The Challenges of Multiple Distribution Channels
Selling in different locations or using different distribution methods can take your business to the next level by significantly increasing your sales and profits. Depending on which distribution channels you use, however, the increase in sales might not be worth the administrative time and added costs. Understanding how to evaluate your distribution channel choices will help you make the right decisions for expanding your business.
When you use only one distribution channel, you have lower costs to sell and deliver your product than if you use multiple channels. For example, if you use a wholesaler, you deliver your products to him, and he ships them to the various retailers who sell your products. When you add online selling, a wholesaler, retailers you service directly, catalogs and distributors, you might need multiple trucks or expanded shipping services, paying shipping fees on multiple, smaller shipments, rather than on one large shipment.
Selling in only one place or using only one method requires much less paperwork and administrative oversight than using multiple distribution channels. Not only do you have additional invoicing and receivables collection but also logistics coordination, from production to warehousing to shipping. If you have an opportunity to add a new distribution channel, review the staff resources you will need to service the channel to make sure you can effectively take advantage of the opportunity.
The added costs of some distribution channels sometimes outweigh the additional revenues you receive. For example, adding online sales might require a website program, leasing a shopping cart, credit card processing fees, inbound telephone calls from shoppers and shipping and handling fees, such as staff time, packaging, insurance and postage or delivery charges. Catalogs require graphic design, copy writing, postage, inbound phone calls and order fulfillment. Create a budget for each new distribution channel you add, and review multiple sales volume scenarios to determine at what point you will break even and if the drain on your administrative resources is worth it. If you use distributors, retailers, distributors and sales reps, you must also factor in discounts and commissions.
When you use multiple distribution channels, you increase your customer service issues, with customers now including your distributors. When you negotiate contracts with wholesalers and distributors, determine who will handle retailer complaints. If retailers sell your product, consider your cost to visit stores to help them properly display and promote your products, your time to handle returns and questions and your cost to provide them with in-store promotional materials. If you use sales reps, you will need to train them, field questions they are getting from their customers, supply them with sales materials and administer their contracts, invoices and returns.
If you’re a high-end product, you might not want it sold in big boxes or mom-and-pop stores. If you sell online using a third-party Internet sales company, it might advertise your product on all of its partner websites, which might include sites totally inappropriate for maintaining your brand image. Take into account the effects each potential distribution channel will have on your brand, and discuss brand management with any wholesaler, retailer, distributor or sales rep you use.