage is often difficult.

Own brand products may help create a positive image for a trade association – provided their quality convinces. This condition is the reason why one should not be too fast in introducing own brands. An alternative solution to the direct own brand option is to create an own brand with manufacturer background – the goods are produced exclusively for the trade association, but the manufacturer is still liable: This solution minimises the risks and can be recommended especially for the ICT industry. Anyway, own brands always require own logistics.

Order bundling and joint purchasing power were in the beginning of trade associations’ history the most important reason for companies to cooperate. Although this argument has lost lots of its strength for both trade associations and manufacturers, there is still one sector in which order bundling by trade associations is still very valuable for manufacturers – and subsequently pays off for the trade association and its members too: central stock-keeping plus order bundling means much less effort and thus costs for the manufacturer in providing the products.

Spot businesses are another opportunity an individual reseller could normally not make use of – you need a trade association with central stock-keeping facilities. The trade association’s head office can purchase a large amount of products for a cheap price and pass this price advantage on to its members. Due to the higher risk of such businesses, all claims and titles must be dealt with directly between manufacturer and reseller.

A comprehensive mail order assortment is something the consumer expects nowadays. For trade associations and their member resellers, this 11


Services a trade association can render - Information and communication

is a difficult branch of business. There are mainly three problems: It is complicated to allocate costs and profit, it is problematic to realise a profit at all – and the head office might start competing with its members. Nevertheless a trade association should offer central mail order, as an instrument for generating customer loyalty and against loosing customers to competitors.

3.7.

Information and communication

Information is important, but should only be seen as a first step towards communication between a trade association’s head office and its members. Information is a unidirectional process (from sender to recipient), communication is always bidirectional and offers a chance for the recipient to become a dialogue partner. Provided that both sides are willing to use communication as a positive instrument (and not as trash can for frustrations arising from the day-to-day business), both information and communication are an essential element of a fruitful cooperation within a trade association. •

Despite internet and emails, member mailings are still an essential and necessary part of the information system. It is recommendable not to collect too much information and send it in “mailing packages” to avoid beating the members over the head with information. An interesting opportunity is to have member mailings sponsored by distributors, reporting in a certain mailing exclusively about this distributor’s products and services and adding internal information from within the trade association.

Information via fax is another way to contact members and a good method to receive feedback. The percentage of those who actually read fax newsletters is quite high, as well as the response rate to surveys via fax. Important is that the info pieces are short and succinct.

Email distribution lists are the cheapest and most simple way for both information and communication – and they are of course the main 12


Services a trade association can render - Information and communication

communication medium. That means emails tend to disappear quite easily in the surge of other emails arriving every day in the inboxes. So they have to be catchy, avoid attachments and give only hints about where to find information. •

An extranet is an intranet which is open for several extern partners. It is a system providing “information at your fingertips” for all participating members and thus turning out to be an essential source for information and know-how. In a trade association’s extranet, resellers can e.g. easily access information they do not have within their team as it is rarely needed.

An informative, interesting and well-structured website is of course vital nowadays. Important is to identify the potential target groups visiting the website and addressing each of them systematically. Usually, a trade association’s website attracts three groups: resellers who are already members, resellers who are not yet members – and consumers.

Although electronic communication is easy and cheap, person-to-person communication cannot be replaced completely. Regional meetings are one approach to humanise business contacts within a trade association. The problem here is to meet the interests of all or at least most of the participants and to avoid focusing on problems from the day-to-day business.

Therefore, pertinent workshops are often more appropriate than regional meetings. These workshops make sure that there is an interested audience willing to contribute to the chosen topic and able to elaborate constructive solutions for certain challenges. Pertinent workshops are also an opportunity to align the trade association’s goals with those of its members.

The annual congress offers an opportunity to discuss future-oriented topics and the future profile of the trade association – and to motivate both the employees of the trade association’s head office and the members. An annual congress should take place in a pleasant atmosphere what raises the question of financing the meeting. Here, a balance has to be found between including distributors as sponsors and at the same time avoiding to turn the congress into a trade fair. Of course, a congress 13


Services a trade association can render - Quality assurance

should also serve as a networking opportunity especially between member companies.

3.8.

Quality assurance

Quality assurance has become a management key issue during the 1990s, especially the certification according to ISO 9000. At the same time it is too elaborate for lots of small and medium-sized resellers to undergo an ISO audit each year. The solution is that the trade association itself becomes certified according to ISO 9000 and develops an own quality assurance system based on international standards. Then it is up to the members to confirm that they will accept this system and respect and implement it in their company.

3.9.

Apprenticeship and further education

It is essential for each trade association to have well trained member companies. Bad training and apprenticeship or no further education of its employees weakens each company – and weak members are for sure not in the interest of a trade association’s head office. •

Also small companies and resellers may offer apprenticeships for young people, thus training and qualifying staff for the company’s next generation. A trade association may offer help for small resellers wishing to take on an apprentice by being a connector between the reseller and the responsible organisations and chambers, helping to fix the framework for an apprenticeship and giving further recommendations.

The trade association itself may offer seminars and workshops for further education and training, covering all topics that are of interest for the respective industry – in respect of content (e.g. new PC monitors), but also 14


Services a trade association can render - Central services

regarding methodology: how to conduct conversations with customers, sales training and so on. Besides the learning effect, the participants will also develop a higher degree of identification with the trade association. •

Telecourses offer the opportunity to arrange such seminars and workshops via video or internet, minimising travelling time and expenses. Usually the participants have to travel only once: for an exam at the end of the course.

Whether “real” or telecourses, both of them make further education and employee training affordable and much easier for the resellers when organised by the trade association. It might engage an extern training institute and negotiate advantageous conditions. In the end, seminar participants should receive a certificate and the whole education programme should be presented to the public.

Of course, special seminars for CXOs are worth including in such programmes as top managers naturally have to deal with different challenges and questions as employees on a lower management level.

3.10.

Central services

There are a lot of services that may be offered in a centralised way – from the trade association’s head office for its members. Many of them have already been mentioned before, but of course, the opportunities for central services are as manifold as corporate and entrepreneurial life is – ranging from foundation consulting to support after declaring bankruptcy. Central services may be offered either by the trade association itself or by an external service provider. •

For an individual reseller, it can be difficult and elaborate to find a management consultant specialised on the own industry and the specific situation of its company. A trade association can minimise the effort of finding an appropriate consultant and the costs of the consultancy itself by providing a pool of qualified external management consultants. 15


Services a trade association can render - Central services

An intercompany comparison among the members of a trade association helps each participating reseller to calculate its own company’s position better and more realistically and to see in which segments an improvement might be necessary. Such a comparison should always be conducted be an external service provider due to professional secrecy reasons.

A central telephone number is vital for a trade association. The telephoner can be put through to his regional contact person in one of the trade association’s member companies, but he can also answer questions and get information at this number. Usually, a trade association will outsource this service to a call centre. As for customers this is often the first direct contact with the trade association, it is important is to regularly check the quality of the service on the phone.

A central distribution logistics is important for dealing with orders that are too large for individual members. This way, a trade association is able to compete with offers of supraregional suppliers.

Major customers usually expect auxiliary services like modified terms of payment which a small reseller normally cannot offer. That is why central key account management should be an essential element in a trade association’s portfolio. Important is to establish a trustful cooperation between the trade association’s head office, the key account manager and the members getting engaged in the key account sector.

A purchase price information system including all centrally negotiated special prices and advantages comes close to the original motive of founding trade associations and is probably still one of the main reasons for independent resellers to join a trade association.

A clearing concept helps those resellers that have too many products stocked, e.g. due to attractive offers from manufacturers that could not be sold as fast as expected. They can offer these goods from a stock backlog to others members of the trade association via a central clearing instance.

Furthermore, a trade association can help its members to form providers’/ suppliers’ pools in which they can combine their products and services and thus offer one or several service packages. For these

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Services a trade association can render - External services

pools it is important to have clear rules concerning responsibilities, rights and liabilities for each participant from the beginning on. •

Lobbying activities are among the vital but thankless tasks of a trade association. Thankless as they are usually long-winded, expensive, timeconsuming and often do not produce an immediate success; vital as a trade association’s aim must be to represent its industry’s and especially its members’ interests within organisations and chambers.

3.11.

External services

Trade associations have lots of opportunities to integrate external service providers in their portfolio and thus to offer their members services on easy terms – terms the individual members could not reach when doing business alone. The sectors external service providers could operate in for a trade association are virtually unlimited, some of them have already been mentioned before.

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What can members do for the success of a trade association?

4. What can members do for the success of a trade association? First of all, it is important for a trade association’s head office to receive an immediate response to surveys as these results often form the basis for decisions. Furthermore, members can and shall be active in influencing the trade association’s policy and future activities – but the individual member should also understand that the trade association’s head office cannot fulfil each and every member’s wishes. Another point is that members should bear in mind that while they themselves usually concentrate on their day-to-day business, the trade association puts its focus also on medium- and long-term decisions. These decisions may conflict at short notice with the reseller’s current development while at the same time being valuable for the future. Essential is that the members have faith in the trade association’s work and plans, even though small mistakes may occur. Furthermore, it is important for a trade association that members use marketing offers from the head office. These marketing measures are often financially supported by distributors that wish to be presented on a broad stage in return. In case this cooperation works out, more and more marketing campaigns will be sponsored by distributors and/or manufacturers. Last but not least, there might occur situations in which a customer comes to a certain member store, expecting services for a product he has bought in another store belonging to the same trade association. In these cases, it is essential that the trade association is represented as one unit and that the requested services are rendered. This might be slightly annoying for the concerning member, especially in case a colleague has made a mistake, but in the long run, it will pay off for the whole trade association if every member

18


What can members do for the success of a trade association?

represents the trade association the same way he wants it to be represented by others.

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What can the head office do to help its members to be successful?

5. What can the head office do to help its members to be successful? A head office has to be organised in a way that it is always working for its members. Helpful might be to have the trade association certified by a quality assurance system. Open communication is essential for the success of a trade association and thus the employees in a trade association’s head office should constantly be in touch with their member companies, asking for their experiences from the front line of business and for their opinion. Constructive criticism is an essential element for advancing one’s work, so the head office should try to encourage their members to give honest statements. Another crucial point for employees in a trade association’s head office is to know and to accept that while their whole work is dedicated to develop and advance the trade association and the opportunities for the members, the members themselves do not mainly focus on the trade association. Most important to them is their day-to-day business and the challenges and opportunities that arise during their daily work in their regional environment. That is why it is so important to present certain projects and offers again and again to the members. Not every member has the time to check regularly what the current projects are – but if the information will reach him repeatedly, he might become aware of it and react. So a trade association’s head office should not cancel concepts due to little or no response in the first time after publishing them, but constantly work on integrating the members in the development – knowing at the same time that not every member can realize every idea completely.

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What can distributors contribute to a good cooperation?

6. What can distributors contribute to a good cooperation? Distributors play an important role in trade associations: Trade associations nowadays usually finance themselves mostly through central settlement revenues paid by distributors. In return, distributors expect certain advantages from the cooperation. These advantages should be clearly defined and regularly updated. The decision to cooperate with a trade association is often not an easy one to make for a distributor as it is obvious that the success of joint marketing activities is more difficult to calculate with a trade association representing independent resellers than with centrally operated large wholesale entities. And trade associations are obliged to be neutral and should try not to prefer one specific distributor to another. But on the other hand, trade associations offer a great opportunity for distributors: to reach resellers that could not be reached in case they were not a member of a trade association. Basically, distributors must have some patience, but in the long run, they will profit from cooperating with a trade association and its members. So, distributors should show the member companies their appreciation and support projects that aim at better positioning independent resellers within the market.

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