If you have a new business and you plan on distributing products on the U.S. retail market and you need to learn the ropes, first of all you should know that for your products to be present in retail stores they need to go through the proper channels i.e. channels of distribution or retail channels. Whether we’re talking about big or small stores, they all have one thing in common – they don’t do business with anyone and it’s extremely hard to get in. The most common mistakes businesses make have to do with the underestimation of resources, effort and problems regarding selling their product through these channels. Here are some ways from which you may benefit and actually land your product in retail stores.
1. Have a good understanding of tiers. In the U.S., and not only, the vast majority of retail channels involve two-tiered distribution. So, what’s a two-tier distribution? A two-tier system will have a distributor/wholesaler plus a retailer.
2. Among the big retailers there is a tendency to buy from distributors and not from you. Why do they do this? Well, by doing this, retailers make their lives simpler. Only one bill, one payment. This, in turn, facilitates administration.
3. Distributors and retailers play hard-ball. For example, distributors are not really all that keen on new vendors given the fact that it translates into more work. This is the main reason why they will prefer to not change the status quo. Although there are exceptions, they usually stick to this rule. The same goes for retailers. Some exceptions may exist but they prefer to keep the status quo intact.
4. Most major companies that already sell into a channel prefer to sell products from existing vendors. It’s just how it is; they will always have it easier.
5. A key factor you should take into account is the packaging. This proves to be a big concern among the newly founded companies. Although this differs given the products and the diversity of the industries, most purchases are made on account of what the buyer sees or what they want to see. Vendors always recommend to the clients to read reviews and make more informed decisions, but almost in every case you cannot really decide on behalf of the buyer. Therefore, they will continue to purchase based on the packaging in the store.
6. Channels can cause you several problems. They take a big cut of the money and complicate the cash flow. Depending on the industry, the payment a channel receives varies. Make sure to find out the channel costs and act accordingly. Also, distributors take a cut of the money and the amount of time they take to pay you may not really put a smile on your face. Retailers take a large cut and they won’t be paying you because they bought from distributors. Both tiers take a good chunk of the money for co-marketing and other similar aspects. So, in most cases you shall receive a smaller amount of money per unit and it comes a few months after you’ve made the sale.
7. The costs of unsold goods will bounce back to you. In almost every case, channels insist to send back the unsold goods to the vendor. Moreover, if that’s not bad enough news, you will have to pay back the same price they paid, without allowance for the co-marketing commissions. Therefore, financial analysis becomes harder than you’d think.
If there’s ever a thing I’d say about channels is that they really don’t care about your problems or difficulties. If you’re a tough person to deal with, they prefer to find someone else to fill your spot. Selling directly? You’re in the few lucky ones. But there are some advantages of using channels: they offer branding and volume and that’s eye-candy for most. However, don’t neglect direct sales, they have extremely prosperous advantages as well.