- What is a distribution channel?
- Why are distribution channels important to my business?
- How can I find the right distribution partner?
Picture Trey’s Tonics, which sells delicious flavored beverages to local stores. It’s a ton of work, as Trey’s small team handles production, pickup, and delivery.
Unfortunately, this doesn’t leave Trey a ton of time to develop new flavors, which is why he got into the soda business to start. Plus, some of the stores he sells to have suggested there’s a bigger market out there for Trey’s bottles of bubbles.
Trey has thought about getting someone to help him distribute his tonic and expand his business, giving him more time to work on new flavors (many of which involve blueberries for some reason). But how can he get his product into more peoples’ hands?
Let’s find out
Every business needs at least one way to get their products or services to customers- a “distribution channel.”
If you’ve got a business, it’s important to ensure your distribution channels make it as easy as possible for people to get your goods while still allowing you to pull in a profit.
Now, whether your business is struggling to find customers or already doing well, increasing distribution can help you grow by making it easier for people to find your stuff.
This can mean either relying more on a distribution channel you already use or finding a new one. That’s why it pays to know about what channels are out there.
Distribution is generally broken down into 2 categories:
- direct (channels that you control)
- and indirect (channels that you, well, don’t).
With direct distribution,
you’re selling directly to your consumers. For example, a shoe brand that uses its own website, brick-and-mortar store, and mail-order catalog to get shoes onto their customers’ feet is all in on direct.
Direct distribution allows you greater control over selling your products – you can set the price, oversee marketing, and form strong customer relationships. But it might also mean that fewer people are exposed to your business.
Indirect distribution channels
are resellers who buy your stuff and then sell it to the people who actually use it. Like sci-fi aliens, they come in many forms.
Retailers, for example, buy and resell your products directly (like grocery stores with their rows of cereal). Wholesalers, meanwhile, buy in bulk from various producers, store the products in warehouses, and then resell to retailers.
Value-added resellers (AKA VARs) package different companies¡¯ products into a single item. Computer chip manufacturers, for example, sell to VARs like Compaq, Dell, or Apple, who put the chips into devices that they then sell to the public.
Someone who gets your goods out there in return for a percentage of the sale is known as an affiliate, while manufacturers¡¯ representatives sell products from a range of different makers to customers in a specific industry or region.
If you’re thinking about increasing your distribution, start by looking at the channels you’re already using. Just expanding on those could bring in more business.
If that won’t give you the results you want, consider something new.
To figure out a new distribution channel to use, start by considering your customers.
See, some distribution channels might look perfect based on their reputation, but if they don’t actually help your buyers get your goods, what good are they?
Ask yourself some questions about your ideal customers (the people most in need of your products and services).
- Where do they live?
- Do they generally shop online or in physical stores?
- Do they need your goods fast or can they wait?
Answering these questions can help you evaluate potential distribution channels critically, since you can see if the channel actually offers you the chance to reach the people who might buy your stuff.
Let’s return to tonic trader Trey, who’s developed a tamarindo flavor he thinks will appeal to people in Costa Rica. Finding a distribution channel that can help him tap that country’s market could help him satisfy their thirsts.
Aside from your customers’ shopping habits, there are other factors to consider when deciding how to make your distribution dreams come true.
Study what channels your competitors use. Trying a method they haven’t considered might help you reach new customers. But using the same channels could help people find your company when they search for a similar brand.
It’s also important to consider how much money you have to spend on new distribution. Entering certain channels can come with a price – for example, working with wholesalers often means needing to ramp up production.
On the subject of costs, you may need to pay to add more staff who can handle the relationship with a new channel. You might also need to spend your own valuable time learning how to manage its ins-and-outs.
look into how easy it will be to get started with a new channel. It might take your business a while to get established with certain retailers, or you might need time to ramp up your manufacturing to get the volume a VAR needs.
make sure new channels don’t conflict with other distribution channels you use. Say you sell your products at small boutiques and suddenly sign on with a big box store – your sales in those boutiques might suffer.
you’ve chosen a distribution channel. Now, it’s time to pick a partner (a company working in that channel that can help you get your stuff out there).
See if your customers already buy from any of the partners you’re considering. It might make sense to just start working with this channel partner, so people don’t have to transition to something new. If not, find a different partner.
Now, just like calculating the costs of a distribution channel, it pays to assess the cost of working with a particular partner. Some might have sign-up fees or take a percentage of your sales. Others might have you pay for marketing.
You can cover some costs by raising prices – but go too high, and customers might head for the hills. See if your new partner can help you keep prices in check. Otherwise, you might have to spend your own money to keep prices reasonable.
Also, make sure your potential partner will manage their end of your relationship responsibly. Whether you have questions or just expect regular reports, you want to know they’ll provide information promptly and efficiently.
So, there’s a distribution partner you hope can be your selling soulmate. How can you help make this relationship one worth telling your parents about?
- Approach the business like you’d approach any prospective partner: Be prepared to sell them on your company a little bit, so they feel like they’re getting something out of the relationship, too.
- Don’t expect them to know your business inside and out without explaining a little. Teach your partner about your product (perhaps by providing them some sales and marketing materials).
- Still, make sure they’re going to deliver on delivering your goods. Set some goals for working together, including how often they’ll report to you and what info they’ll share with you, as they get out there and sell, sell, sell.
Assessing the strengths, weaknesses, opportunities, and threats of a new distribution channel can give you a leg up on picking the right way to go.