- Coming up with your product or service is just the start. You must get it to the consumer to be successful.
- Small businesses can choose from a variety of distribution channels, all of which can impact your target market, your product price and your reputation.
- You may need to experiment with a mix of distribution options to determine the best strategy for your company to be successful.
Every small business wants to sell more. Rather than simply thinking of ways to get more customers into your store, start thinking of ways to get your products or services out to more consumers. One of the best ways to gain more buyers and increase revenues is to sell through additional venues.
Expanding your distribution channels can be an effective tool to increase your business. These are some advantages to broader distribution channels:
- Heftier profits: Selling to more customers can raise revenues, cut per-unit costs and boost the bottom line.
- Less risk: If you're selling through one channel, you've put all your eggs in one basket. Selling through multiple channels distributes the risk.
- Brand building: Making products available in more locations will raise consumer awareness of your offerings.
Types of distribution channels
At its most basic level, a distribution channel is the means of getting the product to the customer. According to Investopedia, "A distribution channel, also known as placement, is part of a company's marketing strategy, which includes the product, promotion, and price.” Distribution channels are part of the downstream process, as opposed to upstream components (supply chain). A distribution channel can be short or long, simple or complex, depending on whether it leads directly from the company to the end consumer or has several intermediaries. The number of parties involved in the channel can also impact the ultimate price to the consumer and/or the profit to the selling entity.
Distribution channels can include the elements of producer, wholesaler, retailer and consumer. Only the producer and consumer are required, as a producer can sell directly to a consumer with no intermediary for a short, simple distribution channel. This would be the case if you sold your product in a small storefront that you run yourself or via mail-order business.
It is important that the distribution channel be the right one for the product, or that the customer have options to suit their needs. For example, if a consumer is likely to want to see and feel the product before buying it, then a retail intermediary is probably necessary, as opposed to a strictly online purchasing opportunity. If the item is sold in bulk and frequently reordered, requiring tremendous storage capacity, a wholesaler may be a better approach. But a small, simple item that requires no explanation or inspection prior to purchase might be cost-effectively sold online.
As small business expert Sam Ashe-Edmunds points out, a combination of channels is likely the best approach, but make sure that you are not stepping on your own toes. He points out that you have to protect your brand and align your distribution channels with the brand stature you want to present. A high-value brand does not belong in a supermarket, for example. Similarly, if your product image includes a high level of personal service, online sales is not the right channel for your company.
Consider these channels in any number of combinations to find the ideal mix of distribution points, depending on your products and customers. You can also choose to offer some of your products via one channel, while reserving others for a different method of sale.
Retail
Take advantage of the marketing and advertising power of existing retailers by placing your product with them. Depending on your product, the best option for this type of distribution channel may be specialty stores or department stores.
Wholesale
If you manufacture your own products, wholesalers may be an ideal choice to broaden your product base. The advantages of this distribution method are many: Wholesalers buy in bulk, which increases your bottom line and reduces your storage needs, and they often have transportation networks in place, which relieves you of the cost and hassles of moving your products.
Sales reps
Consider hiring sales reps to widen your reach. By choosing reps who work independently, you can avoid the costs associated with opening additional offices in targeted areas.
Direct marketing
This can open up your products and services to a local, regional, national or even global audience. Flyers, brochures and postcards are common tools to open up direct mail channels, or you can try to get your product placed in a big-name catalog.
Telemarketing
Opening up a telemarketing distribution channel can give you access to consumers nationwide without the expense of opening retail locations. Telemarketing requires trained staff, however, which can raise costs.
Internet
E-commerce is growing all the time. Look at selling through well-known marketplaces and up-and-coming comparison-shopping sites.
International
International markets can offer higher profit margins and big growth. However, they can come with significant cultural barriers and bureaucratic hassles, according to Export.gov.
- There's no magical solution. The best channels for your company depend on your market, your product and what your competitors are doing.
- Start small. Learn one channel before you move to the next.
- Automate. More channels mean more administrative details to juggle, so ease the load by automating processes as much as possible.
- Consider cultural issues when going overseas. China and India are high-growth markets, but they also come with obstacles.
- Big-box retailers have pros and cons. Chains like Walmart, Target and Best Buy can be your ticket to the big time, but they're also notorious for playing hardball with vendors. They'll look for any chance to penalize you for mistakes, such as an incomplete bill of lading or an inaccurate UPC code.