The locations you choose to sell your products can make or break you, based on how they affect your profit margins and brand. Creating a product distribution strategy should include a careful analysis of where your target customers buy similar products so you can make it easy for them to find and purchase from you.
Distribution channels are places and methods of selling a product. Write a list of the different options you can use to sell your products, including using third-party distribution channels. Your options might include:
•Brick-and-mortar stores •Your website •Third-party online stores •Catalogs •Direct mail •Wholesalers •In-house or contract sales reps •Direct-response advertising •Telemarketing
Review your target customer profile. In addition to demographics such as age, sex and income level, evaluate your target customer’s need for your product. This will tell you to what lengths your customer might be willing to go to get what you’re selling. This will also help you assess where your customers are likely to shop. For example, younger customers are more likely to use smart phones for shopping, while older buyers might be more willing to purchase from a direct mail flier or catalog. Consider holding a focus group or taking a survey of your target customer to find out where she prefers to purchase your type of product.
Look at where your competition is selling. This can tell you where competitors are getting most of their customers. Put more stock in the strategy of an older company that has had years to assess the marketplace than in the strategy of a new competitor trying to break into your marketplace.
Evaluate the total expense of using each of the distribution channels on the list you created. For example, selling on your website will require shopping cart software, staff to process the orders, credit card processing fees and shipping expenses. Using a wholesaler will require you to ship the items to the wholesaler, pay a commission and possibly support the wholesaler with printed sales materials and staff training. Using direct mail or catalogs might require you to spend money on graphic design, printing, mailing list purchases and mailing services. Contact and negotiate with potential partners during this stage.
Some distribution channels might generate more sales but increase your expense per sale. Other places you can sell might reduce your sales but offer you such low selling costs that you make a higher profit. Run scenarios that evaluate the likely effect on total unit sales and profit margins to determine how each potential distribution channel might affect your profits.
Examine the impact any distribution channel will have on your brand, or image. If you make an upscale product, selling it in a big-box store can cause your customers to question whether you make a superior product. Allowing a third-party online retailer to sell your product associates you with that e-tailer’s brand and reputation.
Once you know exactly who your target customer is, what his image of your brand is and where he shops, choose the distribution channels that make it easy for him to get your product, don’t damage your image and are cost-effective at providing the profit margins you need. Consider testing new distribution channels before you commit to them. For example, you might try a distribution channel in one geographic area or test one via an invitation to a small percentage of your customers.